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Jan 9, 20196 min read

How India’s ‘Act East’ Policy can be a solution for the USA lead economic crisis

India’s Act East Policy, which was brought in few years earlier has now become more significant amid rising interference in the free market, mostly by USA. India has not been able to keep itself immune to US sanctions. With USA imposing sanctions worldwide, India has faced both direct and indirect consequences. It is yet to deal with the issues on Iran sanction and the impact of the S-400 deal of India with Russia through USA’s Countering America’s Adversaries Through Sanctions Act (CAATSA).[i] This is in addition to the higher tariffs earlier imposed by the USA on Indian steel and aluminum industries.[ii] There has been some retaliation from India but it would not be very effective until the issue of US hegemony is solved, which some argue is here to stay.International Economic Law, or rather any International Law is somewhat subjective to politics, and politic finds its roots in power. It is desirable to counter the hegemony so as to facilitate flourishing of better International Economics Law.[iii]

So what options are available to India look forward to minimize the negative economic impact on USA led politics? I am not arguing that we can escape from the impacts in near future, but there remains a possibility for less complications if Act East Policy is taken forward and reliance from USA is shifted towards Southeast and East Asian countries. It would be a slow and gradual process to be at a position to care less about ‘sanctions. Act East policy focuses on upgradation of ties with ASEAN countries, Japan, Malaysia, Indonesia, Vietnam, Republic of Korea and Australia.[iv] There is sufficient natural resource, human resource and technological resource in the region to boost the economy.[v] In addition to that, there can be a better connectivity for transportation.[vi]

With India and even other member nations now emphasizing more on the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), the prospects of trade are hyped between South Asian and Southeast Asian economies. According to a statement by senior official, a free trade agreement can help BIMSTEC trade to grow up to USD 240 billion.[vii] Necessary preconditions to success would include prioritizing physical connectivity, infrastructure and successful introduction and implementation of free trade agreement. Even the World Bank in a report said that India has a potential to raise the trade with South Asia upto $62 billion, which is thrice of current trade value.[viii]

Historically, the emergence of separate identity of South Asia and Southeast Asia can be traced back to different path taken up by the states. It’s one aspect is the fact that India opted for non-aligned path while Thailand went with US under Southeast Asia Treaty Organisation (SEATO).[ix] However, in today’s era of inter-connectivity, it is highly desirable to bridge the gap seeing the potential. There are several ongoing projects under ambitious BIMSTEC action plan. In fact, Motor Vehicle Agreement and Coastal Shipping Agreement may soon get finalized.[x]

Regional Comprehensive Economic Partnership (RCEP) is another proposed free trade agreement, which is likely to complete by the end of 2018. It includes ASEAN nations along with India, China, Australia, Japan, South Korea and New Zealand.[xi] It is another gateway for India to explore better trade opportunities with the largest economies in Asia, i.e. Southeast Asian countries, China and Japan. It would be the largest agreement in terms of population involved, i.e. almost 50% of the world population.[xii] According to one estimate, if successful, it would bring $260-644 billion to the world economy in a decade.[xiii]RCEP would be complementing existing Free Trade Agreement with the ASEAN. Although, one would be skeptical with the presence of China, which could get more access to Indian market, I would argue that first aim should be create room for negotiations. It would be giving more opportunities that have to be grasped first.

Such associations are essential as they promote more Free Trade Agreements (FTA’s). FTA’s bring variety in trade partners which eventually would break the risk of hegemony of one state. Moreover, as the international law grows, functioning of such associations will also get better and eventually, their importance in respect of international trade will also increase.

Apart from such associations, there are also prospects to look for individual states as strategic partners. India and South Korea have made an attempt to forge better relations and a commitment to lift the trade upto $50 billion a year by 2030.[xiv] This year states updated theComprehensive Economic Partnership Agreement (CEPA), which is a detailed FTA, and the Korean government has agreed to reduce tariffs on 17 Indian products, mainly food items.[xv] This would help India to better the trade balance against South Korea.

