"Asian Economic Community will bring stability and prosperity to the region"
Excerpts from the address by Dr. R K Dhawan, Northern Region Chairman of FIEO at the Opening Session of the 34th World Marketing Congress organised by the Institute of Marketing and Management on January 17, 2006 at New Delhi
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First of all, let me share my strong belief with you that Asian Economic Community is not only ‘desirable’ but very much ‘possible,’ no matter how diverse is the region, socio-economically and politically. Though Asian region has passed through many difficult phases in the past and still facing innumerable developmental challenges, it is growing leaps and bounds. The world now sees this region as their global production hub to meet both their product and service requirements. Today, Asia can not only boast of having at least four of the top ten largest world economies like Japan, China, Korea and India, but also very robustly growing economies like those of Malaysia and Thailand. Though there are some countries in Asia like Afghanistan, Central Asian |
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Republics and Myanmar, which are currently facing political instability, they have shown impressive economic growth during the last few years. Barring the year 2003, Myanmar’s merchandise exports have grown over 15%, while, Afghanistan’s exports have grown over 20% during the years 2000 to 2004. Overall speaking, when the world average GDP growth was around 2% during the years 2000 to 2004, Asian countries put together achieved average GDP growth from 2.2% during the year 2000 to 4.8 % during 2004. Asia’s exports of both merchandise and commercial services, during the same period have grown over 10% on an average. During the year 2004 Asia commanded a global export share of around 26.8% and global import share of around 24%. On top of it, if we consider the remarkable growth achieved by China and India in the last few years despite being large countries, we will have to say that global economic epicenter is shifting towards Asia.
All these developments necessitate greater participation of Asia in the economic policy dialogues and global trade liberalisation. Such a role will in turn facilitate domestic reforms, restructuring, and opening up of the markets and help reduce unfair trade practices by the countries receiving more of Asian supplies. The sudden growth in the existence or negotiation of around 175 bilateral and regional trade agreements (FTAs) in Asia highlights the importance and keenness of the Asian countries to enter into the process of economic integration. Free trade arrangements can be beneficial, as long as they encourage domestic structural reforms and create open, competitive market environments under a win-win situation for the partners. Though the problems do arise when such agreements are not of similar scope, coverage or participation, I would still suggest that in the globalised environment, we should try drawing competitive advantages from each other rather than reinventing the wheel. I would like trade cooperation to take over trade competition.
I am very much in favour of a Free Trade Agreement with China. Low cost high quality inputs from China could be very well used for the production of final goods in our country. Such situations can be best achieved through FTAs. Such agreements, however, require to be entered into with due caution and after detailed sector-wise analysis particularly with manufacturing giants like China to ensure that our domestic industry like textiles, footwear, toy, bicycle, light engineering etc. which are getting adversely affected by imports do not suffer any further. The concerns of SMEs, contributing major chunk to our economy and exports, are also required to be taken care of. But in the overall analysis, a trade agreement between India and China, the world’s most populous nations, will encourage mutual complementarity, trade cooperation and will help the countries to collectively emerge as a huge global supplier. Trade and economy will also boom with the opening up of access to the traders on both the sides to the huge market of over 2.4 billion people living in the two countries. However, given the current tariff regime in the two countries, such a Free Trade Agreement would be more beneficial to the manufacturers in China. The import tariff in China ranges between 5 to 7% for majority of the products as compared to our average tariff of about 19%. The sector-wise reduction and subsequent elimination of customs duty under FTA should be our approach. In any case we need to bring our tariff down to Chinese level in the next couple of years. While an FTA will benefit Chinese manufacturers through greater market access it will also make Indian finished goods producers competitive through the availability of cheaper imports of raw materials and intermediates from China.
An FTA with China will also encourage healthy competition with this neighbouring country which in turn can help us push ahead some key economic reforms particularly in the infrastructure and labour sectors. The process could be started by entering into cooperation with China in areas such as increased frequency of direct shipping route, expansion of air cargo facility, cooperation in customs valuation & documentation and direct banking link.
Bilateral Trade between India and China has been growing rapidly and has already touched newer growth heights of 37.5% totaling US $18.73 billion during 2005. This year the industry estimates that the figure will reach US $20 billion. An FTA between the two countries will not only stimulate bilateral growth but will also see the economy driving the global supplies.
The opportunities and challenges those lie ahead and concerns and complexities which require to be addressed through various confidence building measures prior to economic integration can be well understood. And, for all that to happen, a strong institutional mechanism which can provide open, frank and honest platform will be required. The opportunities and concerns for economic integration will be required to be discussed and addressed individually to enable Asian Economic Community become a reality.
The Association of Southeast Asian Nations (ASEAN) is today the most active of all such institutions existing in Asia. The members of ASEAN are engaging, through it, in regular dialogue on the issues of trade liberalisation, investment and financial integration. At the ASEAN Economic Ministers’ meeting held in Kuala Lumpur during August 2006, the ASEAN members set 2015 as the target year for completion of economic integration. They have also called for addressing the larger issues of balancing between the domestic and regional interests for the achievement of a single integrated market and serve as an international production base. Thus, as I said in the beginning, an Asian Economic Community is in the offing.
Nonetheless, addressing the larger issues, which I just said, will mean facing and sustaining many challenges. The ASEAN have invited the private sector to play a role in integrating regional economies including advising and assisting the ASEAN governments in the formulation of strategic policies.
So far as India and ASEAN relationship is concerned, both will have to enter into a Free Trade Agreement, to begin with, for mutual growth and the Asian Economic community to happen. Such agreements will have to consider and respect mutual interests. Already negotiations for FTA between India and ASEAN have begun since 2004. India had initially submitted a negative list of around 1414 items which it sought to keep out of the purview of FTA to protect the interests of Indian farmers and other sections of domestic industry. But ASEAN did not agree to it and India had to prune the negative list of items to 490 which has now been approved by ASEAN in a meeting held last week in Philippines where our Hon’ble Minister of Commerce and Industry Mr. Kamal Nath was also present. The negative list includes items like spices, plantation crops like tea & coffee etc., vegetable oils (vanaspati and other edible oils), rice, fish, textiles, chemicals and plastics, electronics, auto components and footwear. However, all the ASEAN countries expect that at least the oil and oil seeds should be removed from the negative list.
India has also plans to enter into FTAs with Thailand and Singapore. A framework agreement for establishing FTA has already been signed with Thailand which covered concessional import duty on 84 items and several areas in the first phase including services, investment and economic cooperation. With the establishment of FTA, the tariff and non-tariff barriers for the movement of goods and services will be eliminated. India has also signed a comprehensive economic cooperation agreement with Singapore again with the expectation of establishing an FTA. India is also keen to enter into a trade agreement with Mauritius.
So, we can see that major structural reforms in every aspect of governance, be it political or economic, will be required to be carried out by each of the governments for Asian Economic Community to happen. And, ASEAN will be a beginning and show the path to the other players to form the larger Asian Economic Community. Such a community will not only ensure higher level of growth amongst all the economies in the region but will also bring in greater stability and prosperity to the region.
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WTO has become a political battleground where developed countries are trying to dominate the proceedings for protecting their own industries. They are providing subsidies of over 300 bn USD to protect their agriculturists but are very critical of any subsidy provided to the farmers by developing countries like India. Now the time has come when must say a firm ‘no’ to any protectionism by developed world. |
Capital goods worth over Rs 100 crore have been imported into India over a period of time, which have brought new technologies to our country and have improved the quality of goods being produced by us which are now being gladly accepted across the globe. |
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