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
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