Asia?s dense web of trade networks has intensified further in this year. Two major regional trade agreements came into force from January 1, 2010. The first of these was the China-Asean Free Trade Area (CAFTA). The second, also an FTA, but implying a free trade agreement rather than a free trade area, took off between India and Asean (IAFTA).

Both agreements indicate China?s and India?s intentions to access the Southeast Asian market by formalising trade relations with Asean. Both deals, however, have irked certain domestic constituencies and might generate more protests down the line. India?s plantation and oilseed farming lobbies have been opposed to the IAFTA on concerns over cheap Asean imports of spices and palm oil. On the other hand, Indonesia has expressed concerns over the CAFTA leading to flooding of cheap Chinese imports in its domestic market.

The scale and scope of the two deals are different. The CAFTA is larger than the IAFTA. CAFTA covers a total population of 1.9 billion, while the IAFTA covers 1.7 billion. Both, in terms of their coverage of people, are among the largest trade zones in the world. In terms of combined GDP at current market prices and total trade, CAFTA amounts to $6 trillion and $4.3 trillion, respectively. The IAFTA, on the other hand, has combined GDP and trade of $2.6 trillion and $45.8 billion, respectively. While the difference between CAFTA and IAFTA in population and GDP has much to do with China?s greater geographic and economic size, the difference in trade levels is conspicuous. The latter indicates the extent to which China and Asean have integrated into each other?s networks. Similar integration between India and Asean, till now, has been much limited.

There are no surprises in China-Asean trade flourishing more comprehensively than India-Asean trade. The CAFTA is the culmination of a five-year phased reduction in tariffs by both sides. Such calibrated reductions have led to around 7,000 items between China and Asean being currently traded at a zero tariff rate. Thus, Chinese and Asean products had begun obtaining greater access in each other?s markets from as early as 2005. Such access helped production networks from both sides to trade deeper with each other and strengthen the intra-industry trade linkages.

In contrast, after signing a framework economic cooperation agreement with Asean in 2003, India?s negotiations with Asean on a goods FTA lasted for more than five years. It is only from January 1, 2010, that exports from either side have begun getting greater access in each other?s markets, in a phased manner. Thus, while China-Asean trade linkages were being helped by falling tariffs for five years, India-Asean trade did not benefit from any such facilitating measures. Indeed, while a large chunk of goods are being currently traded at a zero tariff rate between China and Asean, a similar process has just begun between India and Asean.

India?s market access gains from the IAFTA will certainly be partly neutralised, given the CAFTA. As it is, Indian exports will make limited market access gains in the Asean market compared to Asean exports in the Indian market. This is because at the time of commencement of the IAFTA, average Indian tariffs were much higher than comparable Asean tariffs. As the IAFTA rolls out, Indian tariffs will be cut far deeper than Asean tariffs, giving the latter?s exports relatively greater access in India?s domestic market.

What are India?s options for securing greater economic gains? From the IAFTA perspective, India?s biggest gains are expected from services. The talks are currently on and need to be pursued vigorously for reaching a quick conclusion. Difficulties are expected to arise from domestic labour market concerns regarding cross-border movements of professionals.

The other option is to look at closer trade ties with China. Ground realities indicate that it makes eminent sense for India to build a closer trade link with China. Indo-China trade at $41.8 billion is not too far behind the India-Asean trade of $45.8 billion. Both these figures are minuscule compared to the China-Asean trade. The latter is expected to increase at a faster rate than India-Asean trade since CAFTA ensures deeper and quicker market access than the IAFTA. Moreover, most of India?s current exports to China suffer from lack of relative comparative advantage vis-?-vis similar exports from Asean. The relative disadvantages of Indian exports in both Asean and Chinese markets can be significantly overcome if India can work out a formal trade agreement with China.

The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views