REVIEW OF LITERATURE

AIFTA-AN ANALYSIS OF GOODS AND

INVESTMENTS: Is there a possibility for RVC
creation for India?

Objective: In this paper we will review the association of India and ASEAN economies under
the free trade agreement and then further the trade trend changes that have occurred after
implementation of FTA. With the help of this literature, the study will highlight the
possibility of creation of Regional Value Chains by analyzing the trade relations between
India and ASEAN.

Submitted To: Submitted By:

Dr. Muralli Kallummal Aaroohi Dudeja
(Ph.D. Economics) (Masters in Economics)
Professor at IIFT IGNOU
REPORT ON AIFTA-AN ANALYSIS OF GOODS AND INVESTMENTS: IS
THERE A POSSIBILITY OF RVC CREATION IN INDIA?

INTRODUCTION

The paper reviews signing of trade agreement between India and ASEAN (in 2014) after
India’s ‘Look East’ policy picked up steam with the conceptualization of the signing of
agreement in 2003. It focusses on the changing patterns of the bilateral trade that have
been occurring since then.
• The first objective of this paper is to analyze the investment sentiments between
ASEAN and India that took place after the finalization of trade pact in 2014.
• The second objective focusses on the regional trade agreements (RTA) that are an
exception to the WTO rules and how these RTAs have been of great importance to
trade between ASEAN and India.
• The final objective of the study is to look at the trade pattern changes and examine
whether there can be formation of the Regional value chains.
 1. INDIA AND ASEAN: TRADE PACT ON SERVICES AND INVESTMENT
(2014)
India announced a ‘Look east’ policy in 1991 in order to cultivate and strengthen economic
and strategic relations with the nations of Southeast Asia in order to solidify its standing as a
regional power. This policy was developed by the P.V. Narsimha Rao government and was
later changed to ‘Act east’ policy in 2014. As this ‘Act East’ policy took pace India signed an
agreement of Bilateral Trade with the ASEAN countries.

India and ASEAN economies have been under the free trade agreement since 2010. For
India, the AIFTA will bring a great deal of gains in multiple areas, agricultural products
processing, rationalization and expansion of manufacturing sector and their service sector
gains. Shedding light on the service sector, a FICCI report suggested that imports from
ASEAN were witnessing an upward trend for the services. The global share of ASEAN’s
services rose effectively and thus Indian service providers had an opportunity to cater to the
growing demand for services in ASEAN, which lead to signing of a formal agreement
between India and ASEAN in November 2014(in the service sector) (which came into force
in 2015).

The table below shows the systematic reviews of various studies conducted on the ASEAN
and India free trade agreement.
[Link]. AUTHOR PAPER OBJECTIVE METHODOLOGY CONCLUSION SOURCES
TITLE
1. Chandrima Impact of The study The present • India’s [Link]
bilateral trade
Sikdar & India- analyses the study used the [Link]
with ASEAN
Biswajit Nag ASEAN Free impact of trade version 7 of the has increased [Link]/sites
(2011) trade agreement GTAP database considerably, /default/fil
agreement: between India and the GTAP with its es/AWP%2
A cross and ASEAN modelling imports rising 0No.%201
more than the
country members using framework to exports. [Link]
analysis the GTAP as an study the • India gains
using analytical tool. impact of India- largest market
applied ASEAN trade in countries
like Vietnam,
general liberalization on Cambodia,
equilibrium various Thailand, etc.
modelling important • As for the
macroeconomic ASEAN
countries,
indicators such positive
as wage, welfare gains
employment, have been
etc. experienced
by Malaysia,
Thailand and
Singapore,
with the
largest
accruing to
Singapore.
• AIFTA has
resulted in a
lot of trade
diversion, i.e.
many
countries like
Sri Lanka,
 Bangladesh,
etc. have lost
a lot of their
market share
in India
because of
increasing
trade
between India
and ASEAN.
2. Veeramani S. An Analysis • This paper The study uses • India and
ASEAN are
& Anam of India- analyses revealed [Link]
important
(2018) ASEAN the trade comparative trade partners [Link].c
trade: performan advantage but growing om/Maste
Towards ces and (RCA) and TRADE rAdmin/U
regional destination DEFICIT needs ploadFolde
imbalances
attention for
comprehen of trade specific further r/JOM_05
sive between Revealed analysis. _04_010/J
economic India and comparative • Heavy imports OM_05_04
partnership advantage (DS- of not so _010.pdf
ASEAN.
important
• Also, it RCA) to find items and lack
suggests export of export of
the ways of competitivenes items with
s of major comparative
strengtheni
advantage is
ng the commodities/se the main
trade rvices exported cause of
relations of by India and increasing
imported by deficit.
India and
• Indian
ASEAN. ASEAN. products face
heavy
competition in
ASEAN from
Chinese
products.
• RCEP of
ASEAN and
India can be
looked into
the dream of
the
development
of a common
market for
trade balance.

