Northeast in India-ASEAN trade framework

India and ASEAN nations have put another step forward towards concluding the review of the ASEAN-India Trade in Goods Agreement (AITIGA) to make it more trade facilitative and mutually beneficial. The development has triggered export promotion hopes for the northeast region. India has put the northeastern region at the centre of its engagement with ASEAN under Act East Policy, and the region having a facilitative trade regime is critical to deriving optimal benefits from the deepening ties with a vibrant economy across its borders. Available official estimates put the India-ASEAN trade volume at 132 billion US dollars in 2022–23 and at 122.67 billion dollars in 2023–24. Ironically, while the northeastern region has 98% international borders, only about 5 percent of India-ASEAN trade originates in the region, and the rest of the 95% trade originates in states outside the region. The bilateral relations between India and Myanmar and multilateral relations among India, Myanmar, and Thailand have facilitated transborder connectivity projects to connect the northeast region with ASEAN countries. The 1360-km-long Thailand, Myanmar, and India trilateral highway project connecting Moreh in Manipur and Mae Sot in Thailand has been long delayed due to political turmoil in Myanmar and also due to disturbances in Manipur. Deepening India-ASEAN ties can be expected to overcome these challenges and complete the remaining 30% of the of the work on the trilateral highway. The pertinent question that needs to be answered is how prepared the Northeast region is to leverage this infrastructure development once it is completed and commissioned. Has the region taken note of the forward movement made in the AITIGA review? Having a comprehensive inventory of exportable goods and services with an eye on the vibrant ASEAN market is essential to ensuring that it does not miss the bus when land connectivity is fully established and ready for free trade. Nearly 13 years after the signing of the AITIGA, India and ASEAN jointly undertook a review of the agreement to remove the barriers restricting free trade in the sub-region. Indian traders have been flagging their concern over the inverted duty structure, under which taxes imposed by ASEAN nations on raw materials are higher than the cost of finished goods. This also explains the low utilisation of the India-ASEAN FTA and why exports to ASEAN increased by 4 percent, while imports from the sub-region to India increased by 28.6 percent in 2022–23. Geographical distance between the rest of India and ASEAN is another factor eroding the competitiveness of exportable goods from India, as most finished goods are manufactured outside the northeast region. The northeastern region, because of its proximity to ASEAN, offers the advantage of cutting down on distance and travel time when its land connectivity is operationalized through trilateral highways or similar projects, making exportable goods more competitive under the FTA regime. Five of the eight subcommittees constituted to deal with different policy areas of the AITIGA have started their discussions for the review. The 4th Joint Committee meeting for the review of AITIGA held in Putrajaya, Malaysia, from May 7-9 took note of the progress made. These subcommittees are dealing with ‘National Treatment and Market Access’, ‘Rules of Origin’, ‘Standards, Technical Regulations, and Conformity Assessment Procedures’, and ‘Legal and Institutional Issues’. The Joint Committee finalised its Terms of Reference and the Negotiating Structure for the review negotiations in its first two meetings and initiated the negotiations for the review of AITIGA at its third meeting held from February 18–19, which is indicative of India and ASEAN pushing the review to meet the 2025 target deadline. The northeastern region increasing its share in India-ASEAN trade can significantly improve its economy. The Uttar Pradesh Transformative Industrialization Scheme, 2024 (UNNATI-2024), which will remain valid for a period of 10 years, offers a host of incentives to investors for setting up new industrial units or undertaking significant expansion of the existing units in the region. The central sector scheme, with a total outlay of Rs. 10,000 crore, is focused on generating gainful employment. It also places emphasis on creating productive economic activity in the manufacturing and service sectors. Employment will be automatically generated when manufacturing units and service sectors grow, but for these two sectors to grow, the availability of markets with robust connectivity and competitive advantage are crucial to attracting investors. The ASEAN markets are next-door markets for the northeast region, and when India successfully concludes the AITIGA review, the competitive advantage of the region will increase further. The states in the region need to leverage the new industrial scheme and showcase the incentives to attract investors when the review process is in progress. Popularising the “Make in Northeast” slogan on the line of Make in India can draw the attention of potential investors to explore the business ecosystem. The revised India-ASEAN FTA regime will assure investors in the northeast of a larger market.