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G-7, G-20, RCEP, ASEAN, RTAs - Part 3
8.0 The Trans-Pacific Partnership (TPP)
The Trans-Pacific Partnership (TPP) is one of the most ambitious free trade agreements ever signed. It is a trade agreement among twelve Pacific Rim countries signed on 04 February 2016 in Auckland, New Zealand, after seven years of negotiations, which is yet to enter into force.
It began with the P4 trade agreement between just four nations - Brunei, Chile, New Zealand and Singapore - that came into effect in 2005. It was called the 'Trans-Pacific Strategic Economic Partnership Agreement' (TPSEP or P4). That deal removed tariffs on most goods traded between the countries, promised to cut more and also to co-operate on wider issues such as employment practices, intellectual property and competition policies.
Later, from 2008, the scope of the deal expanded and now the TPP includes 12 nations – the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.
The United States government considered the TPP as the companion agreement to the proposed Transatlantic Trade and Investment Partnership (TTIP), a broadly similar agreement between only the United States and the European Union. TPP and TTIP together place the US prominently in the centre of global trade, once again. And both did not have China, or India as members. President Trump pulled US out of TPP & it then became CP-TPP.
As said, it involves 12 nations (as listed above). The pact aims to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. Member countries are also hoping to foster a closer relationship on economic policies and regulation. The agreement could create a new single market something like that of the EU.
The 30 chapters of the TPP Agreement concern many matters of public policy and a stated goal to "promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections."
The TPP contains measures to lower trade barriers such as tariffs, and establish an ISDS mechanism -investor-state dispute settlement mechanism.
8.2 Which goods and services are affected?
Most goods and services are involved, but not all tariffs - which are taxes on imports - are going to be removed and some will take longer than others. In all, some 18,000 tariffs are affected. The signatories have said they will either eliminate or reduce tariffs and other restrictive policies from agricultural products and industrial goods. Tariffs on US manufactured goods and almost all US farm products will go almost immediately once the deal is ratified.
On textiles and clothing, they will be removing all tariffs, but while the US Trade Representative says most tariffs will be removed immediately after the deal is ratified, "tariffs on some sensitive products will be eliminated over longer timeframes as agreed by the TPP Parties". On trade in services, they have agreed that free trade would be quite a good thing, and in some areas, they are going to liberalise trade.
8.3 The criticism
Although China has given it the TPP a cautious welcome, critics say the TPP is a ploy to counter China. Others claim it paves the way for companies to sue governments that change policy on, say, health and education to favour state-provided services. The TPP will also intensify competition between countries' labour forces. But the biggest criticism has been of what the campaigners allege were secretive negotiations, in which governments were said to be seeking to bring in sweeping changes without voters' knowledge.
Defenders say the reason the negotiations were not made public was because there was no formal agreement on them.
8.4 So what happens to NAFTA?
Current trade agreements between participating countries, such as the North American Free Trade Agreement, will be reduced to those provisions that do not conflict with the TPP, or that provide greater trade liberalization than the TPP. The more crucial question is the relevance of WTO post such deals.
Those in favour say this trade deal will unleash new economic growth among countries involved. Those against - particularly some Americans - fear it could mean jobs will move from the US to developing countries. They also do not like the fact the five-year talks were held largely in secret. President Trump restructured NAFTA to US-M-C-A.
9.0 The Transatlantic Trade and Investment Partnership (TTIP)
The TTIP is a regional trade agreement (RTA) proposed between two of the largest and most modern economies in the world - the USA and the European Union (EU). The TTIP aims to promote trade and economic growth bilaterally between these two groups (US is a nation and EU is a union of sovereign European nations). It is a trade agreement, but may end up strengthening the strategic relationships as well.
The TTIP agreement covers (a) market access, (b) specific regulation, and (c) broader rules and principles and modes of co-operation. The TTIP may take upto 2019 to come into effect. The American government considers the TTIP a companion agreement to the Trans-Pacific Partnership (TPP).
