Free Trade in Asia

Sources:
Mercury News: Malaysia and India Ink Free Trade Pact
SIFY News: Malaysia and India Sign Free Trade Agreement
Daily News and Analysis: India, Malaysia Sign Comprehensive Market Opening Pact
News Center: India Signs Trade Pacts, Wants Doha Talks Concluded in 2011

India and Malaysia signed a free trade agreement, one in a series of Comprehensive Economic Cooperation Agreements (CECA,) on Friday as India looks to develop its economic ties in Asia. The Indian Commerce Minister, Anand Sharma, and his Malaysian counterpart, Mustapa Mohamed, were the two officials to sign the treaty. The deal will expand upon a trade pact India and the Association of Southeast Asian nations (ASEAN), of which Malaysia is a member, enacted in January of last year. The Malaysia-India agreement is more extensive than the prior agreement between India and ASEAN because the new agreement will cover new services and forms of investment not in the first pact. The agreement will also reduce Indian tariffs for Malaysian palm oil exports and accelerate current plans to reduce and eliminate other tariffs between the two nations.

In 2009, trade between India and Malaysia totaled $7.3 billion, and India was Malaysia’s 13th largest trading partner in 2010. Malaysian authorities estimate that Indian investment in Malaysia reached $15.9 billion last year. Most of Indian investment in Malaysia is production oriented and related to building scientific equipment, metal products, and furniture and fixtures.

However, other economic sectors will also benefit. The CECA reduces trade barriers on a wide array of services ranging from telecommunications, research and development, transport, retail and environmental services, and even some professional services. Another way services will benefit is by decreased restrictions on movement of skilled workers and professionals in these fields.

The Consortium of Indian Industries in Malaysia (CIIM) said the CECA will open up several business opportunities in Malaysia, especially for the Small and Medium Enterprises (SME) and services sector. (SME refers to businesses whose number of employees falls below a certain number.) The SME sector of the Indian economy employs over 25% of India’s workforce, 39% of India’s manufacturing output, and 33% of India’s exports. The SME sector has also outperformed the industrial sector in India in its growth. CECA is thus a gain for a key sector of the Indian economy.

This free trade agreement with Malaysia is part of India’s Look East policy which is India’s effort to create closer economic ties with Asian nations through free trade agreements. India has signed a CECA with Thailand and has signed a Comprehensive Economic Partnership Agreement (CEPA) with Japan that has similar effects as a CECA. With China, India, and Japan all in the same region, India is seeking to make its economy as competitive as possible by lowering trade barriers while at the same time improving relations between the itself and its two powerful neighbors. Additionally, India will sign a free trade agreement with the European Union later this year that, geographically, may not be part of the Look East policy but will have the spirit of the Look East policy in it.

Discussion:
1. Does India have purely economic interests as the motivating factor in its CECA deals, or are these CECA pacts primarily a way to counter Chinese influence in Asia?
2. Why does the SME sector play such a large role in the Indian economy?