News reports quoted her as having had an "amusing discussion" with the Union Minister of Commerce and Industry, Kamal Nath, about the list of 1,414 products, which had been placed by Indian officials in the FTA Exclusion List, thereby shielding them from trade liberalisation. Malaysia is the country coordinator and the chair for the AIFTA. Well, six months later the list has 850 items, but the Malaysians are no longer amused.

Instead the Association of Southeast Asian Nations (Asean) has suspended free-trade talks with India. The negotiations had become "difficult", Rafidah Aziz said, since goods on the so-called exclusion list account for some 30 per cent of Southeast Asia's exports to India.

The implementation of the AIFTA has already been delayed by over a year and both sides have dropped a proposed "early harvest" programme of tariff cuts. The new deadline for implementation of the FTA was Jan 1, 2007, but uncertainty reigns again.

For its part India has put up a brave front saying trade talks between India and Asean are very much alive and Malaysia's trade minister was not speaking for the bloc when she said they have been suspended.

The official spokesperson of the Commerce Ministry said: "We are surprised by the statement [by Malaysian Trade and Industry Minister Rafidah Aziz] as talks at the official level are continuing and there have also been some forward movement. Officials of India and Asean had a meeting on July 21 in Singapore to resolve the impasse and they agreed to come forward with specific proposals within 15 days."

Talks with Asean had been stuck for a while on the issue of duty cuts on palm oil, tea and pepper. While Asean wanted India to undertake steep duty cuts, New Delhi had proposed a regime under which import duty would be reduced only for a fixed quantity of imports every year.

Asean had rejected India's offer and had suggested pruning India's negative list to just 60 items against its offer of 854 items. Last week India agreed to consider a compromise formula to break the impasse wherein India's negative list would be split in two - one with items where duties will never be cut, and the other containing sensitive items like palm oil, tea and pepper on which there would be no duty cuts for the first five years, followed by gradual cuts over the next decade.

Evidently Asean was unimpressed. Should we really be surprised? While the Indian prime minister envisions a Pan-Asian Free Trade Area, talks of "the arc of advantage" and says, "This web of engagements may herald an eventual free trade area in Asia covering all major Asian economies and possibly extending to Australia and New Zealand", the actual potential for trade between India and Asean remains under-utilised.

In fact, India has a long way to go to in Southeast Asia where economic and trade relations hugely tilt in Beijing's favour. By the end of 2005, China's trade with Asean stood at US$130.4 billion (Bt4.88 trillion), rising from US$6.7 billion in 1990 as opposed to India's US$16.97 billion in 2004-05. Although the latter's trade is expected to rise to US$30 billion by 2007, trade between Beijing and Asean has also been growing at an impressive rate of over 23 per cent on a year-on-year basis.

Between 2002 and 2005, China-Asean trade has registered more than 100 per cent growth, rising from $54.8 billion in 2002 to $130.4 billion in 2005.

Analysts suggest that once the China-Asean Free Trade Area is established in 2010, the trade volume between China and Asean will reach US$1.2 trillion.

Undoubtedly the concerns about the impact of Asean-India free trade on Indian agriculture have some merit especially since the Southeast Asian countries are some of the most efficient global producers of rice, palm oil, plantation crops like coffee, tea and spices like pepper.

Yet it is only recently that the Confederation of Indian Industry (CII) has started work on a set of industry recommendations to come up with guidelines for signing Free Trade Agreements. It is expected that the WTO and other Trade Agreements Committee of the chamber will submit the recommendations within a month. This is the first time an industry body is preparing a guideline on FTAs even though questions have been raised regarding the spate of FTAs being signed by India.

However, the current state of WTO negotiations starkly underline the importance of stronger bilateral and regional trading agreements for India. And, the Asean-India free trade agreement is the country's most significant move towards regional integration of its economy. In the words of Union minister of state for commerce Jairam Ramesh "macro benefits, but micro pains". Therefore, as former diplomat G Parthasarthy wrote recently, "Over the past 15 years we have steadily lowered tariff barriers on industrial products and forced industry to become globally competitive. Is it not time to treat the agricultural sector similarly?"

For India, the benefits from AIFTA lie in cheaper imports, better quality products and market access, investment flows, joint ventures, technology transfers, expansion of market in services, trade facilitation, harmonisation of customs procedures and removal of non-tariff barriers.

The Asean-India free trade area is expected to create a large market of 1.5 billion people, with a combined present GDP of $1.8 trillion, and will cover investment and services, in addition to trade in goods. Most importantly, today an FTA is as much a political as an economic statement. The slow pace of economic reforms and lack of better integration of its foreign and trade policies has already made many sceptical about whether India will be able to effectively sustain its "Look East" policy, despite all the hype associated with the prime minister's annual trips to the region.

For example, though Asean conducts a "Plus Three" dialogue with China, Japan, and South Korea, it pursues a separate dialogue with India.

The official 2003 press statement on these four summits delicately noted in the case of the "Plus Three" countries that Asean was "consolidating" relations, but only "enhancing" relations with India. In 2004, the watchword for the Asean Plus Three was "strengthening" relations, but for India it was "deepening" relations. The failure to speedily conclude the AIFTA will have India still remaining an outsider.

The Statesman of India is a member of the Asia News Network.

Sanjana Joshi

The Statesman of India

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