The US already has a Free Trade Agreement (FTA) with 20 countries. These are Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore. Negotiations on TTIP got stalled by 2019.
9.1 What America felt
Economic barriers between the EU and the United States have been relatively low, not only due to long-standing membership in the World Trade Organization (WTO) but also recent agreements such as the EU-US Open Skies Agreement and work by the Transatlantic Economic Council.
Given the ambitious, comprehensive, and high-standard of the agreement, the US government feels that TTIP will help unlock opportunity for American families, workers, businesses, farmers and ranchers through increased access to European markets for Made-in-America goods and services. This will help to promote U.S. international competitiveness, jobs and growth. The U.S. and EU economies are two of the most modern, most developed, and most committed to high standards of consumer protection in the world. The TTIP aims to bolster that already strong relationship in a way that will help boost economic growth and add to the more than 13 million American and EU jobs already supported by transatlantic trade and investment.
9.2 What EU felt
The European Commission says that the TTIP would boost the EU's economy by €120 billion, the US economy by €90 billion and the rest of the world by €100 billion. Accordingly, TTIP aims to "liberalise one-third of global trade", which they argue would create millions of new paid jobs. Several objections have arisen to this assumption, as the WTO is already in place and the gains per household do not seem to outweigh the potential problems that could arise.
9.3 Statistics
The US and EU together represent 60% of global GDP, 33% of world trade in goods and 42% of world trade in services. There are a number of trade conflicts between the two powers, but both depend on the other's economic market and disputes only affect 2% of total trade. The proposed TTIP between the two would represent potentially the largest regional free-trade agreement in history, covering 46% of world GDP.
9.4 Controversies
The European Commission claims that passage of a trans-Atlantic trade pact could boost overall trade between the respective blocs by as much as 50%. However, economic relations are tense and there are frequent trade disputes between the two economies, many of which end up before the World Trade Organization. Various criticisms have been -
- Secrecy - Since a lot of proposed contents are kept classified from the public, there are genuine concerns about the impact TTIP would have on labour.
- Groups against TTIP - The TTIP has been controversial with many groups. The labour unions, charities, NGOs and environmentalists, particularly in Europe, describe the range of negative impacts as "reducing the regulatory barriers to trade for big business, things like food safety law, environmental legislation, banking regulations and the sovereign powers of individual nations". They also go on to say more critically that it is an "assault on European and US societies by transnational corporations".
- Citizens against TTIP - The European Citizens' Initiative, which enables EU citizens to call directly on the European Commission to propose a legal act, acquired over 3.2 million signatures against TTIP and CETA within a year.
- Labour standards, worker's rights and job security - It is feared the TTIP would undermine job security as well as current minimum labour standards agreed by the EU. According to a European Parliament report, impacts on labour conditions range from job gains to job losses, depending on economic model and assumptions used for predictions.
- Democracy and sovereignty at risk due to ISDS - Investor-state dispute settlement (ISDS) is an instrument that allows an investor to bring a case directly against the country hosting its investment, without the intervention of the government of the investor's country of origin. From the late 1980s, certain trade treaties have included provisions for ISDS, which allow foreign investors who claim to have been disadvantaged by actions of a signatory state to sue that state for damages in a tribunal of arbitration. More recently, states have become increasingly resistant to such clauses. Critics of TTIP say that "ISDS provisions undermine the power of national governments to act in the interests of their citizens", that "TTIP could even undermine the democratic authority of local government", and that it threatens democracy. France and Germany want access to investor-state dispute settlement removed from the TTIP treaty.
- Favours the multinationals - Over the past decade some big, mainly American companies, such as tobacco conglomerate Philip Morris, have used ISDS to claim rights. The provision would in theory allow private investors to sue governments for the loss of future profits due to decisions made by national parliaments. Critics say it could be used to attack the UK's NHS by making privatisations of specific services harder to reverse.
