The India-ASEAN FTA (Free Trade Agreement) was signed in 2009, and since then, we see that the trade deficit between India and ASEAN countries has increased manifold, which remains a matter of concern for India. In 2010-11, India’s exports to ASEAN were $25.6 billion, while imports were $30.6 billion, which means a trade deficit of $5 billion, which reached $38.8 billion in 2023-24. It is generally believed that the trade deficit with ASEAN has increased mainly due to China routing its goods through ASEAN to avoid high tariffs and other restrictions imposed by India on Chinese goods.
This growing trade deficit, with China routing its goods through ASEAN countries, has forced Commerce and Industry Minister Piyush Goyal to strongly criticise ASEAN, saying that ASEAN is acting like China’s B-team. The minister’s strong statement against ASEAN countries is not a sudden one.
India has long complained that Chinese goods are being routed through ASEAN countries, taking advantage of the trade agreement’s lax rules of origin, which help them enter India with low or zero tariffs. Perhaps this is not India’s only concern against ASEAN; India has long raised several issues about its trade relations under the ASEAN-India Free Trade Agreement (FTA).
However, misuse of the FTA by third-party countries (especially China) has been India’s most prominent concern against ASEAN countries.
When the India-ASEAN FTA was signed in 2009, the negotiators did not realise that the lax rules of origin in the FTA could be used by third parties, especially China, to their advantage and could increase India’s trade deficit with ASEAN countries almost manifold, putting India in deep trouble, and accentuate India’s deindustrialisation crisis.
It is noteworthy that thanks to the India-ASEAN FTA, most of the goods from these countries can be exported to India at zero tariff, and similarly, India can also export most of the goods at zero tariff.
But, the benefits that India gets become meaningless when a third country sends its goods through ASEAN countries, and the worst happens when ASEAN countries help China in this effort, or turn a blind eye to it.
Piyush Goyal argued that Chinese goods are being sent through ASEAN countries, taking advantage of the lax rules of origin of the trade agreement, which helps them enter India with low or zero tariffs. Ever since the agreement was signed, the trade deficit with ASEAN countries has been increasing continuously, and is set to reach $38.8 billion by 2023-24.
The interesting part of the story is that Indian exporters in sectors such as agriculture and automobiles face non-tariff barriers and quotas, while Indian markets remain open to ASEAN imports.
According to India, the structural flaws of the FTA, such as weak rules of origin and regulatory loopholes, are helping China gain access to both ASEAN and Indian markets.
It is notable that when the negotiations for Regional Comprehensive Economic Partnership (RCEP), then proposed an agreement between 16 countries, 10 ASEAN countries, Japan, South Korea, Australia, New Zealand, and China were underway, it was said that it was effectively an FTA with China undermining India’s economic interests.
Since 2019, India, under the leadership of Commerce Minister Piyush Goyal, has been pressing ASEAN countries to restart a scoping exercise to renegotiate the free trade agreement by 2025, to address FTA deficiencies, non-tariff barriers, rules of origin, quotas and export taxes. Piyush Goyal had even warned that if ASEAN does not act, India may resort to retaliatory trade measures.
However, Piyush Goyal did not mean that ASEAN (Association of Southeast Asian Nations) is acting on behalf of China, but what he meant was that ASEAN countries are passively helping China, and therefore, putting India at a disadvantage, by allowing China to export its products to India through ASEAN.
ASEAN countries trade heavily with China, and it has remained ASEAN’s largest trading partner for more than a decade.
Many ASEAN members are highly dependent on Chinese investment, infrastructure projects (e.g., the Belt and Road Initiative), and supply chains. Critics argue that this is why ASEAN is hesitant to confront China, even when its own strategic or regional interests (e.g., the South China Sea dispute) are at stake.
Notably, China has cultivated close ties with political elites and business groups in several ASEAN countries. These relationships sometimes result in pro-China domestic policies or suppression of anti-China sentiment.
The lack of unity or strategic autonomy among ASEAN countries often fails to take a strong, unified stand against China on sensitive issues (such as Chinese militarisation in the South China Sea).
Each of the ASEAN countries alone is not strong enough to stand up against China, and even as a group, ASEAN tends to follow China’s lead rather than vocalise its collective voice. Furthermore, internal divisions among ASEAN countries (some, more pro-China than others) make coordinated action difficult. Perhaps because of the meek position of ASEAN countries, despite China’s aggressive stance in the South China Sea, ASEAN responses are often weak or nonexistent. This has led to criticism that ASEAN has become a spectator or junior partner rather than an assertive regional bloc. When Piyush Goyal calls ASEAN China’s B team, he is also perceived to have the tacit support of the ‘Quad’ countries, including Europe and the US, who want to strengthen the South-East Asian alliance against China.
Nevertheless, ASEAN’s approach is meek concerning China, as it allows Chinese goods to take advantage of the FTA. Moreover, it is enabling China’s influence in ASEAN markets and indirectly in India. Thus, by failing to maintain fair trade norms, ASEAN is promoting Chinese economic interests. Hence, this lends legitimacy to Piyush Goyal’s statement that ASEAN acts like China’s B-team.
The Way Forward
India has been urging ASEAN to strengthen the FTA, tighten rules of origin, remove quotas, and eliminate non-tariff barriers. India has already warned ASEAN that if it fails to correct these, India may take retaliatory measures such as raising tariffs or imposing trade restrictions. In short, calling ASEAN “China’s B-team” is an expression of India’s view that this regional grouping is facilitating China’s economic access at the expense of India. This is a diplomatic signal: plug the loophole or be prepared to face the consequences.
To make the India-ASEAN FTA work to India’s advantage, there is an urgent need to tighten and improve their Rules of Origin (RoO), to prevent infiltration of Chinese goods through ASEAN countries. India wants ASEAN to adopt RoO and portability measures similar to RCEP or recent FTAs like the UAE and Australia.
India’s demands also include restoring trade reciprocity and balance. Notably, India eliminated tariffs on 74.5 per cent of product lines under the India-ASEAN FTA, while many ASEAN countries reduced tariffs on only 50-70 per cent of theirs, creating an asymmetric situation.
The review aims to rebalance tariff lines to India’s advantage. The demands also include expanding the Services and Investment Review Committees (set up in 2014) through new joint committees to ensure implementation across all sectors.
(The writer is National Co-convenor of Swadeshi Jagran Manch. Views are personal)