By itself the recently concluded Indo-Thailand Free Trade Agreement (FTA) is not of tremendous significance. Total bilateral trade is of the order of $1 billion. India's principal exports are gems and jewellery; its imports, electronic goods and non-electrical machinery. Yet it is important to view this FTA as another milestone in increasing trade relations with the asean group of countries. The Thailand FTA is also in line with the initiatives for an Asian FTA (AFTA). Does such an initiative have any long term basis? What are the external and internal implications of such a policy?

Today, after the Cold War, countries are grouped in terms of economic alliances. Thus, while countries of the former Soviet Republic are increasingly looking to be part of the European Union, Latin American countries will gradually move to closer cooperation with NAFTA. Closer home, the nine-member ASEAN is part of the same regional movement while Japan forms the East-West bridge in the APEC (Asia Pacific Economic Cooperation). Interestingly, the only still-born regional grouping has been SAARC. It is also worth noting that India and China are the only two large countries not yet a part of any strong economic regional group. The interesting implication for the long run is that imperatives in the field of international politics will follow regional economic imperatives, a drastic reversal of pre-Cold War politics.

It seems eminently reasonable that India's trade with South-East Asian countries is likely to rise in the near future. For one, the current slowdown in both the US and Europe implies the need to diversify India's trade basket, which is heavily biased in favour of these regions. For a major increase in exports these regions must exhibit a large GDP growth, which is not likely in the near future. Most of these countries, in fact, will now see India as a market for their products rather than a source of their imports.

Second, trade is of two types. There is trade between dissimilar countries: those which differ vastly in the availability of natural resources, capital, and labour. This is typically the 'North-South' trade. This was the basis of the export boom of 80s for China. This sort of trade is likely to slow down in the near future. The other kind of trade is between similar countries. Here it is the similarities between countries which drives trade. It is this which explains why 80 per cent of trade today is among OECD countries (read: the First World). ASEAN offers a set of countries with great similarities to India. If one adds the cultural, ethnic similarities and the geographical proximity, the theoretical basis for expanded trade with ASEAN countries is reasonably strong.

What is the empirical experience? Here one finds that India's share in the imports of the ASEAN countries has increased from 0.3 per cent in 1980 to almost 1 per cent in 1998. Unfortunately, at the same time India's share of imports of the largest ASEAN market, Singapore, declined from 0.9 per cent to 0.5 per cent. The ASEAN market is not inconsequential, with total imports of almost $400 billion in 1998. Further, given the near-recession situation in OECD countries, one is likely to see greater resistance to Indian imports mainly in the form of non-tariff barriers. On the other hand, the East Asian crisis is now blowing over and reasonable recovery can be expected in these countries. Can India reach out to ASEAN before China does?

Manoj Pant is Professor of Economics at the School of International Studies, Jawaharlal Nehru University