3. Anil Varma ASEAN- • Provides Use of HS codes • Almost all

(2015) India Free review to to work on the the ASEAN
countries
https://
Trade the India- pattern of trade
agreement: ASEAN between Indian indulge in [Link].
An trade and ASEAN.
trade with uni-
India via the
assessment provisions FTA route.
muench
of by looking • Exports have [Link]/75
merchandis at the not seen 035/1/M
e exports export and much of a
and import change
PRA_pap
imports merchandi whereas the er_7503
se. import [Link]
• Also basket has
observed a
focusses
lot of
on the change.
direction
 of India’s • Many
trade with countries
the ASEAN. will enjoy
the high
productivity
of India
under the
Free Trade
agreements
at a very low
cost.
• The high
complement
arity
between the
primary
sector of
India and
ASEAN is
expected to
reduce
India’s gains
from trade.
4. Tham Siew Reassessi • The study Two models are • AIFTA is a [Link]
Yean & seeks to used here to step forward
ng the compare the to foster
[Link].
Andrew Kam study the
Jia Yi
impact of impact of impact of the closer my/fep/j
(2014) ASEAN- AIFTA on
free trade
economic em/pdf/
the export ties between
India Free of
agreement the
2014-
Trade manufactur between India countries in 48(2)/jek
Agreeme ed goods and ASEAN. this o_48(2)-
from ASEAN agreement.
nt. to India and • The first • Lowering
[Link]
vice versa. model tariff
• It also studies the barriers will
focusses on impact from improve
the relative ASEAN’s ASEAN’s
importance perspective. manufacture
of the trade • The second d exports to
liberalizatio model India.
n in the studies the • There’s a
AIFTA trade impact need for
compared from India’s collecting
with the perspective. better and
other more
contributory Regression has accurate
factors in been used to data on
the export trade costs
study the trade
of between
manufactur impact in the ASEAN &
ed goods models. India, so as
between to check
India and upon the
ASEAN. role of trade
costs in
facilitating
trade
between
partner
countries of
AIFTA.
 • ASEAN’s
implementat
ion of the
ASEAN
Framework
Agreement
of Services
and
investment
initiatives
must be
monitored
well for the
impending
agreements
on services
and
investment
in India to
be well.
5. Rahul Sen, ASEAN- The paper The paper uses • Ideological https://
Mukul G. India examines the macroeconomic and
future of ASEAN- indicators of India information
[Link]
Asher & economic
Ramkishen S. relations: India economic and 6 ASEAN al blinders earchgat
relations along members to are to be [Link]/pu
Rajan Current
with focusing on compare trade lifted so that
(2004) status and the ASEAN- India and economic the
blication
future FTA, trade flows relations. complement /229005
prospects in merchandise arities of 649_ASE
trade, services trade
trade, etc. between
AN-
India and India_Ec
ASEAN are onomic_
realized.
• Effective
Relations
negotiation _Current
techniques _Status_
should be
taken to
and_Fut
facilitate ure_Pros
trade pects
between
India &
ASEAN.