Negotiations are held in week-long cycles alternating between Brussels and the USA. The first round of negotiations took place from 7-12 July 2013 in Washington DC. The eleventh round of negotiations took place from 19-23 October 2015 in Miami. The twelfth round of negotiations took place from 22-26 February 2016 in Brussels. By 2019, TTIP was nearly stalled.
9.6 TTIP versus WTO
Critics say the EU and the US need to be aware that going it alone with TTIP comes at a high price: the initiative incentivises the formation of economic blocs, rather than the much vaunted shaping of globalisation. The creation of blocs implies that countries will be treated less equally in the future. The ability of other countries to set global rules will be just as limited as that of the EU and the US, but the former will pursue their own initiatives. China is already negotiating the Regional Comprehensive Economic Partnership (RCEP) in the Asia Pacific. Thus, liberalisation will not be extended to all WTO members automatically; rather, it will be limited to certain trade partners. Thus, TTIP seems to be going exactly the other way, if we recall what WTO aimed at.
This development would have a primarily negative effect on developing countries: they will be unable to keep up in the scramble towards liberalisation, and they will be excluded. At the same time, an ever more complex system of trade rules and regulatory standards will be detrimental to everyone. If the EU and the US really want to shape globalisation according to their values, they cannot ignore the WTO and other multilateral fora. Only the WTO offers the opportunity to negotiate rules for trade that are truly global, with participation and buy-in of all member states. As demonstrated at the Ministerial Conference in Nairobi, the willingness to compromise is low, not least because of agreements like TTIP.
But the difficult and sometimes painstakingly slow negotiating processes of the WTO remain the only way to avoid the formation of costly economic blocs. The EU and the US alone can no longer set the rules of globalisation.
10.0 NORTH AMERICAN FREE TRADE AGREEMENT - NAFTA
The North American Free Trade Agreement (NAFTA) covers Canada, the US and Mexico making it the world's largest free trade area (in terms of GDP). NAFTA was launched to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace. It is worth noting that WTO for formed on 01-01-1995.
All tariffs between the three countries were eliminated in January 2008. From 1993 to 2009, trade tripled from $297 billion to $1.6 trillion.
NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. The U.S. House of Representatives approved it by 234 to 200 on November 17, 1993. The U.S. Senate approved it by 60 to 38 on November 20, three days later.
NAFTA was signed into law by President Bill Clinton on December 8, 1993 and entered force January 1, 1994. Although it was signed by President Bush, it was a priority of President Clinton, and its passage is considered one of his first successes.
Article 102 of the NAFTA agreement outlines its purpose:
- Grant the signatories Most Favored Nation (MFN) status
- Eliminate barriers to trade and facilitate the cross-border movement of goods and services
- Promote conditions of fair competition
- Increase investment opportunities
- Provide protection and enforcement of intellectual property rights
- Create procedures for the resolution of trade disputes
- Establish a framework for further trilateral, regional and multilateral cooperation to expand NAFTA's benefits
By 2018, Trump ensured that NAFTA was restructured as US-M-C-A.
According to the Office of the United States Trade Representative, US trade in goods and services with NAFTA in 2009 totaled $ 1.6 trillion, and has grown by a significant amount since NAFTA was implemented in 1994. The United States conducts a large proportion of its external with its two neighbors, and so trade with NAFTA represents a large part of US international trade. According to the same data set, exports to Mexico totaled $ 163.3 billion in 2010, and imports from Mexico totaled 229.7 billion in 2010. As we can see from the data, the US remains the biggest individual trade partner for both Canada as well as Mexico. But these two are not the US’s ‘biggest’ partners to that extent.
How NAFTA affected partner nations - A sample Data
One obvious advantage that Mexico had when it engaged into a free trade agreement with the United States was that being a developing country, its wages were much lower than the United States’ and it had a competitive advantage in manufacturing goods which required relatively more labour intensive inputs. Indeed, manufacturing jobs that are labour-intensive (like apparels) have moved to Mexico due to the cost advantage offered to firms who offshore their production there.
