One of the clear, and early, successes of the UPA-II has been the conclusion of the free trade agreement with the Asean, comprising Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

The fullest extent of the pact will only be apparent in 2016, when the final package comes into its own. Only, that presupposes this FTA will not yield place to another closer, more encompassing, union between Asian economies. (Very few had dreamt of a 27-member state EU during the 6-member state European Coal and Steel Community-days of the early 1950s.)

Most significantly, the FTA hammers yet another nail into the coffin of the (oft-made) allegation that ?delinking? has been the reaction of the ten Asean member-states to the on-going recession! Such a supposition flies in the face of the Asean?s alacrity to conclude FTAs with both India and China. Neither demonstrates any great disillusionment with international trade. As for being protectionist, in 2006-07 only Vietnam?s average rate of tariffs (at 16.81%) exceeded India?s (14.49%).

Today, in fact, the ten are no longer amongst the biggest importing economies. They continue to be open, but?lacking seignorage?have been arrested by the forex constraints arising from the increasing impenetrability of the OECD?s demand constrained markets. That best explains the recent (2008) fall-off in Asean?s imports; instead of being the fallout of ennui with trading.

With the latter being in economic freefall, their imports too have fallen off. So the Asean have been unable to support imports, not because they have turned inwards, but because their currencies lack an US dollar-like seigniorage. That is quite evident from the World Bank?s April 2009 study, Battling the Forces of Global Recession. It relates to the economies of East Asia and the Pacific (EAP) region and shows just where lies the malaise.

Take Indonesia for example. By late 2008 it stared to restrict imports of food and beverages, textiles & garments, footwear, toys and electronics to just a few entrepots. The government justified that by saying that it was fighting smugglers; but it also stipulated that steel importers must get certification for their input needs. So, quite naturally, imports too went south with the Q3-Q4 2008 slowdown. That happened alongside a fall in private consumption and investment. Only greater official spending, sharply accelerated farm-sector growth and falling imports have been of some help.

Malaysia?s strong export focus on electronic & electrical goods too has fallen prey to OECD underconsumption. Although the World Bank expects Malaysian imports to fall alongside exports, that will be of little help: it projects that exports will decelerate faster. Thus, in January 2009, Malaysia?s exports fell by 36.1% (year-on-year). That was accompanied by a dramatic decline in the prices of crude and associated commodities. Although Q4 2008 export growth was 1.8%, imports have been plummeting: the Bank?s figures show imports down 11.7% from a year before.

Its estimates also suggest that Thailand will witness a fall in export volumes. That could come to as much as (-) 16% in 2009, fully reversing the 6% growth of 2008. Tourism (which accounts for 8% of Thai GDP) has also been clipped. So, it is entirely appropriate that imports too are billed to fall: that would be the only rational response of entrepreneurs who are de-stocking while reining in production. No wonder business investment is projected to shrink 5% in 2009, although in Q4 2009, official investments could again trigger growth.

The Lao PDR faces the biggest reverse: after export growth of 21% in 2008, it is expected to experience a 12% drop in 2009. And even there it is said that imports will fall by more. Indeed, such developments could result in the following oddity: the trade imbalance could get attenuated, and the current account deficit in 2009 could actually decrease to 6.1% from the 10.8% of 2008. Already, forex reserves are up.

Vietnam, though, seems to be different. Like its Asean peers, it too is losing out from falling export revenues: that owes to the fall in the prices of Vietnam?s exportables, plus lower a off-take of garments, footwear and others items in its trade basket. Yet, it seems that Vietnam more than makes up through FDI and aid what it loses owing to tighter export markets. Its trade deficit gets more than bridged by FDI, ODA and the inflow of remittances. (In 2008, the latter aggregated $16 billion.)

Although the Bank hazards that things would change in 2009 if there is a sudden fall-off in FDI, it does not see any sign of that happening as yet. Vietnam?s imports are anyway falling faster even than its exports. (Even the fact that foreign enterprises are big net importers means that the slowdown has its own panacea: lower FDI may dampen capital inflows, but it will also compress the trade deficit.) Vietnam might even turn the setbacks of its peers to its own advantage! That would occur if it is able to wrest greater market shares amidst the general ruin. (Falling in the Next-11 (N-11) grouping, it has come into the 9% growth bracket.)

Cambodia seems to be different, alas. Its inability to maintain growth even in the domestic arenas of construction and real estate should have yielded the positive fallout of a lowering of forex outgo, owing to a simultaneous fall in imports. Q4 2008 witnessed the import of building materials falling by 7% over Q4 2007. Despite that the current account deficit attained a 15%-of-GDP peak in 2008. Driven by robust consumption, high crude and petro-product prices, the 2008 current account deficit was at twice its earlier peak. Cambodia, clearly, is not ?delinking?!

Finally, amongst the bigger Asean economies, even Singapore has been unable to buck the trend of exports within the grouping. Its merchandise export growth for 2008 as a whole stood at just 12.9%, while in December 2008 it declined by 21.9%. The latter was the second biggest fall from amongst the grouping?s major countries. (The Philippines recorded a 40.3% decline for that month!) And even Singapore?s current account surplus that year turned out to be the lowest in years: it came to 14.9% of GDP, compared with the recent, 2006, peak of 25.4%.

These have all been major setbacks for an economy that belongs to a region with a track record of high export-to-GDP ratios: Singapore?s own is nearer to 175%. The numbers all attest to why Singapore?s GDP actually fell by 4.2% in Q4 2008 while East Asia?s grew by 2.4%.

But what is clear is that they all see India, its growing domestic tariff area, and 7-9% GDP growth rate, as all too important to ignore any further. It could become an important export market and an equally important co-producer of goods & services. The emerging division of labour has everything to recommend it. As for freer trade, that will hike production and allow greater specialisation through the expedient of greater intra-industry exchange.

?The author is a fellow at the Maulana Abul Kalam Azad Institute of Asian Studies, Kolkata. These are his personal views