6. B.P. Sarath Trade • The study The use of • Comparison https://

focusses on Augmented of results
Chandran impact of the exact Gravity Model for [Link].
across the
(2018) India- nature of analysis of the models uni-
ASEAN relationship data framework. revealed the muench
Free between • Export data Augmented [Link]/84
formation of of the Gravity
Trade regional country is Model-2 is 183/1/M
Agreeme grouping collected best suited PRA_pap
and its trade using the here for the
nt: An outcome.
er_8418
World study with
augment • Looks into Integrated parameters, [Link]
ed gravity the trade Trade signs and
impact of System exponential
model AIFTA using (WITS) powers.
analysis the maintained
Augmented
• The paper
by IMF,
strongly
Gravity
 Model panel UNCTAD and reasons the
data WTO. possibility of
framework. • Disaggregate greater
d trade data trade
such as HS-2 between
are collected India &
from ASEAN
COMTRADE through
database of RTA. Some
the UN. tariffs are
higher in
India as
compared to
other
members of
the ASEAN
so in order
to
operationali
ze and reap
the proper
benefits of
this FTA, the
agreement
should go
beyond just
goods and
must be
extended to
services and
investments.
7. Seema Gaur Framework The study looks The report takes The FTA and the https://
agreement upon the fact up the trade data regional trade
(2003) that how regional and compares the agreements
[Link]
on [Link]/st
co-operation imports and between India
comprehen agreements were exports made by and ASEAN
sive
able/pdf
regarded as India with other present a
Economic precursors in the countries. concrete step
/257737
co- past and how towards [Link]?r
operation they have increasing efreqid=
evolved from the economic
between excelsior
same now. integration. But
India & These trade there are things %3A50fc
ASEAN agreements are that both India b57c894
now considered and ASEAN
as nations need to 592120c
complementing focus on- 1fb4a0e
and are having a • Enabling 95a6dec
positive effect on proper
global trade policy
liberalization. frameworks
Main provisions for
of these deepening
agreements of trade and
focusses on: investment
• Looks after ties.
the trade in • Greater
goods and interaction
the between
measures India &
that are ASEAN
being nations
undertaken through
 to liberalize regular
this trade. business
• Other than meets, fairs,
trade in etc. is
goods, it crucial.
looks after • Enhanceme
the trade in nt of
services and transportati
promotion on &
of communicat
investments ion linkages.
. Other than these,
• Looks upon both India and
the areas of ASEAN should
economic complete the
cooperation. necessary
• Importantly, domestic reforms
looks after to make their
the dispute economies more
settlement competitive &
mechanism. resilient to
withstand the
pressures of
trade
liberalization and
gain from the
Free Trade
Agreement.

The table above shows the literature that has shown the risen interest in studying the trade
relations between India and ASEAN.
• Nag and Sikdar (2011) studied the impact of the AIFTA using the applied General
Equilibrium Modelling. Their paper discussed the fact that AIFTA will boost the bilateral
trade between two regions. It was observed that India had its ASEAN trade mainly
concentrated in Indonesia, Malaysia, Singapore and Thailand, where Singapore has been
the largest destination for Indian goods. Ultimately, it was concluded that in the short
term the benefit of trade would be less to India as compared to the ASEAN nations. Also,
since AIFTA leads to trade diversion, goals to achieve allocative efficiency have to be set.
• Veeramani. S and Anam (2018) analyzed the impact of trade relations between India and
ASEAN and whether these relations have a future as regional comprehensive economic
partners or not. The study pressed concern on the fact that trade deficit between India
and ASEAN is high and can rise in near future. The main deficit being faced by India is
because of three nations namely- Indonesia, Malaysia and Thailand. It has been
anticipated that if trade continues on single tariff lines, then the deficit would increase.
• Anil Varma (2015) evaluated the trade and trend that will deepen the ties between India
and ASEAN. This again sheds light on the fact that the trade deficit is increasing and the
trade pattern of India has changed a lot focusing on its agreements with the ASEAN
nations. Also, the study specially mentions the fact that lack of protection of the primary
sector is adversely affecting the farming community of the country.
• Yean & Jia Yi (2014) analyzed the free trade agreement between India and ASEAN by
focusing mainly on their agreement between trade goods. There was a tariff
liberalization that was divided into five lists in the agreement, and given the fact that
 tariffs in India are higher as compared to some ASEAN nations, the agreement of trade
goods between the nations will benefit ASEAN more than India.
• Sen, Asher & Rajan (2004) analyzed the potential of trade between India and ASEAN on
the basis of this trade agreement but however, their study was not based on any
empirical surveying.
• Chandran (2018) evaluated the trade policies of India wherein India had set out to
achieve the ambitious target of doubling its trade in over two years. Compares Indian
protectionist policies with the fact that ASEAN nations followed an export led growth
strategy. Also, the use of Augmented Gravity Model uses up GDP, Population and
distance between the countries to refer to the trade benefits that might accrue to them.
• Gaur (2003) evaluates the comprehensive agreement between India and ASEAN that
appears to be profitable yet is a bit risky because it needs efficient allocation of
resources. Also, both India and ASEAN nations have to work on their policies and work
towards being resilient when liberalization happens.

