New Delhi Reviews Trade Agreements with Key Asian Partners

May 2, 2024 Posted by India Briefing Written by Archana Rao Reading Time: 5 minutes

India’s main trading partners in Asia are members of the ASEAN bloc, Japan, and South Korea. However, India faces a trade deficit in each of these relationships, importing more than it exports. The economic ties between India and these East Asian nations have not reached their full potential despite the substantial scale of their economies and populations.

India has developed a comprehensive and strategic approach that integrates diplomacy, economics, and culture in its involvement with East Asian countries. The Act East Policy, introduced in 2014, aims to bolster economic and strategic relations with nations in Southeast Asia and East Asia.

In April 2024, high-ranking officials from India and South Korea discussed advancements in disarmament and non-proliferation concerning nuclear, chemical, and biological domains. The Ministry of External Affairs (MEA) announced that the India-Republic of Korea Consultations on Disarmament and Non-Proliferation took place in Seoul.
It is reported that during the meeting, the two sides delved into developments in disarmament and non-proliferation fields, encompassing nuclear, chemical, and biological domains. In regard to non-proliferation issues, the two nations held discussions on outer space security concerns, conventional weapons, including artificial intelligence (AI) in military contexts, and multilateral export control regimes.
On April 24, 2024, top officials from India and Japan engaged in discussions regarding developments in disarmament and non-proliferation related to nuclear, chemical, and biological domains. The 10th round of India-Japan Consultations on Disarmament, Non-Proliferation, and Export Control took place in Tokyo.

India exports country-wise (East Asia)	Value (in US$)	Year
Brunei	68.81 million	2022
Cambodia	227.35 million	2022
Indonesia	9.87 billion	2022
Laos	16.90 million	2022
Malayasia	7.19 billion	2022
Myanmar	765.16 million	2022
Philippines	2.16 billion	2022
Singapore	11.83 billion	2022
Thailand	6.04 billion	2022
Vietnam	5.88 billion	2022
South Korea	7.50 billion	2022
Japan	5.70 billion	2022

Data Source: Trading Economics

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According to a recent report by the economic think tank Global Trade Research Initiative (GTRI), an analysis of India’s three major Free Trade Agreements (FTAs) with ASEAN, South Korea, and Japan—signed between 2010 and 2011—reveals a significant increase in India’s merchandise trade deficit with these partners compared to its global trade deficit. The report also highlights that India’s exports to these FTA partners have seen slower growth compared to its imports.

India’s trade ties with South Korea

India and South Korea are set to commence another series of talks to enhance their Comprehensive Economic Partnership Agreement (CEPA) in May-June, following the completion of the 10th round of discussions earlier this year. As per media reports, India wants to secure increased market opportunities in South Korea for its key exports, such as rice, steel, and shrimp, as well as for sectors like healthcare and information technology (IT).

Back in 2009, the two countries signed the CEPA in Seoul with the aim of enhancing economic ties and streamlining trade. This agreement, which was the result of over three years of negotiations spanning 12 rounds, officially took effect in 2010.

Despite consistent efforts to strengthen bilateral trade relations, India’s exports to South Korea have lagged its exports. According to data from the Ministry of Commerce and Industries, for the calendar year (CY) 2023, India’s exports to South Korea amounted to US$6.286 billion, marking a 16.61 percent decrease annually, while imports from South Korea reached US$21.361 billion, showing a 3.19 percent annual increase.

In the upcoming rounds of discussions, India is looking to narrow this trade gap.

South Korea, a key US ally in the Asia-Pacific region, has improved relations with India in recent years, marking their 50th anniversary of diplomatic ties in 2023.

At the end of the 2023 G20 summit in New Delhi, India and South Korea signed agreements to cooperate in the supply chains and military industries, as well as in space exploration.

India-Japan trade ties

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In a media report published in April 2024, there is a likelihood of India revisiting its 2011 FTA with Japan in May, aiming to mitigate the trade imbalance with Tokyo.

According to data from the Commerce Ministry, India’s imports from Japan totaled US$17.506 billion in CY23, while exports to Japan amounted to US$5.084 billion. Since 2010-11, Japan’s exports to India have doubled from US$8.62 billion, whereas India’s exports to Japan have remained relatively stagnant.

