ASEAN leaders have recently announced the establishment of ASEAN ECONOMIC COMMUNITY to integrate the South East Asia’s diverse economies like European Union economic bloc.
The basic underlying principle of Asean Economic Community (AEC) is to create a single market with free flow of goods, capital, skilled labour and a competitive production base.
ASEAN is the 7th largest economic entity in terms of GDP which is $2.4 trillion.
ASEAN countries already have free trade agreements among themselves. Now, this economic community aims at political cohesion, economic integration, cultural closeness, and social responsibility among the member countries.
The economic community would provide boost to “Make in India”. The removal of tariff barriers would stimulate growth of production networks and India’s integration with them.
However, there are many challenges for AEC. For example, there is a political regime change in Myanmar; services liberalisation is not yet done fully; Cambodia and Laos are economically weaker than others; ethnic disputes; border disputes etc.
India-ASEAN Free Trade Agreement needs a review. Trade is not in favour of India. We still have trade deficit. India has higher tariffs than ASEAN does. India is looking for services and investments liberalisation to compensate for the loss in goods sector.
CEPA/CECA agreements are not doing well with few of the ASEAN countries. Most of the ASEAN countries do tough negotiations with respect to liberalisation in terms of services and people-to-people movements (Mode 4 under GATS), in which India is strong. This should be leveraged to India’s advantage, like we have done with Singapore. India has signed CECA with Singapore in 2005 and is going successfully.
In order for India to attract more FDI, it has to undertake economic reforms within the country first and integrate with the global economic structure. GST is one such component that should be implemented in a fast track mode.