Concluding remarks:
1. The trade agreement between India and ASEAN set up in 2010 is a great step forward
that will help in liberalization of the trade policies between the nations participating in the
agreement.
2. The trade agreement initially appears to be more profitable for the ASEAN nations as
compared to India. This happens because of the rising trade deficit for India because of the
trade diversion that has taken place because of AIFTA.
3. Considering the trade trends, there has not been much change in the export basket of
India but the imports have seen a lot of changes.
4. To realize the trade complementarity between India and ASEAN there needs to be proper
calculation of the measures that give the analysis of costs and benefits of the trade
arrangements.
5. The extension of the goods agreement to the liberalization of services and trade and
further the formation of investment linkages has appeared to benefit economy in the future
and all that needs to be done is the formation of proper policy structure.
6. The main trade that India indulges in is mainly with three ASEAN nations: Thailand,
Malaysia and Singapore, which even though is profitable but India needs to extend further
to less developed countries in order to add variation to the trade basket.

2. EVOLUTION OF REGIONAL TRADE AGREEMENTS BETWEEN

ASEAN AND INDIA (CONSIDERING HOW RTAs ARE AN
EXCEPTION TO WTO’S ARRANGEMENTS)
Regional Trade agreements are the reciprocal trade agreements between two or more
trade partners and under the guidelines of WTO, they have been in force since 2016. RTAs
are an exception to the general rule of WTO as ‘Non-discrimination’ is the core rule of WTO
wherein members have committed in general not to favor one trading partner over the
other. Even after all the considerations, these agreements are a little discriminatory as only
their signatories enjoy more favorable market- access conditions. WTO members generally
recognize the role of RTAs which aim at facilitating trade between its parties wherein they
do not raise trade barriers vis-á-vis third party.

As for India, it is a part of many regional trade agreements with the ASEAN nations which
have helped change the trade pattern for both India and ASEAN. Also, talking about these
agreements, a complementarity has been sensed between the goods and services of the
trade that occurs between India and ASEAN, which ultimately help achieve a sense of the
Revealed Comparative Advantage of the goods and services important for boosting up the
trade for both India and ASEAN nations.

