Context: Greater trade with ASEAN will be supportive of the prime ministerial call for greater Indian manufacturing for world markets.
Need for Strengthening Ties with ASEAN
Fall of multilateral trading system: Due to the trade restriction induced by pandemic and flouting of the World Trade Organization’s (WTO’s) norms by the United States.
In the absence of a well-functioning multilateral system, mega-regional trade agreements will become the preferred
In Asia, there are currently two mega regionals — the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
Provides equal footing with other regional players: This acted as the primary reason for India to sign the Free Trade Agreement (FTA) while compromising on the size of the negative list and rules of origin.
To check the Rise of China:
China is central to Factory Asia: It has closely integrated through dense production networks in the regional Global Value Chains (GVCs) hub.
Withdrawal by the US from CPTPP: has strengthened the regional situation in favour of China.
With a cap of $60 billion, the US support to connectivity projects in ASEAN under the Better Utilisation of Investment Leading to Development (BUILD) Act leaves space open for Chinese expansionist ambition.
Withdrawal by the US from CPTPP: has strengthened the regional situation in favour of China.
Two-way gains:
India’s continued and strengthened economic engagement with ASEAN will contribute to the bloc’s ability to reinforce its centrality in the region.
India’s capacity to act as a counter-balancing force as envisioned in the concept of the Indo-Pacific.
The resilience of the East Asian Region:
While the regions like South Asia and West Asia registered a fall of almost 40% in trade, East Asia remained resilient with only single-digit declines – Global Trade Update 2020 by United Nations Conference on Trade and Development.
Early Revival: Globally, sector-specific trends show signs of an early revival of trade in computers, printers, and related accessories - WTO Goods Trade Barometer.
Deteriorating Trade Outlook for India:
Slow Recovery: For, E.g. Sectors like chemicals, where India has a comparative advantage, have registered a decline during the pandemic and are yet to recover.
Uncertain Volatility in Agricultural Trade: With the end of the pandemic, the agricultural trade will become more volatile due to the following reasons:
Tariff barriers
Strict Sanitary and Phytosanitary standards are leading to non-tariff barriers that are difficult to negotiate with the developed countries.
Way Forward:
A Trade Policy-Oriented Towards ASEAN: rather than
Focusing on trade opportunities with the US or the European Union (EU).
Achieving self-sufficiency: through higher import tariffs, encouraging more import substitution, and building complete supply chains domestically.