ARTNeT CONFERENCE ASIA-PACIFIC RESEARCH AND TRAINING NETWORK ON TRADE

ARTNeT Trade Economists’ Conference Trade in the Asian century - delivering on the promise of economic prosperity

22-23rd September 2014

Parallel Session 7: Regional integration

www.artnetontrade.org

ASEAN – India Regional Integration

Prabir De

ASEAN-India Centre @ RIS, New Delhi

UNESCAP Asia-Pacific Trade Economists' Conference:

"Trade in the Asian century - delivering on the promise of economic prosperity”

22-23 September 2014, Bangkok

Major milestones crossed

Sectoral Dialogue Partner,

1992

Full Dialogue Partner,

1995

Summit Level

Partner, 2002

Framework Agreement,

2003

FTA in Goods,

2009

Comme-morative Summit,

2012

Services + Investment*,

2013

ASEAN-India trade growing, exponentially

India’s trade with ASEAN growing exponentially, 23% CAGR

US$ 7.13 billion in 2000

US$ 76.26 billion in 2012

ASEAN as India’s partner in 2012

11% export share; 9% import share

ASEAN-India FTA in goods from 2010, services + investment to be added soon.

RCEP a new hope to Asian integration; account for 21% of India’s goods export (2012)

Rise in trade in parts and components

Partner

2000 2009 2012 CAGR

(US$ billion) (%)

ASEAN 7.13 41.32 76.26 23.16

ASEAN+3 14.57 101.47 182.23 21.48

World 92.96 422.85 787.68 17.57

ASEAN

share* (%) 7.67 9.77 9.68

ASEAN+3

share* (%) 15.67 24.00 23.14 *Share in country’s total trade Source: Calculated based on DOTS, IMF

India’s rising trade deficit with ASEAN

Highest trade deficit of$ 8.75 billion at year end 2012

ASEAN-India FTA signed

01

02

03

04

0

1980

1990

2000

2010

1995

2012

2005

1995

1994

Export Import

Trade deficit (1996-2012)

US

$ b

illio

n

Note: Lao PDR's import values are missing for the year 1980 & 1981. Therefore, zero values are assigned.

India's trade with ASEAN

Country-wise India’s trade with ASEAN, 2012-13

Sr. No. Country Export Import

Value (US$ mln.) Share (%) Value (US$ mln.) Share (%)

1 BRUNEI 40.02 0.12 814.8 1.90

2 CAMBODIA 112.28 0.34 11.9 0.03

3 INDONESIA 5,331.30 16.15 14,879.49 34.71

4 LAO PD RP 28.91 0.09 138.64 0.32

5 MALAYSIA 4,444.07 13.46 9,951.06 23.21

6 MYANMAR 544.66 1.65 1,412.69 3.30

7 PHILIPPINES 1,187.19 3.60 504 1.18

8 SINGAPORE 13,619.24 41.26 7,486.38 17.46

9 THAILAND 3,733.17 11.31 5,352.61 12.49

10 VIETNAM 3,967.37 12.02 2,314.78 5.40

Total 33,008.21 100.00 42,866.36 100.00

Source: Ex-Im Databank

India’s trade with ASEAN 0

10000

20000

0

10000

20000

0

10000

20000

1980 1990 2000 2010 1980 1990 2000 2010

1980 1990 2000 2010 1980 1990 2000 2010

BRUNEI CAMBODIA INDONESIA LAO PDR

MALAYSIA MYANMAR PHILIPPINES SINGAPORE

THAILAND VIETNAM

Export Import

US

$ M

illio

n

Lao, PDR's import values are missing for the year 1980 & 1981. Therefore, zero values are assigned.