The table below shows the reviews from various studies which have focused on how the
Regional Trade Agreements have evolved from being an exception to the WTO guidelines
and how they have been of great importance to trade between India and ASEAN:

RTA as an exception to the WTO rules:

[Link]. AUTHOR PAPER OBJECTIVE METHODOLOGY CONCLUSION SOURCES
TITLE
1. Tanya Eliminatin The study The study uses The results of [Link]
Voon g Trade focusses on various the study [Link].o
(2010) remedies the use of theories of the explain the rg/stable/
Regional WTO
from Trade arrangements
fact it is pdf/40835
WTO: Agreements to prove the difficult to [Link]?re
Lessons as an requirement of remove the freqid=exc
learned alternative Regional Trade trade elsior%3A
from to focus on agreements. remedies 7771a4ef4
Regional the • Anti- present in 76ca2dd2
Trade elimination dumping WTO, hence ddf68aa27
of the long - measures.
Agreemen standing an advanced d8e188
• Countervail
ts barriers and ing degree of
thus measures. trade
liberalizing • Safeguard liberalized
the measures. Regional
multilateral Trade
trade Agreements
between
nations.
are needed.
2. Sejuti Utility of The paper is The methodology Bilateral trade,
Regional in context of used in the study in both exports
Jha goes on to [Link]
Trade India and imports
(2011) experience question the fact [Link]/do
Agreements that in recent with India’s
: Experience in wnload/pd
years both RTA partners
from India’s regionalism exports and
f/6342264
and how increased
Regionalism imports have .pdf
that increased, but is
substantially
regionalism this increase after the RTAs
has evolved because of came into
to need of preferences effect. Most of
depending exchanged under
the India’s RTA
RTAs or due to
on Regional partners have
some other
Trade received
reasons.
agreements Since the official preferential
and whether trade data from benefits for
they are of the secondary
any great
those items
resources does
use to the not give the that are of
Indian amount of trade export interest
traders. that occurs with to them.
CoO, these 2 steps
• Looks
have been
upon undertaken:
the fact • Aggregate
that GSP trends were
is a compared
better with trends
scheme in
than all preferential
of items where
the gap
India’s
between the
RTA put two gives an
together idea of the
. extent of
• Tallies importance
low of
utilizatio preferences
n of in trading
preferen with RTA
partners.
tial
• A primary
scheme survey of
of RTAs certifying
in agencies was
developi undertaken
ng to ascertain
countrie the
s other utilization of
than preferential
schemes by
India.
Indian
exporters.

3. Sithanonxa Impact of The study This paper This paper has [Link]
y
Regional explains applies Gravity used an [Link].o
Suvannaph
trade how the Model to unbalanced data
akdy &
set of bilateral
rg/stable/
Toshihisa agreements intraregiona investigate
Toyoda
in East Asia l trade flows trade flows in trade flows to pdf/43264
(2014) on in East Asia East Asia and study [Link]?re
Member’s have then predicts determinants of freqid=exc
trade flows. increased that the two-way trade
for Australia,
elsior%3A
gradually volume of
since the trade is China, Japan 6bcca59a2
1990s and positively and other 62d388da
one of the related to their ASEAN 625573c6
most GDP and countries. These b986012
important negatively determinants
were based on
factors related to the
the sum of the
behind this trade barriers
GDP of trading
is the between them. countries. Also,
proliferation the model was
of bilateral also expanded
FTAs. Thus, to include an
it additional
empirically variable- import
analyzes the tariffs.
impact of After controlling
import the factors for
tariffs on each country, it
trade flows was found that-
of member • Bilateral
countries trade flow
that make is positively
up the related to
sequential overall GDP
blocks. and
similarity in
the GDP
size.
• Bilateral
trade is
inversely
related to
relative
factor
endowment
differences.
Transportati
on costs
and rates of
import
tariffs.

The overall
analysis
suggests that
expansion of
regional trade
agreements
under ASEAN is
very important
for promoting
its members’
exports through
 elimination of
tariff barriers.

