Deal done

The free trade agreement (FTA) which was under negotiation between India and the Association of South-East Asian Nations (ASEAN) has been finalised and is ready for signature. It is due to be signed either in August at a meeting of the trade ministers of both sides or in October when India attends the ASEAN summit. The FTA marks a major achievement in India's economic diplomacy and is the culmination of a long-drawn-out exercise which started six years ago. The agreement was scheduled to be signed in 2005 but conflicting demands held it up many times. India's interests and the interests of ASEAN countries collectively and of some members, like Malaysia and Indonesia particularly, needed to be matched as potential areas of conflict were many. India's original list of products for exemption from tariff cuts was too long. India was also not comfortable with the demand for tariff cuts on palm oil, which was thought to be against the interests of its own edible oil industry. The differences were finally sorted out in a spirit of give-and-take, though some sectors on both sides may have reasons to complain. But as a whole the FTA will do good to the economies of both India and the ASEAN.

With uncertainty still dogging the WTO negotiations, the importance of trade agreements with individual countries or trade blocs cannot be exaggerated. ASEAN represents the world's most prosperous and dynamic trading region and India will gain much from an entry into that market. The size of the Indian economy and its growth offers major opportunities for ASEAN too. In fact an FTA with India helps the ASEAN members to reduce their trade dependence on China. India is at present negotiating FTAs or similar trade arrangements with 15 other countries. Once the global economy recovers from the current slowdown, the network of these agreements is expected to give a big boost to the country's foreign trade.

The scope of the India-ASEAN FTA can be expanded with the inclusion of services and capital investments. At present it covers only trade in goods and merchandise and ASEAN has an edge over India in this respect. But if the FTA is extended to services or a fresh pact is negotiated to cover them, India will gain more because it is strong in the area. Negotiations for this can start even before the FTA, which has been finalised, is signed into operation.