India's trade with ASEAN Countries

Post-2010, India’s fluctuating trade intensity with ASEAN

Partner 2000 2005 2009 2010 2012

ASEAN 1.24 1.46 1.59 1.40 1.40

Brunei 0.08 0.40 3.23 1.02 2.25

Cambodia 0.36 0.29 0.25 0.24 0.25

Indonesia 1.83 2.04 2.64 2.36 2.20

Lao PDR 0.73 0.25 0.31 0.29 0.87

Malaysia 1.35 1.10 1.50 1.15 1.27

Myanmar 6.73 7.72 6.65 4.68 3.62

Philippines 0.37 0.53 0.53 0.42 0.44

Singapore 1.40 2.20 1.89 1.75 1.71

Thailand 0.89 0.84 0.89 0.86 0.90

Viet Nam 1.08 1.01 0.98 1.11 1.03

India’s export to ASEAN, top 15 items HS Code Commodity

2012-13 (US$ mln.)

Share (%)

2710 PETROLEUM OILSAND OILS OBTND FRM BITMNS MNRLOTHER THAN CRUDE PRPN NES;CNTNG70% OR MOREBY WEIGHT OF THESE OILS

10,025.76 30.37

202 MEAT OF BOVINE ANIMALS, FROZEN 1,617.39 4.90 1005 MAIZE (CORN) 1,042.64 3.16 7102 DIAMONDS, WHETHER OR NOT WORKED, BUT NOT MOUNTED OR SET 937.37 2.84 2902 CYCLIC HYDROCARBONS 863.62 2.62 8904 TUGS AND PUSHER CRAFT 850.02 2.58 8905 LIGHT-VSSLS,FIRE-FLOATS,DREDGERS,FLOATING OTHR SMLR VSSLS WHRE

NAVGABLTY IS SBSDRY TO THR MN FNCTN;FLTNG DOCKS;FLTNG PL 776.2 2.35

2304 OIL-CAKE AND OTHER SOLID RESIDUES WHETHER OR NOT GROUND OR IN THE FORM OF PELLETS, RESULTING FROM THE EXTRACTION OF SOY

693.79 2.10

1202 GROUND-NUTS, NOT ROASTED OR OTHERWISE COOKED, WHETHER OR NOT SHELLED OR BROKEN

649.43 1.97

3004 MDCMNTS (EXCL ITMS OF 3002,3005 / 3006) FR THRPUTC/PRPHYLCTC USES IN MEASURD DOSESOR IN PCKNGS FR RTL SALE

482.89 1.46

8704 MOTOR VEHICLES FOR THE TRANSPORT OF GOODS 435.21 1.32 8708 PARTS AND ACCESSORIES OF THE MOTOR VEHICLES OF HEADINGS 8701 TO 400.81 1.21

7113 ARTCLS OF JEWELLERY AND PRTS THEREOF; OF PRCS MTL/OF MTL CLD 366.47 1.11

7208 FLAT-ROLLED PRODUCTS OF IRON OR NON-ALLOY STEEL, OF A WIDTH OF 600 MM OR MORE, HOT- ROLLED, NOT CLAD, PLATED OR COATED

351.81 1.07

0303 FISH FROZEN EXCLUDING FISH FILLETS AND OTHER FISH MEAT OF HEADING 329.02 1.00

Total export to ASEAN 33,008.21

Source: Ex-Im Databank

India’s import from ASEAN, top 15 items HS

Code Commodity

2012-13 (US$ mln.)

Share (%)

1511 PALM OIL AND ITS FRACTIONS, WHETHER OR NOT REFINED, BUT NOT CHEMICA 8,061.67 18.81

2701 COAL BRIQUETTES OVOIDS AND SIMILAR SOLID FUELS MANUFACTURED 6,095.98 14.22

2709 PETROLEUM OILS AND OILS OBTAINED FROM BITUMINOUS MINERALS, 2,591.90 6.05

8517 ELCTRCL APARTS FR LINE TELEPHNY/TELGRPHY, INCL TELPHON SETS WTH CORDLS HANDSET CARIER-CURENT LINE SYSTM; VIDEOPHONE

1,388.90 3.24

4403 WOOD IN THE ROUGH, WHETHER OR NOT STRIPPED OF BARK OR SAPWOOD, OR ROUGHLY SQUARED

1,358.51 3.17

2710 PETROLEUM OILSAND OILS OBTND FRM BITMNS MNRLOTHER THAN CRUDE PRPN NES;CNTNG70% OR MOREBY WEIGHT OF THESE OILS

1,163.29 2.71

8471 AUTOMATIC DATA PROCESSING MACHINES AND UNITS 927.67 2.16

2902 CYCLIC HYDROCARBONS 851.8 1.99 2603 COPPER ORES AND CONCERTRATES 821.6 1.92 8905 LIGHT-VSSLS,FIRE-FLOATS,DREDGERS,FLOATING OTHR SMLR VSSLS WHRE