RTAs BETWEEN INDIA AND ASEAN: IMPROVEMENT OF TRADE AND TRADE RELATIONS:
[Link]. AUTHOR PAPER OBJECTIVE METHODOLOGY CONCLUSION SOURCES
TITLE
1. BP Sarath Trade The study The study uses • The trade [Link]
Chandran compleme focusses Trade structure [Link]-
ntarity & on the fact Intensity Index between
(2010) Similarity that India India and
muenchen.
(TII) and de/29279/1
between is making ASEAN
Revealed
India & serious revealed that /MPRA_pap
ASEAN regional
Comparative
there are er_29279.p
countries engageme Advantage complement
(RCA) to study df
in context nts to ary sectors &
of the RTA consolidat the products
e its trade complementar available for
negotiatio ity and enhancing
ns. similarity trade
Focusing between India cooperation
on this and and ASEAN between the
considerin trading
countries.
g the partners.
regional • India and
trade ASEAN
agreement countries are
s, for any in different
RTA to be stages of
successful, development
it is so India can
imperative only engage
on partner in trade with
countries some of
to have them and
compleme only on in
ntary trade some
structure particular
to be categories.
exploited • India’s
for mutual average
benefit. tariffs are
higher than
many ASEAN
countries,
and hence
reducing
them in short
term will
have an
impact on
India’s
exports but
 can also
consolidate
in the
medium run
through
efficiency
and
productivity.
• Also,
emerging
economic
structure
warrants
greater
cooperation
from India
from the
regionalizatio
n efforts in
Asia.

• Chandran (2010) has evaluated the trade complementarity that exists between India
and ASEAN nations in the context of the Regional Trade agreements. The study
empirically uses the Trade Intensity Index (TII) and Relative Comparative Advantage
(RCA) and it has been realized that India’s average tariffs are higher than that of the
ASEAN nations and lowering them can not only help add variation to the export
basket but can also consolidate by adding efficiency and increase in productivity in
the medium run.

Concluding Remarks:
1. Regional Trade Agreements are an exception to the guidelines of WTO as WTO is
against the concept of favoring nations for trade. But from the literature above it can be
concluded that regional trade agreements are like the trade remedies that can help
nations indulge in trade if there is a third-party agreement with the other nations.
2. Regional Trade agreements help encourage the Bilateral trade that can happen
between India and ASEAN because these agreements help realize the trade costs by
focusing on GDP, population and distance amongst the nations.
3. Considering the RTAs of India, most of the RTA partners of India have received
preferential benefits to the items that were of interest to their export baskets.

3. POSSIBILITY OF CREATION OF REGIONAL VALUE CHAINS IN INDIA:

Before considering the possibility of creation of Regional Value Chains in India based on its
agreements with ASEAN, India and every other developing nation needs to realize the
importance of creation of regional or global value chains.
A standard value chain of most of the products may be defined as follows:
• At the very start are the activities of designing a product, developing it and innovating it
to take it further.
• The middle stage calls for manufacturing and assembly of the product.
• Lastly, the countries take up the transportation, branding, marketing, etc.
 Considering the very last stages, distribution and post-sale branding are the downstream
stages of production.
• After the final stage, comes the value-adding stage wherein, research & development of
the product is taken up.

Participating in all these stages of production through exports yields the gains from trade.

§ Benefits and pitfalls to facilitate the economic development through

development of regional/ global value chains:

BENEFITS PITFALLS
§ Developing countries do not need to § There can be excessive exploitation
start from scratch and build a whole of the natural resources.
new industry to kick start the § Many countries can face the
process of industrialization. problem of work condition
§ Being able to produce just one stage deterioration and increase in
in production helps country to inequality as a result of participation
become a part of the value chain of in the value chains.
the product followed by
productivity benefits and
technology spillovers.
§ For countries with primary
resources being able to
systematically export primary
products can be beneficial.

§ Global Value Chains and their evolution:

The terminology of global value chain is often used and understood interchangeably with
supply chain or value chain. Although all those terminologies are related to each other and
share a similar sense, they refer to different specific meaning.
Talking about them separately, Supply Chain literature defines supply chain as ‘the
alignment of firms that bring product or services to market’
(Stock and Lambert, quoted, quoted in Wijk et al)

Levi et al (2009) explained:

The supply chain, which is also referred to logistics network, consists of suppliers,
manufacturing centres, warehouses, distribution centres, and retail outlets, as well as raw
materials, work-in- process inventory, and finished products that flow between the facilities.

