AIFTA ASEAN-INDIA STRATEGIC PARTNERSHIP AND DESIGN OF FUTURE REGIONAL TRADING ARCHITECTURE Agus Syarip Hidayat Economic Research Center, Indonesian Institute of Sciences (LIPI) Roundtable ASEAN-India Network of Think Tanks (AINTT) Meeting Vientiane, Lao PDR, 10 September 2013
INTRODUCTION AIFTA has come into force since 1 January 2010. AIFTA is expected to influence the trajectory of the current and future international order: The Global Swing States The engine of economic growth in Asia under the Asian Century scenario 2050. BRICS Future regional trading architecture TPP vs. RCEP, AIFTA??? What are the roles of AIFTA to contribute in designing a future regional trading architecture?
ASEAN-INDIA FTA (AIFTA) Implementation of AIFTA has been responded positively by the business sector as indicated by the significant increase of total trade between ASEAN and India. Share of ASEAN s Trade with Selected Partner Countries Source: ASEAN Regional Information Exchange Database System (REXDBS).
Level of Liberalization by Country Under the ASEAN+nFTAs Among ASEAN+nFTAs, AIFTA is regarded as the FTA s lowest level liberalization. ASEAN ASEAN- Korea (%) ASEAN-China (%) ASEAN-ANZ (%) ASEAN-India (%) ASEAN- Japan (%) Average (%) Singapore 100 100 100 100 100 100 Brunei 97.8 97.9 98.5 82.6 96.4 94.6 Malaysia 93.5 93.7 95.5 79.6 92.1 90.9 Thailand 93.7 88.3 98.8 74.3 96.9 90.4 Indonesia 90.3 89.0 93.4 50.4 88.7 82.3 Philippine 97.9 86.5 94.8 75.8 96.0 90.2 Vietnam 84.3 n.a 90.9 69.7 84.7 82.4 Cambodia 85.5 86.7 86.2 84.1 76.0 83.7 Lao 85.4 96.4 90.7 77.5 84.2 86.8 Myanmar 87.5 86.9 86.1 73.6 79.4 82.7 Korea 92.2 China 94.6 ANZ 100 India 74.3 Japan 86.3 Average 91.6 92.0 94.6 76.5 89.2 Source: Arata Kuno, 2010. Note: Data on Myanmar under the ASEAN-China FTA is missing for HS01-HS08.
AIFTA, a New Driver For Resurgence of Asia Three drivers of Asian growth in the future: the emerging Asian middle class; climate change; and the communications revolution Projection on the Population of Middle - Upper Class and GDP Per-capita Countries 2030 2050 Middle Class Upper Class GDP per Middle Class Upper Class GDP per Population Population capita US$ Population Population capita US$ (million) (million) (PPP) (million) (million) (PPP) PRChina 1,120 40 21,100 1,240 190 47,800 India 1,190 15 13,200 1,400 210 41,700 Indonesia 220 5 13,500 250 40 37,400 Japan 100 20 48,900 60 40 66,700 Republic of Korea 30 20 60,200 10 35 107,600 Viet Nam 80 2 11,900 100 15 33,800 World 4990 580 19,400 5900 1500 36,600 US 185 190 65,500 120 290 98,600 Germany 50 30 51,300 25 50 77,800 Source: Centennial Group projections, ADB Report 2011
REGIONAL TRADING ARCHITECTURE COMPARISONS RCEP RCEP is led by ASEAN to gather all separate non-asean FTAs. Born out of ASEAN+1 FTAs with China, India, Japan, South Korea, Australia and New Zealand Based on open accession clause, where membership can be expanded later as new countries sign FTA with ASEAN. Negotiations expected to start in 2013 and to be concluded by 2015. TPP o TPP is led by the US in line with its foreign policy objective of pivot Toward Asia. o Born out of P4 agreement between New Zealand, Brunei, Singapore and Chile in 2005. o APEC countries have been encouraged to join negotiations; also open to acces sion by non- APEC members. o Negotiations started in 2011 and are likely to be concluded by October 2013 CHARACTERISTICS Aims to form an integrated regional eco nomic agreement that is deeper than ex isting FTA cooperations and to support equitable economic development. Areas include: trade liberalization in goods, services and investment, techni cal cooperation, intellectual property, dispute settlement (WTO+ issues) o Aims to establish regional FTA that can tackle the challenges of 21st century. o Areas include: trade liberalization in goods, services, investment, intellectual property rights, environmental protec tion, labor, financial services, technical barriers to trade and other regulatory issue (WTO+ issues). TARGET OF AGREEMENT flexibility including provision for special and differential treatment, plus additional flexibility to the least-developed ASEAN Member States o high level and comprehensive Source: Basu Das, Sanchita., 2013 and Jayant Menon, 2013.
