Strengthening India's Trade Policy

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.