Saunders (1997) said:

It has been said that the scope of the supply chain internally my be limited to the supply
site, or complex and globalized for corporations that operate in different separate
geographic areas. Externally, the supply chain has a flow of goods from original sources of
raw materials through to final customer.

Supply chain management indicates different types of relationships such as buyer-seller

relationship as well as relationship between manufacturer, retailer, and transporter. In the
relationship management, corporations may apply ‘partnership’ policies.
Talking about ‘supply chain’ and ‘value chain’, Kaplinsky and Morris said:
The value chain describes the full range of activities which are required to bring a product or
service from conception, through different phases of production, delivery to final
consumers, and final disposal after use.

It is usually seen that supply chain balances the focus on internal and external view of
company, value chain focuses more on the internal perspective.

Porter (1985) said:

He focussed on value chain in context of competitive advantage, which is how to provide
comparable buyer value at lower cost than competitors or at comparable cost but offer
more customer value than competitors.

• The concept of value chain is more popular in recent years. Before, in 1980s scholars
used the concept of ‘commodity chains’ started by Terrence Hopkins and Immanuel
Wallerstein from 1977. The concept of global value chain then is developed as the
globalization and international business are increasing dramatically. (Bair 2005)
• The global value chain concept is one of a number of approaches to inter-firm relations
that draws on the simple idea that the design, production and marketing of products
involves a chain of activities divided between different enterprises often located in
different places. Single company rarely turns raw materials into finished products and
sell them to customers. (Humphrey and Schmitz 2000).

[Link]. AUTHOR PAPER OBJECTIVE METHODOLOGY CONCLUSION SOURCES

TITLE
1. Richard Global This paper The author • Globalization’ Book:
Baldwin Supply looks at defines the s second Global
chains: why Global evolution of unbundling value
Why supply global supply and the global chains in a
they chains chains using the supply chains changing
emerged matter, the terms ‘First it spawned world.
, why economics unbundling’ and have ( edited
they of their ‘second produced and by:
matter unbundling unbundling’ that continue to Deborah
and and their take into produce K. Elms
where implications consideration changes that and
are they for policy. economies of alter all Patrick
going. scale that aspects of Low)
proved to be international
profitable for relations- [Link]
some. Also, economic, [Link]
 considers the political and .com/url?s
wage even military. a=t&rct=j
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§ What are the major factors Global Value Chains need to focus on?

Supply chains define the flow of goods and services from basic raw materials to finished
products and solutions for end users. The main supply chain objectives include Cost
minimization, Mass customization, Product differentiation and the extent to which natural
resources can be exploited.

Fine (2002) explained:

Competitive advantage is, at best, a fleeting commodity that must be won again and again.
That requires continual disintegration and reintegration of organizations, with frequent
reshuffling of structural, technological, financial and human assets, as every player in the
value chain seeks some sort of temporary competitive advantage. A company’s real core
capability- perhaps its only sustainable one- is its ability to design and redesign its value
chain in order to continually find sources of maximum, albeit temporary, advantage.

Deborah K. Elms explained:

Not every supply chain is the same, also, nor is every company involved in supply chains
active across the same sets of activities. Talking about what these chains lack or what all
they need to manage in order to achieve success in trading along with the trends of the
supply chain: Managing inventory, Understanding the role of outsourcing, The need of
shifting products across borders, pressures of consolidation, role of transportation,
innovation, government policies, etc. are the things that need to be focussed on.

One of the most important role for many manufacturing supply chain operators is to
maintain a proper inventory. Lead companies are increasingly pressing their vendors to
manage inventory, this task now falls to suppliers or to the last rungs of the value chain.
Keeping the inventory low and located at different levels of the chain dramatically increases
the flexibility and agility of the supply chain.

Many globally competitive firms literally use the world as their platform. They source raw
materials from everywhere. This is because without imports, it is not possible to create
products for the domestic market or to manufacture exports. Thus, for businesses it is
easier to shift products from one location to another through various operations and touch
points while maintaining consistency and standardization in terms of reporting in terms of
values, duty, tariffs and so forth. Anything that can be done to reduce costs and improve
efficiency in transferring goods across borders would be extremely helpful and welcome.