NAVGABLTY IS SBSDRY TO THR MN FNCTN;FLTNG DOCKS;FLTNG PL 792.7 1.85

4001 NATRL RUBR BALATA GUTTAPERCHA ETC AND SMLR NATRL GUMS IN PRMRY FRMS/IN PLTS SHTS/STRP

773.19 1.80

8542 ELCTRNC INTEGRTD CIRCUITS AND MICRO-ASSMBLS 706.68 1.65 7108 GOLD(INCL GOLD PLTD WTH PLTNM)UNWROUGHT OR IN SEMI MNFCTRD

FORMS/IN PWDR FORM 694.42 1.62

8528 RECEPTION APARATUS,WH/NOT INCORPRTNG RADIOBRODCST RECIVRS/SOUND/VIDEO RCORDNG/ REPRODUCING APARATUS,VIDEO MONIT

688.17 1.61

713 DRID LEGUMINOUS VEG SHLD W/N SKINNED/SPLIT 662.45 1.55 Total 42,866.36

Source: Ex-Im Databank

ASEAN-India FTA •Working •Services and investment to be added soon

•Bilateral trade: US$ 80 billion in 2013 (India’s export to ASEAN US$ 35 billion, India’s import from ASEAN US$ 45 billion) •Emerging value chains, slowly •Rising deficit is a matter of concern.

RCEP •Being negotiated •Target deadline: 2015(?)

Trade facilitation (e.g. Customs cooperation)

•Unilateral initiatives •WTO TFA, signed in Bali, 2013

•ASEAN single window under implementation and India’s EDI system working already •Inter-linkages must

ASEAN-India transit transport agreement

•Proposed • Target – 2016(?) •India-Myanmar-Thailand taken-up first

ASEAN-India air transport agreement

•Proposed •High imbalance between carriers; major airlines (e.g. SQ or TG) utilise 100% slots

Overland connectivity

•Trilateral highway & extension to CLV •Railway link •MIEC

•Ongoing but slow pace •Myanmar to rebuilt Yargi to Monywa •Strong backward linkages must

ASEAN-India engagement, present scenario

ASEAN – India FTA (AIFTA) and Trade Facilitation

• Signed in 2009 and implemented in 2010

• Tariff liberalization to eliminate tariffs on 80% of the tariff lines accounting for 75% of the trade in a gradual manner

• Four tracks – normal (2 groups), sensitive track and sensitive lists

• Article 8 - NTMs

• Article 10 - safeguard measures

• Article 14 – customs procedures

– Prompt customs clearance

– Simplify customs procedures

– Harmonise customs procedures

AIFTA tariff liberalisation scheme

• Tariff lines are divided into four broad categories viz., Normal Track, Sensitive Track, Special Products.

• AIFTA covers elimination of tariffs for about 4000 products, of which – 3200 products are scheduled to have duties reduced by end of 2013

– duties on remaining 800 products would be lowered to zero or near zero by end of 2016

• The schedule of tariff reduction commitments members varies significantly: – Singapore (100%), Cambodia (88.4%), Brunei (85.3%), Philippines (80.9%), Lao

PDR (80.1%), Malaysia (79.8%), Vietnam (79.5%), Thailand (78.1%) and Myanmar (76.6%).

– Indonesia offers the lowest tariff elimination coverage at 48.7%

• Rules of Origin (RoOs) - the twin criteria of value addition – AIFTA content is not to be less than 35 percent of the fob value and a change

in tariff sub-heading (CTSH) of the Harmonized System is to be fulfilled to avail the tariff concession.