The negative impact of NAFTA has been greater on the US manufacturing sector compared to U.S service and agriculture sectors. For example, US textile and apparel employment decreased from 16,62,000 to less than 7,50,000 between 1993 and 2007 (US Department of Labour, Bureau of Labour Statistics; 1994, 2008). This was mainly due to capital intensive operations in the United States being supplemented. As an example, Fender Guitars, a manufacturer of musical instruments based in Arizona, used to manufacture all of its products in California pre-NAFTA, but now makes most of its products just south of the border in Mexico. According to the Economic Policy Institute, the United States lost 8,79,280 manufacturing jobs from 1993 to 2003 to the displacement of production caused by NAFTA. This phenomenon has helped larger US firms and consumers, but it has harmed manufacturing employment in the United States. The overall impact is still very hard to determine as there have been both winners and losers in the United States due to NAFTA.
NAFTA has largely benefited large US manufacturing firms who now have access to larger and cheaper range of inputs in the form of Mexican workers. Although they shifted manufacturing jobs from the US to Mexico, the demand for their products has only grown and so have their profits. It is not only the US workers in the manufacturing industry who have suffered from the opening up of free trade with Mexico, but small scale US manufacturers have been devastated by NAFTA as well. Before NAFTA, small scale US manufacturers filled niches left in the US market not met by large corporations, but as large corporations has taken advantage of cheap Mexican labor and flooded the market with cheaper goods that smaller firms' products cannot compete with.
In addition to US jobs being shipped to Mexico, US workers have suffered from NAFTA in other significant ways as well. Most of the jobs that were displaced due to trade were high-wage jobs which enabled US workers to attain middle class status. The possibility of jobs being moved to Mexico has also weakened the bargaining power of US labour unions. This effect is hard to quantify, but has had a large impact in the bargaining power of US workers. As large corporations could threaten to move jobs to Mexico if the unions did not comply with their demands, the corporations were in a significantly better position as regards to labor negotiations. This has the final effect of suppressing real wage gains for manufacturing workers in the United States. Finally this has had the impact of increasing income inequality in the United States as well, as labour has lost out and investors have gained due to large profits earned by the firms they invested in.
The impact of these job dislocations had not been uniform in the United States with some states and industries losing out more than others. The industrial heartland has suffered the most as it has seen its factories close and jobs shipped to Mexico. The auto-parts industry, a lot of which was based in Michigan and the surrounding Midwest states, has moved a lot of its productive capability to Mexico, where it does not have to deal with powerful labor unions in Mexico. Another industry that has seen a lot of jobs displaced is the apparel and the textile industry, but also other industries whose products are labor-intensive.
It is hard to quantify the exact effect that NAFTA has had on US jobs vis-a-vis Mexico in the manufacturing sector, as the US economy grew rapidly in the 90s and slowed down in the first decade of the 21st century. A booming economy increases jobs in all sectors, and a slowing economy caused employment to decrease in every sector. Because these rapid changes in the business cycle has coincided with the years after NAFTA was implemented, it is again difficult to exactly point out whether the US has lost jobs in the manufacturing sector due to NAFTA. Another fact that makes it difficult to determine the displacement of jobs is the fact that the United States has opened up trade with countries in Asia and losses of U.S manufacturing jobs can be attributed to opening up of trade with Asian countries like China as well. But it is safe to conclude that NAFTA has indeed shifted at least some US manufacturing jobs and capability to Mexico. US exports to Mexico rapidly grew under NAFTA, but this was far outpaced by import growth. According to BLS data, US NAFTA related job displacement has increased from 97,060 in 1993 to 9,76,339 in 2002 (BLS 2002). And according to the same data set from the BLS, manufacturing industries constituted 78 percent of all job losses caused due to NAFTA. The displaced workers in most cases do manage to find employment in the service sector, but these jobs pay much lower than unionized manufacturing jobs. The US workers in manufacturing sectors which have been responsible for a larger share of merchandise exports to Mexico after the implementation of NAFTA (mainly high tech industries) have gained in real terms, but this only constitutes a small proportion of U.S workers.