Participating Countries in RCEP and TPP RCEP TPP Cambodia Indonesia Lao Myanmar Philippine Thailand India China Korea Brunei Malaysia Singapore Vietnam Australia New Zealand Japan USA Canada Chile Mexico Peru Indicators RCEP TPP Population (billion) 3.4 0.66 Population (% of world population) 48 9.4 GDP (PPP, US$ Trillion) 26.1 20.8 GDP (% of world GDP) 33 26 Merchandise Trade (US$ Trillion) 10.1 7.8 Merchandise Trade (% of world Merchandise Trade) 28 21 Source: World Economic Outlook, IMF, October 2012 database, Basu Das, Sanchita., 2013
TPP vs. RCEP: Competition Between Two Giants? TPP as part of political scenario of USA in the Pacific region. USA has a strong concern over the emergence of China as a second largest economy in the world that will strengthen the China s influence in the region, particularly in Asia. USA has also concern on the effort of China to dominate ASEAN in the economic and security aspect. Medeiros (2005) views that the effort of China to embrace ASEAN is not only for the economic purpose, but also as China s hedging strategy to offset USA domination in the Asia. USA also has no interest to include India in the TPP negotiation.
In what respect, AIFTA can support RCEP as future regional trading architecture? a Strengthening unity of RCEP participating countries b Rebalancing power among RCEP participating countries c Bridging/ Hub to other regions
Strengthening unity of RCEP participating countries Some ASEAN countries have double membership both in RCEP and TPP. Disunity of ASEAN members into TPP and RCEP blocks could undermine ASEAN's centrality in the RCEP design. RCEP framework would provide more benefit to the ASEAN than that of TPP s scheme: ASEAN centrality will still be retained under RCEP scheme. TPP liberalization scheme is more suitable for the members who have relatively similar stage of development. RCEP can be regarded as an "exercise field" for ASEAN + nftas to compete in a wider and tighter competition. intra trade and regional production network (RPN) among RCEP members would increase significantly more than that in the TPP.
Rebalancing power among RCEP participating countries AIFTA is expected to counterbalance the dominance of China in the Asia region. Trade bloc dominated by a country that has enormous economic, politic and security power will be hard to be developed. Trade bloc, regardless of its shape, shall have the power scattered among its members.
Bridging/ Hub to other regions ῼ AIFTA is also expected to become a hub between RCEP and other regions in Asia. ῼ If RCEP could be able to pull a few countries in other regions (ie: South Asia) to join, then the RCEP power will be greater. market size, regional security,
RECOMMENDATION a. AIFTA should consider proposing a deepening liberalization among the members by addressing not only the issues of trade and investment, but also the issue of capacity building for business actors categorized as Small Medium Enterprises (SMEs). Nowadays, SMEs are the largest business entity as well as the backbone of most of ASEAN countries and India. b. AIFTA should make lobbies to ASEAN members that are still have double standing under RCEP and TPP. By considering some aspects, it is better for ASEAN to focus on RCEP. c. AIFTA should propose a clear mechanism of RCEP liberalization in a concrete manner. For instance in the issues of RoO, NTB, technical cooperation, capacity building, intellectual property right, dispute settlement mechanism etc.
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