AIFTA tariff elimination schedule

ASEAN6 CLMV India

NT-1 NT-2/SL NT-1 NT-2/SL NT-1 NT-2

Jan. 2010-

Dec. 2013

(2018**)

Jan. 2010-

Dec. 2016

(2019**)

Jan. 2010-

Dec. 2018

Jan. 2010-

Dec. 2021

Jan. 2010-Dec.

2013(2018**)

Jan. 2010-Dec.

2016 (2019**)

Notes: NT: Normal Track; SL: Sensitive List **To the Philippines Source: Ministry of Commerce & Industry, Government of India

AIFTA tariff elimination schedule for special products

Base Rate 2010-2019 January 1, 2014

Palm Oil (crude)

80 37.5 60

Palm Oil (Refined)

90 45 70

Coffee 100 45 75

Black Tea 100 45 75

Pepper 70 50 60

Note: Figures in parentheses indicate tariff rates as of December, 2013. Source: Ministry of Commerce & Industry, Government of India

(%)

India’s trade potential with ASEAN+3 likely to cross US$ 500 billion by 2020

• India and ASEAN to strengthen regional connectivity and integration, particularly through cross-border infrastructure.

*Based on an augmented gravity model

Country-wise India’s trade potential Partner 2000 2009 2012 2012 2015 2018

Actual Actual Actual Potential Potential Potential

(US$ billion)

Brunei 0.003 0.511 1.002 2.143 2.897 4.022

Cambodia 0.009 0.045 0.121 1.028 1.983 3.875

Indonesia 1.308 10.736 20.261 33.443 43.439 50.328

Lao PDR 0.005 0.021 0.168 0.845 1.439 3.023

Malaysia 1.957 8.387 14.171 27.663 34.435 38.825

Myanmar 0.227 1.405 1.875 6.308 8.983 11.559

Philippines 0.249 1.017 1.610 8.852 11.032 13.011

Singapore 2.308 12.769 22.487 26.909 31.122 35.276

Thailand 0.845 4.276 8.966 18.338 21.002 25.635

Vietnam 0.220 2.149 5.599 9.918 12.983 16.230

ASEAN 7.131 41.316 76.261 135.447 169.315 201.784

China 2.207 38.995 68.878 103.328 125.902 148.232

Japan 3.783 9.572 19.202 35.654 40.542 45.111

Korea 1.446 11.589 17.894 38.181 43.992 49.652

ASEAN+3 14.567 101.471 182.234 312.610 379.751 444.779

Source: RIS

ASEAN-India FTA: Comprehensive arrangement offers higher welfare

Country Only Trade

liberalization

involving all

countries

Reduction in total trade cost*

before entering Indian market

Trade liberalization plus reduction in trade

cost* before entering Indian market

10% 20% 25% 10% reduction

in trade cost

20% reduction

in trade cost

25%

reduction in

trade cost

India 1463.5 224 461 565.9 1686.6 1930.3 2040.2

Malaysia -67.7 51 96.7 121.3 -18.6 25.4 49.2

Singapore -59.8 64.8 131.9 167.8 1.6 67.3 102.6

Thailand -116.6 21.8 42.2 52.5 -99.7 -81.2 -71.7

Cambodia -1.6 -0.4 -0.7 -0.9 -2.03 -2.4 -2.70

Indonesia 809.7 24 48.3 58.8 881 918.2 934.3

Lao PDR 0.49 -0.04 -0.08 -0.10 0.5 0.5 0.46

Philippines 13.8 0.8 1.6 1.9 11.7 12.7 13.1

Vietnam 147 0.99 1.9 2.4 152 155.4 156.9

Rest of

ASEAN

142.2 4.9 9.97 12.4 151 159.6 163.7

*Reduction of export cost from individual ASEAN countries and import cost at the entry point of India Source: Sikdar and Nag (2014)

(US$ million)

Some key barriers to ASEAN-India Trade

• High NTMs

• Inadequate infrastructure – national and regional (inadequate and poor stock and link of infrastructure)

