India Considers Exiting ASEAN Free Trade Agreement Amid Rising Trade Imbalance

ASEAN Free Trade Agreement Amid Rising Trade Imbalance

India is reportedly contemplating terminating its Free Trade Agreement (FTA) with the Association of Southeast Asian Nations (ASEAN) as frustration mounts over the bloc’s slow pace in reviewing the deal. Despite nine rounds of negotiation, little progress has been made to revise the ASEAN-India Trade in Goods Agreement (AITIGA), originally signed in 2009, prompting industry and government insiders to raise red flags.

Why India Is Reconsidering the Deal

According to government officials and industry representatives, the FTA has hurt Indian interests due to its "one-sided" nature. Data shows that India’s trade deficit with ASEAN ballooned to $43.57 billion in 2022-23, a significant jump from just $5 billion in 2010-11. Much of the criticism is centered around cheap imports, particularly Chinese goods routed through ASEAN nations, which are allegedly taking advantage of loopholes in Rules of Origin (ROO) norms.

Key Issues with the Existing FTA

• Tariff Imbalance: India offered 74.2% duty-free lines, whereas ASEAN used an average of 76.4%, skewed by Singapore’s already zero-tariff base.

• Utilisation Disparity: India’s FTA utilisation remains low at 30–40%, while countries like Vietnam, Indonesia, and Cambodia report 65–70% utilisation.

• Violation of ROO: Rampant misuse has been reported, allowing countries to re-export Chinese goods into India under ASEAN preferences.

• Inverted Duty Structures: These have adversely impacted sectors like electronics, white goods, and steel, reducing the competitiveness of Indian manufacturers.

Possible Termination Clause

The agreement includes a clause that allows either party to exit by issuing a 12-month written notice. Sources say India may invoke this clause if the 10th review round, expected in mid-August 2025, fails to address its core concerns.

Industry Voices Support Review or Exit

Several top industry leaders have publicly supported India’s hardline stance:

• Jasbir Singh (FICCI Electronics Committee): “We need a balanced outcome. Any engagement must not be one-sided.”

• Tarun Khulbe (FICCI Steel Committee, Jindal Stainless): “We must revisit tariff lines and ensure ASEAN exporters follow Indian BIS standards.”

• Deepak C Mehta (Deepak Nitrite): “India faces an influx of duty-free imports that discourages domestic investment. FTAs should have a 5–6 year lifespan.”

Political Angle

Union Commerce Minister Piyush Goyal, speaking at the India Global Forum in London, criticized the UPA-era trade deal, calling ASEAN the “B-team of China.” In response, former minister Anand Sharma (Congress) called Goyal’s comments “unwarranted and unfortunate.”

What Lies Ahead?

India’s strategic objective is clear: correct asymmetries in trade agreements to boost domestic industry and curb Chinese dumping. While ASEAN nations have agreed to a “substantial conclusion” of the review process by 2025, insiders warn that inaction may prompt India to pull the plug.

As the 10th round of AITIGA review nears, all eyes are on ASEAN to bring proposals that reflect mutual respect, balanced benefits, and tangible reforms. If not, India may well exercise its right to walk away from the deal.