ASEAN-India Network of Think-Tanks (AINTT) Workshop

ASEAN-India Network of Think-Tanks (AINTT) Workshop

ASEAN-India Service and Investment Agreements and its implication on the Economic Cooperation between Laos and India Viengsavang THIPPHAVONG Economic Research Institute for Trade, MOIC, Laos 7-8 August 2012

Outline ASEAN India economic cooperation Framework agreements Summary of economic cooperation progresses Services and investment cooperation agreements Achievements and challenges Laos and India economic partnership under services and investment frameworks Current cooperation Potential cooperation in the future

ASEAN-India Economic Cooperation Look East policy of Indian government in 1991 seen as a turning point to enhance greater economic cooperation between ASEAN and India From 1991 onward many forms of agreements between ASEAN-India taken place AIFTA signed in 2009 marked as significant economic cooperation (enhancing trade in goods, services and investment ) between two parties. Estimated to complete by 2016.

Current ASEAN-India Cooperation Agreements Year Events/Agreements 1992 Sectoral Dialogue Partnership of ASEAN 1995 Full Dialogue Partnership of ASEAN 1996 Membership in ASEAN Regional Forum 1997 Establishment of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMSTEC) 2000 Mekong-Ganga Cooperation Initiative begins 2002 First India-ASEAN Summit and India-ASEAN Business Summit 2003 Framework Agreement on Comprehensive Economic Cooperation 2003 India signs Treaty of Amity and Cooperation 2003 ASEANIndiaJointDeclarationforCooperationtoCombatInternationalTerrorism 2004 ASEAN-India Partnership for Peace, Progress and Shared Prosperity 2005 India becomes member of East Asian Summit 2009 Signing of the ASEAN-India Free Trade Agreement (AIFTA)

Bilateral Trade Between ASEAN and India 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - India Exported to 6 old ASEAN countries Unit: US$'000 2004 2005 2006 2007 2008 2009 2010 Singapore Indonesia Malaysia Thailand Philippines Brunei Source: International Trade Centre (Trademap)

Bilateral Trade (cont) 2,501,000 India exported to 4 new ASEAN countries Unit: US$'000 2,001,000 1,501,000 1,001,000 501,000 1,000 2004 2005 2006 2007 2008 2009 2010 Vietnam Myanmar Cambodia Laos Source: International Trade Centre (Trademap)

Bilateral Trade (cont) 6 old ASEAN countries exported to India Unit: US$'000 10,001,000 8,001,000 6,001,000 4,001,000 2,001,000 1,000 2004 2005 2006 2007 2008 2009 2010 Singapore Indonesia Malaysia Thailand Philippines Brunei Source: International Trade Centre (Trademap)

Bilateral Trade (cont) 1,201,000 1,001,000 801,000 601,000 401,000 201,000 4 new ASEAN exported to India Unit: US$'000 1,000 2004 2005 2006 2007 2008 2009 2010 Myanmar Vietnam Cambodia Laos Source: International Trade Centre (Trademap)

ASEAN India Trade in services AIFTA has provided platform for liberalizing services and investment between ASEAN and India by 2016. Including services sectors in the AIFTA can bring about economic profits to both ASEAN and India (see graphs) ASEAN exported services to the world over US$220 billion in 2010 while India was more than US$124 billion (Trademap, 2012). However, opening up services sector under AIFTA seems to stalemate movement as some ASEAN countries afraid of disadvantages (unemployment issue), particularly on the Mode IV (Ghosh and Roy, 2011)

Share of ASEAN and India in World Services Export 7 Unit: % 6 5 4 3 2 1 2007 2008 2009 2010 2011 ASEAN's share in World services export Indian's share in World services export Source: International Trade Centre (Trademap)

Services Concerned by ASEAN and India under AIFTA negotiation ASEAN members tried to promote Mode 3 (supply of services through commercial presence ) for service liberalization. However, India pursued Mode 1 and Mode 4 (Cross border supply of services and the temporary presence of natural persons respectively) Thus mutual recognition agreements (MRA) was encouraged under AIFTA negotiation. Architectural, engineering and accountant services are seen to boost ASEAN-India cooperation in both service supply and investment under AIFTA.

Compared Revealed Comparative Advantage (RCA) in Service Sector Graph 1. Source: Ghosh and Roy, 2011

Graph 2. Source: Ghosh and Roy, 2011

Graph 3. Source: Ghosh and Roy, 2011

Graph 4. Source: Ghosh and Roy, 2011

Challenges impede services liberalization between ASEAN and India High protection level/ policy restriction Negative impact on GDP growth in some ASEAN members and India (Sildar and Nag, 2011) Increasing unemployment Lost market share

Service Trade Restrictions Index (STRI) by India and some ASEAN countries 70 65.7 STRI Index 60 50 40 30 53.5 50 48 46.1 41.5 23.7 20 10 0 India Philippines Indonesia Thailand Malaysia Viet Nam Cambodia Index interpretation: 0=Open without restrictions; 25=Virtually open; 50=Existence of major/non-trivial restrictions; 75=Virtually closed; 100=Completely closed Note: Graph represents STRI data for overall analysis sectors (Financial, Telecommunication, Retail, Transportation and Professional services) and overall mode of supply analysis (mode 1, mode 3 and mode 4) Source: The World Bank, Services Trade Restrictions Database

FDI between ASEAN and India FDI inflow from India to ASEAN member states increased gradually during 2008 to 2010 which rose 2.2% in average in those periods. However, it was dropped 154% in 2011 compared to 2010 which was from US$3.4 bill to US$-1.8 bill respectively. India ranked in number 8 on top ten FDI inflow in ASEAN (aggregated FDI data from 2008-2010)

FDI between ASEAN and India (Cont) Malaysia and Singapore represented ASEAN as the major investors in India, particularly in infrastructure sectors India strongly invested in service sectors of three ASEAN countries namely, Malaysia, Singapore and Thailand.

Total outflow investment in merchandise and services 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000-16,780 19,740 7,932 5,521 2,664 Unit: US$'000 million 853 487 17 5.7 5.9 0 Source: http://www.asean.org/22122.htm

Bilateral Relationship Between India and Laos

Lao PDR economic performance Lao PDR is on the rise of gradually increasing economic development, average GDP grew 7.9% (2006-2010). Services, Agriculture and Industry became the main sectoral composition of Lao GDP from 2006-2010. In 2009-2010, agriculture and forestry sector had accounted for 29%, services sector 39% and industrial sector 26% of Lao GDP (see graph).

Economic Structure of Laos from 2006-2010

Lao-India: service and investment cooperation Overall bilateral economic cooperation between Laos and India relatively small compared to other ASEAN countries. Current field of investment by Indian investors in Laos Developing power (US$13 million) Irrigation, and Industrial plantation projects (US$500 million) Total Indian investment in Laos between 2000 and 2009 was over US$352 million. However, India accounted for only 3.6 percent compared to other countries in total investment report from 2001 to 2009 in Laos. There are very limited or none investment outflows from Laos to India.

Possible economic cooperation between Laos and India Strengthening economic cooperation between Laos and India under Mekong-Ganga cooperation initiative. The potential sectors both Laos and India for maximizing economic profits : Tourism Culture Education Transport and communication

Recommendation Computers and information services or ICT increasingly play an important role in Laos economy as its economic growth. Thus, Laos and India can promote the economic tie through this sector Laos and India has long historical tied in culture which can be promoted through tourist development Laos still regarded as an agricultural country, has potential in large scale production. So investment in agro-processing industries badly need and Indian investors can take this advantages

Thank you