• Lack of trade facilitation and absence of regional transit trade

• Poor border infrastructure

– Positive list for border trade

• Inconsistent and difficult border crossing formalities and procedures

• Restrictive visa regime

• Different standards on vehicles and drivers across countries

• Restrictions on entry of motor vehicles

New developments

• Production networks

• Connectivity + trade facilitation measures

ASEAN Community APSC AEC ASCC

Enhance rules and good governance

Enhance integration and competitiveness

Enhance well-being of ASEAN citizens

Narrowing the Development Gaps

People-to-People Connectivity

Tourism, Education, Culture

Physical Connectivity

Hard Infrastructure Transportation, Logistics

Facilities, ICT, Energy (Power Grid and

Pipelines), Special Economic Zones

Institutional Connectivity

Soft Infrastructure Trade facilitation, ASEAN

Single Window Investment facilitation, Services Liberalization,

Regional Transport Agreements, Capacity-building programmes

ASEAN Connectivity

Resource Mobilisation

Source: ASEAN

• ASEAN – India Eminent Persons Group Report 2012 • ASEAN – India Vision Statement 2012 • ASEAN-India Summit 2013 • Two major windows:

– FTA (software) – e.g. RCEP, Single Window in Customs, a.o » Paperless trade

– Connectivity / services links (hardware) – e.g. Trilateral Highway, MIEC, a.o

» Seamless trade • Connectivity in India on two structures:

– National connectivity [DMIC, DFC, etc.] – Regional connectivity [TH, KMTTP, MIEC, etc.]

• India’s regional connectivity with ASEAN follows two axis: – North East India [multimodal + intermodal type] – Southern India [multimodal]

Connectivity is central to ASEAN-India strategic partnership

1. Integrated check posts (ICP): Moreh / Tamu in 2015

2. Kaladan Multimodal Transit Transport Project

3. India – Myanmar – Thailand Trilateral Highway and further extension to Cambodia, Lao PDR and Vietnam

4. The new corridor: India-Myanmar-Lao PDR-Viet Nam-Cambodia

5. Rih – Tidim Road in Myanmar

6. Delhi – Hanoi Railway Link:

7. Imphal – Mandalay bus and air services

8. Mekong – India Economic Corridor

9. Sitwee SEZ and Port and IWT

10. India – ASEAN open sky*

11. India – ASEAN ocean shipping network*

12. India – ASEAN gas and oil pipeline*

13. India – ASEAN ICT link*

Important ASEAN-India connectivity projects

Key actions on soft infrastructure

ASEAN-India Transit Transport Agreement (AITTA)

– Transit and Paperless Trade

ASEAN-India Trade Facilitation Initiative

Border customs harmonization

Simplification of customs documentations

Stronger Coordination mechanism and institutional arrangement

Estimated trends in India’s trade in P&C with Southeast Asia

Source: De (2013)

Challenges

High time to trade

020

40

60

020

40

60

020

40

60

020

40

60

2005 2010 2015 2005 2010 2015 2005 2010 2015 2005 2010 2015

Australia Brunei Darussalam Cambodia China

India Indonesia Japan Korea, Rep.

Lao PDR Malaysia Myanmar New Zealand

Philippines Singapore Thailand Vietnam

Time to export (days) Time to import (days)

No. o

f da

ys

Time to export and import (Doing Business_World Bank)

Note: Missing values were treated as zero, to have Balanced Data.

High cost of trade 0

2140

0

2140

0

2140

0

2140

2005 2010 2015 2005 2010 2015 2005 2010 2015 2005 2010 2015

Australia Brunei Darussalam Cambodia China

India Indonesia Japan Korea, Rep.

Lao PDR Malaysia Myanmar New Zealand

Philippines Singapore Thailand Vietnam

Cost to export (US$ per container) Cost to import (US$ per container)

US

$ p

er

con

tain

er

Cost to import and export (Doing Business_World Bank)

Note: Missing values were treated as zero, to have Balanced Data.