10.2 Impact on Mexican farmers
Critics of NATFA have argued that, like the US manufacturing sector, the Mexican farming sector has suffered greatly under NAFTA. Opponents of NAFTA claim poor Mexican farmers have been the biggest losers of NAFTA. The United States had a very clear advantage in the agricultural sector before NAFTA went into effect. Most farming in the United States in done in large scale farms by large corporations and they enjoy huge economies of scale. The United States is also far more advanced in science and technology and the agriculture sector in the United States has benefited largely from advances in science. Everything from pest-resistant seeds to combined harvesters gives the United States a large advantage in agricultural products. In addition to these advantages, the United States has had a long standing policy of supporting its farmers through subsidies. The 2002 Farm Bill legislation in the United States authorized about $ 259 billion in farm subsidies, and federal subsidies accounted for about 40 percent of US agriculture sector profits. After NAFTA, Mexico was flooded with below-cost corn and many rural Mexican farmers went out of business as they could not compete with subsidized US corn. This would later go on to have a large effect on the United States, as a large percentage of these rural Mexican farmers displaced by NAFTA moved to the United States in the coming years.
Mexican farmers are at a steep disadvantage compared to their US counterparts as they don't have access to the same levels of scale, subsidies and scientifically advanced seeds and fertilizers. Prior to NAFTA, a large percentage of the rural Mexican population farmed corn in small tracts of land mainly to feed themselves, but also to trade what they did consume. According to the Sierra Club, these poor farmers received a price 70 percent lower than what they were getting before NAFTA once the market became flooded with US corn. The Sierra Club also noted that about 2 million Mexican farmers have been forced to abandon their subsistence farming since NAFTA was implemented. According to UNTCAD estimates in 2007, NAFTA has helped to create only 7,00,000 manufacturing jobs in Mexico, but that is far from the 2 million jobs that have been lost in the agriculture sector. Not only that, but real incomes of many Mexican farmers has seen a persistent decline since NAFTA came into effect as corn prices have fallen. And like in the US manufacturing sector, whatever support the Mexican government has given to its farming sector has gone to its large farms and agriculture businesses, and the small players have lost out under NAFTA. Poverty levels have increased drastically in Mexico since NAFTA, according to World Bank statistics.
Another criticism of NAFTA is that it has made Mexico go from a country sufficient in agriculture, to a country that is dependent on the United States for its food, as Mexico is large consumer of corn and corn makes up a substantial proportion of the average Mexican family's diet. It is reasonable to conclude that the Mexican farmers and farming sectors have been harmed by NAFTA.
10.3 Post NAFTA Mexican immigration to the United States
The final chapter in the ever evolving story of NAFTA has been the subsequent large scale migration of displaced Mexican farmers and workers. Having been driven from their subsistence farming, many poor Mexican farmers found themselves with no choice other than to migrate to the United States to earn a living. Since the United States restricts immigration, many of them crossed the border illegally and work in the United States without work authorization. Most of them initially worked in the farming sector, but eventually they moved onto other occupations such as working in restaurants and construction. The number of migrants only increased in the late 90s and the 2000s and was at its peak in 2007 after which it leveled off mainly due to collapse in the US housing market. Estimates by the Department of Homeland Security put the number of illegal immigrants from Mexico at around 10 million at its peak. The remittance sent home by these workers has had a large impact on the Mexican economy.