One of the major risks for supply chain operators is disintermediation- the possibility that
lead firms might decide to cut out the middle man and do things themselves at some point.
For a supply chain to be successful, outsourcing is very important. If the supply chain owners
do not have a core competency for a task, they should outsource the task to some other
firm with better, lower cost options for completing it.

§ The Regional/Global Value Chain between India and ASEAN:

As discussed earlier, the regional value chains strengthen the economic cooperation by
expanding market access among the nations and integrating with these markets will help
reduce the cost of manufacturing and trading for the participating countries. The main
benefits of regional value chains accrue from outsourcing and fragmentation. Other than
this, FDI flow is one of the most important factors that enable integration of economies by
linking them to regional and global value chains.

In a ORF report by Preeti Bhogal, it has been explained:

The economic relations between India and ASEAN have changed over time and this relation
goes beyond the simple economic movement of goods, services and capital and this
enables greater economic cooperation given the adequate connectivity links.
Talking about the engagements of India with ASEAN, India has engaged with ASEAN at both
regional and sub-regional levels by signing economic cooperation agreements with its
different members. A framework agreement on comprehensive economic cooperation was
signed in Bali in October 2003 between India and ASEAN, which was expected to eliminate
tariff barriers among all the members and eventually establish a free trade area in goods,
services and investment. This was followed by a final agreement on trade in goods signed in
Bangkok in 2009 and another on services and investments in New Delhi in 2015, but not all
barriers have been removed. Bilateral agreements with various other members such as
Thailand, Singapore and Malaysia have also been signed, all of them aimed at deepening
economic integration with the region.

It has been said that textiles manufacturers in India could benefit by engaging with less
developed countries such as Cambodia, Laos, Myanmar and Vietnam. There is a potential to
create value chains in textiles between India and a few ASEAN economies, as the ASEAN
economies import cotton yarn from India. Creating a value chain in fibres is another area of
possible collaboration between India and ASEAN. Myanmar, for instance, is open to FDI in
sectors such as garments, textiles and agriculture, which are conducive to creating a value
chain between India and Southeast Asia. The free trade in goods agreement signed between
India and ASEAN in 2009 has also facilitated the development of supply chains and
production networks in many products such as electronics and automobiles, including
vehicle component manufacturing.

Concluding Remarks:
1. India is already reaping benefits of the agreements with ASEAN on regional and sub-
regional levels and hence it tends to gain more by this arrangement.
2. Bilateral Trade agreements with countries like Thailand, Singapore and Malaysia have also
helped deepen the economic integration in AIFTA.
3. The regional value chain or the basic supply chain that actually exists will help India and
ASEAN develop its bounds beyond the basic FDI flow.

4. CONCLUSION:

Considering all the literature and the data available on the ASEAN-India Free Trade
Agreement (AIFTA), we can analyse the fact that AIFTA has led to a trade diversification in
the trade basket of the nations and has put forward the utilisation of this agreement for
export competitiveness. Even though the India’s total trade with ASEAN remained negative
for quite a while but AIFTA has helped India diversify its trade basket. India’s imports have
mainly risen under this agreement and even the deficit has risen suggesting that the
preferential market access did not lead to increase in the exports. Also, India provided
market access for ASEAN’s exports over than ASEAN’s imports from India indicting that India
has played a greater role in guiding ASEAN’s exports. This indicates an increased RVC
created in India based on imports from ASEAN. There are also possibilities of RVC creation
under various tariff lines that fall under the area of complete market access in case of
capital goods and consumer goods. Thus, this confirms that Indian companies could benefit
from operating in the consumer sector by way of achieving tariff gains under AIFTA. Also,
focusing on the policies and guidelines to be established , the linkages between investment
and merchandised trade is becoming difficult and hence a proper allocative framework
needs to be established.