ASEAN-India Trade: An Assessment of the Free Trade Agreement, Intra-Industry Trade and Non-Tariff Measures

Abstract

This thesis, analyzes three different aspects of ASEAN-India regional economic integration. One, impact of the ASEAN-India Free Trade Agreement (AIFTA) in selected Indian trade sectors. The empirical assessment adopts an adapted version of the Lloyd and McLaren (2004) model. Two, assessment of the patterns and determinants of India’s intra-industry trade (IIT) in manufactures with six major ASEAN economies, they are, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. The patterns are identified by constructing Grubel Lloyd Index (GLI) at 3-digit level. The determinants are obtained using Random-Effects Generalized Least Squares (GLS) regression model. The analysis is done bilaterally between six ASEAN countries, and each country pair treated separately. Three, estimation of tariff equivalent (TE) of non-tariff measures (NTMs) on leading sectors of Indian imports from the six ASEAN economies. The TE of NTMs is estimated using relative prices differences. Their nature is assessed using secondary sources. In this context, this thesis examines how well tailored is the ASEAN-India Free Trade Agenda, while keeping in perspective the country specific characteristics of India and ASEAN member countries. The major findings are as follow. Firstly, the ex-post impact of the FTA shows (a) change in trade volume is negative; (b) change in terms of trade is positive; (c) combined welfare effects are indecisive. The ex-ante projection of negative impact (a) holds true in case of plantation commodities such as black tea, pepper and palm oil while (b) holds false in case of coffee. Secondly, (a) there are no set patterns in India’s IIT in manufactures with individual ASEAN countries; (b) there are significant variations in the observed patterns and determinants of India’s bilateral IIT with the six ASEAN economies and they vary among the four product groups. Thirdly (a) the TEs of NTMs differ among the ASEAN economies and the sectors under consideration indicating varying motives behind imposition of NTMs by India; (b) in consistence with the general trend, NTMs account for a major portion of bilateral trade costs; (c) with the economic growth and rising incomes the ASEAN and India do use and deal with the challenges of SPS/TBT measures; (d) at the policy level and among business groups NTM related concerns are on rise; (e) India and ASEAN, following the trend elsewhere, have used NTMs to cover from economic downturn, mutually affecting each other. Based on the findings, it can be concluded that (i) ASEAN-India economic integration process is not tailored in coherence with the country-specific characteristics of India and ASEAN economies. (ii) the policies are partial and indefinite on addressing NTMs; (iii) the process of economic integration should be approached systemically and not compartmentally.