Contrary to commonly held belief, not all migration to the US from Mexico is illegal, although illegal immigration far outweighs legal immigration. First, many Mexican migrants who become US citizens sponsor their family members to immigrate to the United States under the family based provision of US Immigration Laws. Second, the US gives out a very small number of temporary farm workers visas to Mexicans. Third, Mexican professionals with a college degree who secure a job in the United States are eligible to work in the United States under the TN visa, which is easier to obtain than the traditional H1B visa. The TN Visa is a provision of the NAFTA agreement designed to promote labor mobility with North America.
This large immigrant population has several effects on the US economy. First, it has provided the US farming, construction and restaurant industries with cheap workers and has helped to keep inflation low. But at the same time, some US workers have been displaced because of the large number of migrants willing to work for below legal minimum wage levels. Critics of illegal immigration claim that the illegal immigrants use up public services without paying taxes. Supporters of these illegal immigrants claim that they do jobs that American citizens normally do not do, and fill up an important void in the US labor market. But it is true that some, if not many, US workers have lost jobs due to competition from low wage illegal immigrants.
10.4 Conclusion
Although NAFTA has created controversy and has had its fair share of proponents and detractors, the fact is that NAFTA has created both winners and losers in the United States and Mexico. One important point to note is that efforts to determine its specific impact are complicated by the occurrence of other economic events, so it is difficult to exactly quantify the effects that NAFTA has had on the economies of the US and Mexico. The post NAFTA years were marked by the strong economic growth in the United States in the 1990s, the opening up of US trade with Asian countries, the Mexican currency crisis and slowdown in the US economy in the early years of the 2000s. If we are going to analyze US manufacturing employment post-NAFTA, we have to isolate the effects of NAFTA only as economic growth, slowdown and opening up of trade with other countries also affects US manufacturing employment levels.
The winners from NAFTA have been the US agribusinesses, manufacturing companies utilizing cheap labor in Mexico and American consumers. The subsequent large scale migration of low-skilled workers has supplied the US economy with cheap labor and helped to keep inflation low. The Mexican workers in their manufacturing sector have seen gains and so have Mexican professional workers who now have improved access to working in the US because of the TN Visa provision. The US manufacturing workers and smaller US manufacturers have lost out a great deal because of NAFTA. The biggest losers of NAFTA have been poor Mexican farmers. They, more than anyone else, have had their entire lives disrupted as a result of it.
11.0 ASEAN
The Association of South East Nations or ASEAN is s a geo-political and economic organisation of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include accelerating economic growth, social progress, cultural development among its members, protection of regional peace and stability, and opportunities for member countries to discuss differences peacefully.
ASEAN covers a land area of 4.46 million km², which is 3% of the total land area of Earth, and has a population of approximately 600 million people, which is 8.8% of the world's population. The sea area of ASEAN is about three times larger than its land counterpart. In 2011, its combined nominal GDP had grown to more than US $ 2 trillion. If ASEAN were a single entity, it would rank as the eighth largest economy in the world.
