India urges ASEAN to take decisive steps for better utilisation of the free trade pact in the final stages of its review
The ASEAN-India Trade in Goods Agreement (AITIGA), first implemented in 2010, is currently under review due to low utilization by Indian exporters, particularly in sectors such as agriculture, pharmaceuticals, and automobiles.
Despite India being one of the top exporters of automobiles to Cambodia, the utilization of the preferential route for automobiles (HSN 87032191) remains low, with only 18.50% utilization in 2023. Similarly, in Cambodia, 15 out of 20 commodities analyzed have a 0% utilization level, despite a duty differential of 2-15%.
The review of the trade pact, initiated in 2023, has not yielded favorable results for India. One of the main reasons for the low utilization is the high costs for Indian exporters due to complex rules of origin and cumbersome documentation requirements. The FTA's limited scope and outdated structure, lacking coverage of modern trade issues such as digital trade and environmental standards, also reduce its strategic and commercial appeal.
In agriculture, Indian exports have low penetration within ASEAN markets, especially in Indonesia and Thailand, where strong local agro-processing exports dominate. Indian pharmaceutical exports have not effectively leveraged the FTA benefits due to complex rules and non-tariff barriers. Automobile and automobile components exports from India show limited use of the FTA due to tough product-specific requirements.
The Commerce Department has conducted a study on the utilization of the AITIGA, with a focus on countries including Indonesia, Vietnam, Thailand, and Cambodia. The study reveals that utilization of the AITIGA for vegetable oils and fat exports to Thailand is minimal. Four commodities in Indonesia account for less than 10% of total exports relative to their total imports, indicating potential for export expansion.
In Vietnam, seven commodities have high potential for increased utilization of the AITIGA, while in Indonesia, 12 commodities have been identified with the same potential. The ASEAN summit is scheduled to take place at the end of the year, and both sides are hoping to wrap up the review process in October this year.
The low utilization of the AIFTA by Indian exporters has contributed to India's increasing trade deficit with ASEAN, which has increased significantly, from $8 billion in 2010 to $45.2 billion in FY 25. It is hoped that the review process will address these challenges and improve the strategic and commercial appeal of the AIFTA for Indian exporters.
- The low utilization of the AITIGA by Indian exporters in sectors such as agriculture and pharmaceuticals has resulted in limited export penetration within ASEAN markets, especially in Indonesia and Thailand.
- The Commerce Department's study on the utilization of the AITIGA has shown that utilization of the agreement for vegetable oils and fat exports to Thailand is minimal, and four commodities in Indonesia account for less than 10% of total exports relative to their total imports, indicating potential for export expansion.
- Despite India being one of the top exporters of automobile components, their utilization of the FTA for these exports is limited due to tough product-specific requirements.
- The ASEAN summit is scheduled to take place at the end of the year, and both sides are hopeful that the review process will address the challenges in the agreement, such as complex rules of origin and non-tariff barriers, and improve the strategic and commercial appeal of the AITIGA for Indian exporters.
- The review of the AITIGA, initiated in 2023, has not yielded favorable results for India's business industry, as the FTA's limited scope and outdated structure, lacking coverage of modern trade issues such as digital trade and environmental standards, reduce its strategic and commercial appeal in the sports of international trade.
