The ASEAN-India Free Trade Agreement (AIFTA) came into effect on 1 January 2010 for Malaysia and India. It is a remarkable milestone towards a freer market environment, and an important agreement for Malaysia as India is emerging as an important trading partner as well as a market for Malaysian exports. This FTA creates a market of 1.7 billion people with combined GDP of US$2.8 trillion and combined global trade of over US$2 trillion. Under the AIFTA, ASEAN Member States and India have agreed to progressively reduce and eliminate duties on substantial number of products over a period of 3-8 years beginning 1 January 2010. The Philippines, Cambodia, Lao PDR, Myanmar and Viet Nam are given an additional 2-3 years to reduce and eliminate their duties under this FTA.

Dato’ Sri Mustapa Mohamed says that Malaysia is committed to eliminate import duties on 6,792 products or tariff lines by 31December 2013, while duties on another 1,266 tariff lines would be eliminated by 31 December 2016. The import duties on 1,336 tariff lines which are considered to be products where domestic industries require some level of protection will be reduced to 5 per cent by 31 December 2016. The gradual reduction and elimination of duties are also to allow domestic industries sufficient time to adjust to increased competition.

On her part, India will undertake to eliminate import duties on 7,767 tariff lines or products by 31 December 2013 and 1,260 tariff lines by 31 December 2016. The import duties on 1,810 tariff lines will be reduced to 5 per cent by 31 December 2016.

Overall, by end of 2013, 71 percent of products exported to India will be able to enter the market duty free and another 10 per cent of products by 2016. In addition, duties on another 10 per cent of products will be reduced to 5 per cent.

This import duty elimination and reduction over the next 3-6 years will open market for Malaysian exports to India.

Malaysia excluded 898 tariff lines from tariff concessions. The products excluded are selected poultry products, tropical fruits and rice, iron and steel, automotive products, chemicals, alcoholic beverages; tobacco and tobacco products, and used tyres. These products are excluded based on intensive consultation that was held with the domestic industries which need longer time frame to enhance to their competitiveness vis-a vis India.

The products excluded from concessions by India are mainly agricultural products, textiles, iron and steel, automotive and ceramic tiles and this involves a total of 1,298 tariff lines. These products, however, are not excluded on a permanent basis but are subject to future review as provided for under the ASEAN-India Free Trade Agreement.

Economic factors indicate that India is a market with huge potential. Despite the global economic setback, India continues to register impressive economic growth. The growth in 2009 is expected at 6.9 per cent. It is forecasted to grow between 7-9 per cent in 2010 and 2011. The country continues to be fuelled by private sector driven economic growth. There is a rising middle class population estimated at 300 million. Today, India is the 12th largest economy in the world by nominal value and the fourth largest by purchasing power parity (PPP). Economists predict that by 2020, India will be among the leading economies of the world. India’s global trade is expanding rapidly.

Based on WTO report, India’s foreign trade totaled US$470.9 billion (Imports: US$293.4 billion and Exports: US$177.5 billion) and accounts for 1.5% of World trade in 2008.

These are positive factors that have to be taken into account by Malaysia. India has traditionally maintained high tariffs and over 80 per cent of the products imported into India attract duties ranging from 15-100 per cent. Malaysia and the other ASEAN Member States stand to gain from the FTA as the ASEAN can now export to India at preferential tariffs compared to India’s other major trading partners. ASEAN has a first mover advantage. Within the ASEAN countries, Malaysia was the 4th largest export destination and 2nd largest source of imports in the year 2008 for India.

Malaysia’s trade with India has been expanding in recent years even without the FTA as India embraces globalization and competition. Bilateral trade registered RM35 billion in 2008. Malaysia’s exports to India totaled RM24.7 billion. Major export products to India were crude petroleum, electric and electronic products, chemicals and chemical products, palm oil and sawn timber. On the other hand, Malaysia mainly imports manufactures of metal, cereal (maize), chemicals and chemical products, refined petroleum product and live animal and meat. There are opportunities with duty reduction and elimination to expand and diversify the range of products traded between Malaysia and India.

“There are ample opportunities for Malaysian and India businessmen to work together to form strategic partnership”, says Dato’ Sri Mustapa Mohamed. “R&D is an area where Malaysian companies could forge linkages to enhance their product strength, not only for the Indian market, but also the global market” he added. Other sectors where Malaysia and India can form strategic partnership are in ICT, pharmaceutical, healthcare, auto parts, machinery and equipment, rubber and palm oil based products. Many Malaysian companies are already actively involved in activities in India such as building of roads, rails, ports, airports and running of other services facilities. The FTA offers the opportunities for Malaysian companies to source their requirements for their projects in India from Malaysia.

YB Dato’ Sri Mustapa Mohamed will accompany YAB Prime Minister in his maiden visit to India on 19 January 2010, and the visit will give a further boost to the bilateral trade relations between Malaysia and India.