Context: In a bid to increase Indian exporters’ utilisation of the India-ASEAN Free Trade Agreement, which is way below 50%, the government is collecting inputs from the industry to understand the possible reasons behind the underutilisation or non-utilisation and rectification of the issues.
Relevance of the topic:
Prelims: About India-ASEAN FTA.
Mains: Reasons behind the underutilisation or non-utilisation of INDIA-ASEAN FTA.
India-ASEAN Free Trade Agreement
- Formally known as the ASEAN-India Trade In Goods Agreement (AITIGA).
- Signed in: 2009, Bangkok. Implemented in 2010.
- Aim: To promote free flow of goods, enhance economic integration, and strengthen bilateral ties through: elimination or reduction of tariffs, improved market access, deeper economic cooperation.
- Members: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia.
Key Features of AITIGA:
- Coverage: Only trade in goods (services & investment covered in later agreements)
- Tariff Reduction: Phased reduction/elimination on over 80% of tariff lines.
- Sensitive List: Countries can maintain “sensitive” and “exclusion” lists for protection.
- Rules of Origin (RoO): Minimum 35% value addition & change in tariff subheading is required.
- Safeguard Mechanism: Allows re-imposition of tariffs temporarily to protect domestic industry.
- Dispute Settlement through consultation and mutual resolution mechanisms.
Evaluation of AITIGA:
- It has resulted in a steady widening of the trade deficit between India and the 10-member bloc.
- India’s exports to the ASEAN bloc declined 5.7% to $38.96 billion in FY25. While imports increased 5.6% to $84.16 billion, increasing the trade deficit to $45.2 billion in FY25 from about $8 billion in 2010.
- More than half the exports taking place from India to the ASEAN countries are happening outside the free trade framework with exporters paying regular import duties (MFN rates) and not the preferential or zero-duties agreed under the pact.
Key Challenges in Utilisation of AITIGA:
- Underutilisation of Duty Benefits: Less than 50% of Indian exporters use the FTA benefits.
- Lack of Awareness: Many small exporters are unaware of procedures or benefits under AITIGA.
- Complex Rules of Origin (RoO): Difficulty in understanding and meeting origin criteria for COO certification.
- Procedural Delays: Delays in obtaining Certificate of Origin (COO).
- Conflicting interpretations of rules between Indian and ASEAN authorities.
- Difficulties in customs clearance process and inconsistent guidance from logistics providers, agents, or consultants
Government Reviewing AITIGA:
- Exporters were asked about their awareness of COO procedures and challenges in interpreting Rules of Origin.
- Inputs sought on difficulties in tracing origin of raw materials and delays in obtaining COOs.
- Concerns regarding documentation costs, agency fees, customs clearance issues, and inconsistent guidance from intermediaries were also invited.
Strategic Significance of ASEAN for India
- Central to India’s Act East Policy. ASEAN is India’s 4th largest trading partner.
- Key to countering China in the Indo-Pacific region.
