Multilateral trading arrangements under the World Trade Organisation have expanded over time.
Yet, the current global trade landscape is characterised by an overwhelming number of regional trading arrangements.
The proliferation of regional trading arrangements has been so pervasive that Jagdish Bhagwati calls it a spaghetti bowl.
All countries try to tap into emerging markets through trade agreements.
One of the strongest emerging markets is the group of nations that comprise the Asean.
Asean was established in 1967. Since then it has crossed a significant milestone by forming the Asean Economic Community in 2015 by integrating 10 countries with different economic, cultural and social backgrounds.
Since both India and China have pursued greater integration with Asean (both have signed free trade agreements), the contrasting outcomes highlight the factors underlying the differential or even distinct performance of the two in global trade.
China’s share in Asean trade is around 15.2 per cent, with an export share of 11.4 per cent and an import share of 19.4 per cent, making it Asean’s top trading partner.
India’s share in contrast is a mere 2.6 per cent, with export and import shares of 3.3 per cent and 1.8 per cent respectively.
Hence, the FTA frontier was reached within eight years.
India, despite her cordial relations with Asean and her ‘Look East’ policy, could not catch up.
India also initiated FTA negotiations with Asean in 2003, right after China. But it took six years to sign an agreement on trade in goods (in 2009), while the investment and service agreement was signed only in 2014.
Finally, it is expected that the India-Asean FTA will be effective only by 2019.
The whole journey would have taken 16 years, twice the time China took to reach there.
China clearly is both a first mover as well a fast mover.
In contrast, India’s share in Asean’s trade increased by only one percentage point to two per cent.
At this point, India’s potential for trade with Asean becomes pertinent.
However, the extent of over-exporting to Asean is significantly higher for China.
Moreover, India’s engagement with Asean is marked by under-trading with countries like Vietnam and Cambodia, the two fast-growing countries in Asean.
India’s hesitation in bringing off deals in quick time has thus resulted in lower trade with the Asean region.
Time is of the essence here. India has been tardy with the issue of sensitive commodities, with bureaucratic delays a function of relying on primary products, where the political economy is comparatively tenuous.
The government’s chief economic advisor recently mentioned that India is catching a train that left 20 years ago.