11.1 Analytical framework
Strengths
- Abundant natural resources
- Largest country group in Southeast Asia (CLMV)
- Intensive rice cultivation
- Different agro ecology
- Provide for food security and foreign exchange earning from export
Weaknesses
- Unattractive production prices
- High cost for farm inputs (such as fertilizers)
- Inadequate infrastructure (road, market, irrigation, market information)
- lack of access to rural credit
- ownership for farmers and Poor R&D
Opportunities
- Major player in the rice export market
- Investment in small infrastructure and much electrification can lower price disincentive
- The completion of partly constructed irrigation schemes can facilitate for higher productivity
- More participation of private sector
- More employment opportunities
Threats
- Ignoring current price distortions and disincentives can lead to reduce productivity
- Absence of regulatory mechanisms for land use restrictions
- Climate change
- Natural resource degradation
- Soil structure and ion toxicity in delta area problem, rice after rice region (especially Ayeyarwaddy)
11.2 ASEAN Targets
2015
Increase the rice export by
- 70 percent of HYV varieties
- 30 percent of HQV varieties
- With competition in ASEAN's Free Trade
2030
- Agricultural industrialization
- Good quality rice production for rural farmers
- High competitiveness in region (AEC)
- GDP per capita to be increased to USD 3500-4000
Primary challenges
- Strengthen the governance and institutions
- Maintain macroeconomic and financial stability
- Diversify the economy and strengthen the agriculture, planning, commerce and PPP
Secondary challenges
- Foster human capital
- Strengthen the industrial base
- Develop the economic infrastructure year by year
11.4 Policy options
- Promotion of GAP (Good Agriculture Practices), basically improved seed system, strengthen the farmers groups and cooperatives with post harvest technology
- Finance the whole rice supply chain providing credit through enterprises participating in contract farming with farmers and private sector
- Develop modern institutions to facilitate risks management and convey information and improve incentives on the whole supply chains
- Promote farmers-agribusiness and Myanmar Agribusiness Public Cooperation (MAPCO) partnerships for the future projects
11.5 India and the ASEAN
India's engagement with the Association of Southeast Asian Nations (ASEAN) now forms the cornerstone of Delhi's “Look East” policy.
Indonesian President Susilo Bambang Yudhoyono had attended India's Republic Day celebrations in January 2011. A similar visit by Sukarno for India's first Republic Day in 1950 was intended to cement ties among what was then the Non-Aligned Movement of developing countries unwilling to join either side in the Cold War.
The Prime Minister's visit in 2011 not just marked another step in India's "Look East" policy of encouraging greater engagement and integration between India and Southeast Asia. It also signaled two large democracies growing closer as authoritarian China grows more menacing.
The basis of the India-Indonesia partnership dates back to the founding fathers of these two nations - Jawaharlal Nehru and Sukarno - who offered a distinct foreign policy worldview that drew on their shared colonial experiences.
In the last decade, both New Delhi and Jakarta's worldview may have changed a bit, but the potential for partnership hasn't. India with its Look East policy substantially enhanced its presence in the region while Indonesia took the lead in bringing one of the world's fastest-growing economies closer to ASEAN. Both India and Indonesia want to seize the opportunities offered by landmark economic growth in Asia.
Economic engagement between the two is growing rapidly and gained momentum with the signing of the India-ASEAN free-trade agreement in 2010. The deal committed New Delhi to cut import tariffs on 80 percent of the commodities it trades with ASEAN, with the goal of reversing India's growing marginalization in the world's most economically dynamic region.
India and the 10-member ASEAN have concluded talks on a free trade agreement on services and investment. The FTA is expected to increase bilateral trade to $200 billion by 2022 and lead to talks on the Regional Comprehensive Economic Partnership, which would also include Australia, China, Japan, South Korea and New Zealand.
Indonesia will figure prominently in India's economic engagement with Southeast Asia. Beyond the regional FTA, India and Indonesia have started negotiations on a comprehensive economic cooperation agreement that would further liberalize trade. Indonesia is an important source of energy and raw materials for India. Bilateral trade between India and Indonesia is set to increase to $45 billion by 2015 from the current level of $16.80 billion.
Major Indian companies, including the Birla group, the Tatas, Essar, Jindal Steel and Bajaj Motors, are now operating in Indonesia. Indian investment is spread across banking, mining, oil and gas, iron and steel, aluminum, IT, textiles and telecommunications, among other industries.
Similarities in democratic governing systems and broad foreign policy outlooks have helped dramatically: Viewing India's maritime presence as benign, Indonesia has openly invited India to help littoral states in the region maintain the straits' security.
All of this is significant because it stands in stark contrast to China's approach to its waters, which has more often than not deteriorated to the threat of outright aggression. Unlike China's rise, which is increasingly viewed in the region as a reason for suspicion and alarm, India's poses no such threats. In 2019, ASEAN also gave a clear view on emerging Indo-Pacific matters.
12.0 Other major trading blocs
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