High NTMs

Overall Core Non-core

Brunei 46 29 32

Cambodia 6 4 4

Indonesia 100 45 100

Lao PDR 20 20

Malaysia 43 36 21

Myanmar 100 100 8

Philippines 100 5 100

Singapore 27 21 14

Thailand 11 4 9

Vietnam 34 22 14

ASEAN 49 27 32

Overall Core Non-core

Food 63 29 51

Cheminals 59 39 36

Light manufacturing 39 18 23

Metals 37 15 25

Machineries 48 30 33

Others 48 24 28

Thai NTM on Pharma Products (HS 3003.90)

8130: labelling; 8150: inspection

Imports of medicaments are subject to product registration, labelling, advertisement control, inspection, and quarantine requirement by the Thai FDA on the basis of public health and life protection.

Food and Drug Administration, Ministry of Public Health

(%)

Singapore NTM on Pharma Products

Technical Measures-Labelling

Labelling is required for medicines (incl. Chinese proprietary medicines), poisons and cosmetic products for reasons of public health and safety.

Medicines Act (Chapter 176) - Health Products Regulation Group

TBT measures under the AIFTA: 2000 to 2013 (HS 4 digit Products)

13

166

312

225

394

224

161

462

366

11

101

72

48

28

51

42

10

41

184

62

32

76

69

0 100 200 300 400 500 600

Brunei

Cambodia

India

Indonesia

Lao

Malaysia

Myanmar

Philippines

Singapore

Thailand

Vietnam

TBT Barriers and Tariff Categorisation

Complete Preferential Access No Prerential Access Partial Preferential Access

Source: Kallummal (2014)

SPS measures under the AIFTA: 2000 to 2013 (HS 4 digit Products)

203

130

191

17

95

110

344

185

315

5

89

44

7

72

1

44

12

1

9

55

17

18

39

24

0 50 100 150 200 250 300 350

Brunei

Cambodia

India

Indonesia

Lao

Malaysia

Myanmar

Philippines

Singapore

Thailand

Vietnam

TBT Barriers and Tariff Categorisation: AIFTA

Complete Preferential Access No Prerential Access Partial Preferential Access

Source: Kallummal (2014)

Cumbersome trade procedures

• Manual customs operation at border crossings

– Building a common template for running and maintenance of transport corridor(s) and MRA on value added services.

– MRAs have to be signed on motor vehicles, driving license, vehicle certificates, insurance, etc.

Source: ADB

Taxes on domestic transportation

Journey Travel through Tax payable

(Rs.) Period Speed

money (Rs.) Departments

Delhi to Manali

When it enters Haryana 2000 6 months, multiple entry 100 Finance

when it enters Punjab 250 Single entry 150 Finance

When it enters Himachal 500 7 days, multiple entry 100 Finance When it enters Simla (Himachal) 600 7 days, multiple entry 0 Municipality When in enters Manali (Himachal) 650 8 days, multiple entry 0 Municipality

Manali to Delhi (return)

When it enters Punjab 250 Single entry 150 Finance

When it enters Delhi 300 Single entry 50 Municipality

Toll

Toll on roads, at 7 places 250 Single entry 0 NHAI, Private operators Toll on roads, at 6 places 230 Single entry 1

Sub-total 5230 550

(US$) 84.35 Share (%) 8.87

Freight (US$) 293.55

Total fixed cost (US$) 386.77 Taxes as % of total fixed cost 22

*Author’s own travel experience

Travel from Delhi to Manali by road, total distance 650 km one way

Duties collected on imports Exporter: Thailand, Importer: India, Product: ACE(HS Code 84151010)

• Consolidation of FTAs needed – RCEP is correct step forward

• But, trade liberalization must be supplemented by trade facilitation – Streamlining NTMs

– Paperless trade

• Value added services of connectivity crucial for economic integration and RVC – Economic corridor

– Transit agreement

– Air and maritime transport liberalization

• An integrated action plan for achieving a larger common market by 2020 is required.

35

Concluding remarks

Thank you e-mail: prabirde@ris.org.in