Japan’s Prime Minister Fumio Kishida and India’s Prime Minister Modi announced in March 2022 that they intended to bring US$32 billion in public and private investment and financing from Japan to India over the course of the following five years, in order to fund relevant public and commercial projects that would be of mutual interest.

India is presently involved in active trade discussions with a number of nations and groupings, such as the UK, the EU, Canada, Oman, and countries that are party to the Indo-Pacific Economic Framework (IPEF). Market access, adherence to labor and environmental regulations, and roll-back of tariff and non-tariff barriers are the main points of contention in the FTA negotiations.

FTAs, which provide both economic and geo-strategic benefits, have emerged as the cornerstone of India’s foreign trade policy. Yet, in all these trade negotiations, New Delhi is holding steady ground on prioritizing India’s expectations and opportunities for domestic industry players.

Trade and financial collaboration are at the center of India’s relationship with Japan. According to a survey conducted by the Japan Bank for International Cooperation, Japan views India as the most suitable foreign investment destination for the second year in a row.

“The objective of the JBIC survey was to grasp the current situation, challenges, and outlook for overseas business development by Japanese manufacturing companies with a track record in overseas business operations. In the FY2023 survey, in addition to the regular themes of “overseas business performance,” “business prospects for medium-term,” and “promising countries/regions,” [the JBIC] also surveyed Japanese manufacturers’ perceptions of the “shape of supply chains under fragmented global economy,” “impact of global price hikes on business development,” and “issues in sustainability in business development.”

The survey was conducted by sending questionnaires to 987 companies in July 2023, and the completed questionnaires were returned through September 2023. A total of 534 companies returned valid responses, putting the response rate at 54.1 percent.

In the ranking of promising countries, India maintains the top position, far ahead of the others. The U.S. and China dropped in the rankings, with Vietnam in second place for the first time.”

Source: FY2023 JBIC Survey (35th) Report on Overseas Business Operations by Japanese Manufacturing Companies

Reviewing India’s trade relationship with ASEAN

India-ASEAN Trade Pact: Tariff Anomalies on Goods to be Reviewed

During the 20th ASEAN-India Economic Ministers’ meeting on August 21, 2023, in Semarang, Indonesia, ministers from member countries assessed the bilateral trade and investment ties between India and ASEAN. They agreed to work towards strengthening this economic partnership to yield significant advantages for both parties.

According to the Ministry of Commerce and Industry, bilateral trade between India and ASEAN amounted to US$131.5 billion in 2022-23, representing 11.3 percent of India’s global trade during that period.

Indian imports country-wise (East Asia)	Value (in US$)	Year
Brunei	317.25 million	2022
Cambodia	120.43 million	2022
Indonesia	28.67 billion	2022
Laos	57.53 million	2022
Malayasia	13.54 billion	2022
Myanmar	1.03 billion	2022
Philippines	896.45 million	2022
Singapore	24.42 billion	2022
Thailand	11.25 billion	2022
Vietnam	9.00 billion	2022
South Korea	20.72 billion	2022
Japan	15.75 billion	2022

Data Source: Trading Economics

India’s current FTA agreement predominantly benefits ASEAN nations, leading to an imbalance that has irked New Delhi as it grapples with a widening trade deficit. Although exports from ASEAN nations have surged, imports into India from these countries have grown even more rapidly. The ongoing FTA review seeks to rectify this imbalance by considering concessions while also safeguarding Indian industries.

Outlook

Southeast Asia and East Asia represent some of the world’s fastest-growing regions, whose markets offer highly favorable environments for manufacturing, transporting, and sourcing of completed goods. This makes them indispensable players in the global economy.

With their location, sizable population, and rapidly growing economies, the ASEAN bloc in particular, has gained importance for India’s sourcing needs. South Korea and Japan, too, have played key roles in India’s burgeoning manufacturing sector and infrastructure modernization.

Now, New Delhi wants its commercial and trade engagement with these regions to be on more equal footing. For one, India doesn’t wants its FTAs with these countries to be misused by third countries like China, and second, India seeks greater market access to benefit its export-oriented industries.

Ongoing FTA reviews will involve discussions regarding flexibility in determining product origin through product-specific rules (PSRs), improving market access for Indian products, reducing non-tariff barriers, and implementing value-added requirements for incoming shipments.

With inputs from Melissa Cyrill.

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