India's 'flexible' approach at ASEAN

Siddharth Srivastava, New Delhi

The Southeast Asian Nations (ASEAN) summit in Kuala Lumpur last week, which was followed by the first East Asia summit, had made it apparent that the heat is on India to push through economic changes and reforms that are crucial for further synergies.

The message from the other countries is quite clear: that India is a powerhouse in biotechnology, pharmaceuticals and information technology (IT), but more needs to be done to ramp up infrastructure such as airports, roads and power, introducing trade reforms and inviting foreign direct investment in areas such as retail.

India's proposed free trade agreement (FTA) with ASEAN has run into rough weather with three nations, Singapore, Thailand and Malaysia, raising the issue of the 1,414-item negative list proposed by India.

A statement by its chairman, Malaysian Prime Minister Abdullah Badawi that was released to the press has emphasized the issue: "ASEAN is concerned on the proposal by India to exclude a substantial portion of trade from the FTA through exclusion of a large number of products from tariff concessions."

Badawi urged India to "positively consider the ASEAN's position" and stressed on the changing face of Asia: "the emergence of China and India as powerhouses, coupled with demographic changes in Japan, would almost certainly lead to a re-alignment of power arrangements."

ASEAN last year agreed to implement tariff reductions to form a unified market by 2012 and is pursuing free trade pacts with countries including India, China, Japan and Australia to expand markets for its goods. Tariffs within ASEAN are mostly in the range of zero to 5 percent, with a few exceptions, while India's peak tariff rate is 15 percent.

Prime Minister Manmohan Singh, whose economic reform plans have been repeatedly stymied by crucial coalition partners, the left parties, has been trying to put a brave front to the barrage of tough questions. Manmohan fielded tricky questions at the ASEAN business advisory council where he declared: "I would be the last to deny that everything you see in India is rosy. Old mindsets do persist. The liberalization process is also a struggle for the minds of our people, and I do believe we are succeeding."

The window of reforms in India's retail sector is not shut, affirmed Manmohan. "There are problems in opening up retail to foreign direct investment. We do recognize immense opportunities. I hope we can come up with a positive outcome in the next five to six months," said Singh, who again faces domestic opprobrium on the issue from left allies worried about millions of mom and pop shops being forced out of business by the likes of Wal-Mart.

Nobody, however, questions India's might or commitment towards IT, with India's dominance in the sector accepted by every country. Manmohan has proposed an India-ASEAN Technology Summit in 2006. India will assist some of ASEAN's lesser-developed nations in learning English, the basis of the outsourcing industry, in which India remains the pioneer.

Manmohan has proposed setting up centers for English language training in Cambodia, Laos, Myanmar and Vietnam "to equip students, civil servants, professionals and businessmen with adequate English language and communication skills."

Indeed, India has realized that there is a lot at stake for India, despite Manmohan's domestic political compulsions. East Asia accounts for one-third of India's trade, making the region a more important trading partner than the EU or the U.S. There has been a rapid change in trade with China, which is India's second- largest trading partner. Indo-ASEAN trade at US$25 billion is growing at 30 percent per annum. ASEAN has a combined gross domestic product of $800 billion and a population of 558 million.

ASEAN comprises the 10 countries Indonesia, the Philippines, Malaysia, Thailand, Myanmar, Singapore, Laos, Vietnam, Cambodia and Brunei. Japan, China and South Korea called the "three plus" along with India, Australia and New Zealand are involved that forms the basis of expansion of ASEAN region into an east Asian union.

According to a comment in the Indian Express: "even if an East-Asian super state seems an impossibility, the future creation of a free trade zone with all 16 participants is a distinct target. The movement towards that goal has already begun. China has become Japan's largest trading partner, and a FTA between ASEAN and Beijing will be working by 2020. With most negotiations sorted out, the Indo-ASEAN-FTA will kick off in 2007 and will be fully operational by 2016. Australia and New Zealand will also link with ASEAN."

There is recognition among ASEAN countries about the fruits of exchange with growing Asian powerhouses, India and China.

India understands that its "Look East policy," for which political foundations were actually laid half a century ago, took off far too late considering the tremendous economic development that has taken place in this part of the world. The ASEAN, established in 1967, has expanded and deepened its activities more effectively than any other regional association, except for the European Union. As the first EAS signifies, the relationship goes beyond ASEAN.

The heart of India-ASEAN relations is the economic one. India's "Look East" policy was launched around 1991. In the mid- 1960s when full membership was offered to India in a yet-to-be- established ASEAN was turned down (with a senior Indian Minister famously remarking that the country did not want to join "Coca Cola countries" in some regional experiment).

Thus, the country became a sectoral dialog partner of ASEAN in 1992, a full dialog partner in 1995, and a member of the ASEAN regional forum (ARF) in 1996. After intensive efforts to achieve parity with China, Japan, and South Korea in the ASEAN scheme of partnerships, India became a summit level partner only in 2002.

By adopting the "flexible" approach at Kuala Lumpur, Manmohan has tried hard not to repeat the mistakes of the past.

The writer is a New Delhi-based journalist. He can be reached at srivastava_siddharth@hotmail.com.