India-Australia ties have been comparatively weak up until now. However, last year the Australian foreign policy whitepaper clearly stated that ‘India now sits in the front rank of Australia’s international partnerships’.[xvi] The Australian government has shown an interest to elevate India as a ‘priority economic’ partner.[xvii] With India already being the fifth largest trading partner of Australia, states are committed to set up a high quality FTA focusing on education (which is apparently the flagship sector), agribusiness, tourism, infrastructure, health, financial service, sports and science.[xviii]

However, there are practical difficulties and the actual negotiations can be quite complicated and slow. For example, BIMSTEC still works on Bangkok Declaration of 1977 and the functioning agreement draft is still in progress.[xix] In addition to it, India may have problems with certain tariff liberalization policies in the negotiations and might go with some reservations. India-Australia bilateral agreement is long delayed.[xx] Despite all these functional issues, India is working and must continue working in accordance to the Act East Policy. There are long term advantages to not only counter the current hegemony of USA, but also for protection against the upcoming (or rather existing in Asia) Chinese hegemony. There is no denial of fact that India is in a best position to keep check on rising hegemony in future. This may also be an added advantagefor India. It gives reasons for other economies to bet on India for now. It gives a scope to build more ‘natural’ allies. Moreover, with largest working population and scope for infrastructural development, India can be seen as a natural trading partner for many countries.

There are two benefits involved in the process, first that more and better trading partners will give strategic benefits. It would help to keep check and also put India on the driving seat. The idea here is simple, it is just like a consumer driven market that gives more options which ultimately benefits consumers.Therefore, every attempt shall be made to create room for more trading partners with high quality FTAs. Secondly, it would also help to regulate the international economic laws efficiently. International law can be tricky at times when it comes to implementation. I argue that it would be better implemented when violation would result in a ‘potential loss’ through cost benefit analysis. This approach, might be slow, but has a potential to bring some long-term benefit to not just only India, but to the world economy.

This post has been authored by Vivek Pandey, a fourth year law student of Symbiosis Law School, Noida. 

 
 
 

[ii]Parisha Tyagi, US to exempt Indian steel, aluminium from high tariffs,

[iii]See PD Dr. iur Krista NadakavukarenSchefer, Power-politics in the age of a tempestuous International Economic Law system,https://nujssitc.wordpress.com/2018/09/15/power-politics-in-the-age-of-a-tempestuous-international-economic-law-system/.

[iv] Press Information Bureau, GOI, Ministry of External Affairs, http://pib.nic.in/newsite/PrintRelease.aspx?relid=133837.

[v]See Regional Comprehensive Economic Partnership (RCEP)

[vii] PTI, Implementation of Free Trade Agreement can help grow intra-BIMSTEC trade: Official, The Economic Times (Sept 24, 2018).

[viii] Kritika Suneja, India-South Asia trade has potential to triple to $62 billion, says World Bank, Economic times (Sept 24, 2018).

[ix]Costantinio Xavier, Brifging the Bay- Towards a stronger BIMSTEC, 2018, pg 7, https://drive.google.com/file/d/0Bw5iVdDDVNCRSE92ZFBmdndFNzdQcllKM3VzRUp5U1YyclY4/view.

[x]  RSIS, BIMSTEC: Why It Matters- Analysis, Eurasia Review Journal, ISSN 2330-717X, https://www.eurasiareview.com/26092018-bimstec-why-it-matters-analysis/.

[xi]Regional Comprehensive Economic Partnership (RCEP)

[xii]  Rakesh Bharti Mittal, RCEP: India must safeguard its interests, The Hindu BusinessLine (Aug 29, 2018).

[xiii]Ibid.

[xiv]Yuji Kuronuma and Yosuke Onchi, South Korea and India to double trade by 2030,

[xv]  Rohini Singh, India, South Korea Trade and Investment Ties: Focus on CEPA, Make in India,

[xvi] Indo–Pacific partnerships

[xvii] Securing opportunity globally

[xviii]KirtikaSuneja, Australia committed to concluding a high-quality FTA with India, says Australian High Commissioner, The Economic Times (Aug 8, 2018).

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