India Plays Hardball With ASEAN After $45 Billion Trade Disaster

News18

3 days ago

India, facing a $45 billion trade deficit with ASEAN, is taking a tough stand—threatening to exit the FTA unless core concerns are addressed.
There's a tectonic shift incoming in global trade and this time, it's not from Donald Trump, but from India. India may be considering terminating its trade pact with ASEAN. The ASEAN trade deal has turned into a $45 billion problem for India, flooding our markets with rerouted Chinese goods while leaving Indian exporters in the dust. For fifteen years, India played by the rules – now, the Modi government is rewriting them.
Nine rounds of negotiation, endless promises, but ASEAN still dodges our core demands on unfair trade practices and market access. With Commerce and Industry Minister Piyush Goyal calling out the bloc as 'China's B-Team," India stands at a crossroads: fix the imbalance, or walk away. If the tenth round of review talks is as ineffective as the rest, India may pick the second option.
India signed its landmark Free Trade Agreement (FTA) with the Association of Southeast Asian Nations (ASEAN) which has ten members Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. The pact was signed in 2009 with the promise of prosperity, not pain.
Yet, today, the statistics tell a story starkly at odds with those early hopes: while trade rose to $123 billion, India's trade deficit with ASEAN exploded from a manageable $5 billion in 2010-11 to a jaw-dropping $45 billion in 2024-25. This deficit is now in the same league as India's $46 billion trade surplus with the United States which is being aggressively targeted by Trump with tariffs. And then there is the chronic deficit of almost $100 billion India faces with China. Plus, this is not the only bad deal that India is coping with. It also has FTA's with Japan and South Korea to fix. In a world rapidly hardening on trade, can India afford to play by old, one-sided rules? Obviously no, and recalibrating trade with ASEAN is right at the top on India's list.
From the outset, the ASEAN FTA was a 'gentleman's agreement" negotiated by the UPA government with a spirit of free trade and global integration, but lacking the hard-nosed pragmatism a deal of this scale demanded. The negotiators at the time overlooked the fact that the agreement left out India's strongest suit—services—giving away vital market access on goods, but securing no meaningful opening for Indian IT, consulting, or skilled labour. Worse, non-tariff barriers multiplied on India's exports to ASEAN, even as the region's goods breezed, tariff-free, into Indian markets.
The negotiation table saw further sleights of hand. ASEAN cleverly played an averaging trick to make the deal look fairer than it really was. For example, Singapore claimed it eliminated tariffs on 100 per cent of its products, but since it already had zero import duties, India gained nothing new. Countries like Cambodia (85 per cent tariff elimination), Brunei (81 per cent), and Laos (78 per cent) also made high commitments to tariff elimination, but they account for only a tiny share of India's trade with ASEAN. Meanwhile, Indonesia, a major economy, removed tariffs on just 50.1 per cent of its tariff lines, and Vietnam on 69.7 per cent. When these figures were averaged together, along with Singapore's inflated 100 per cent, the official ASEAN average jumped to 76.4 per cent – giving the impression of big market openings.
In reality, India opened up 74.2 per cent of its market to ASEAN goods, but mostly received high tariff cuts from ASEAN's smallest economies, while the big players kept many barriers in place. As a result, Indian exporters struggled to access key ASEAN markets, while India faced a flood of duty-free goods from across Southeast Asia.
Meanwhile, ASEAN found loopholes, twisting rules of origin to allow Chinese goods safe passage into India's economy under ASEAN's flag, turning the FTA into a backdoor for Beijing's industrial might. No surprise, then, that Union Minister Piyush Goyal called the ASEAN bloc what everyone's been whispering – China's 'B-Team." As Goyal bluntly stated at the India Global Forum, 'Many of these countries are, practically, proxies for Chinese goods. We are not going to keep our doors open to such practices."
This remark landed harshly on ASEAN, but it must be recognised that India's grievance is genuine and its patience is running out. This lopsided deal hurts even more, given India's ongoing struggle to tame its ballooning deficit with China, the very country whose shadow now looms over the ASEAN pact as well. Meanwhile, the United States under Trump, never shy about tough love, has slapped tariffs on partners including India over its own deficits, which are comparable in size to India-ASEAN's gap. The winds of economic nationalism are intensifying globally, and the ASEAN trade deal's moment of reckoning is looming.
Since 2023, India has demanded a comprehensive review pushing back against what industry calls 'a one-way street." The results so far have been nine unproductive negotiation rounds with much rhetoric, but few genuine fixes. Negotiators are raising the fact that Indian companies utilise only 30-40% of the FTA's 'benefits," while ASEAN competitors exploit 65-70%, often through creative paperwork and weak checks on rules of origin.
Indian exporters complain of mounting non-tariff barriers and quotas. Entire sectors from steel and chemicals to electronics, voice their frustration as duty-free imports batter domestic manufacturers and dilute investment, all while ASEAN members trap India in endless talks. This cannot go on.
Moreover, with ASEAN in the middle of talks with China, its largest trade partner, to expand their FTA, the problem will only grow larger. ASEAN's trade with China is growing fast, standing at around $982 billion in 2024 with a deficit of $190 billion pegged against Southeast Asia.
Senior government and industry leaders now openly say, enough is enough. If the upcoming 10th review round delivers no real corrections on import barriers, rules of origin, or a fair shake for Indian services, India may invoke the termination clause: one written notice, and the FTA dies in 12 months. This should not be mistaken for sabre-rattling. The pressure on India is real, and walking away from the pact is a tangible option. This points to India's growing reputation as a tough negotiator.
India's newfound confidence at the global trade negotiating table is unmistakable, as seen in its willingness to challenge partners both east and west. Nowhere is this more evident than in its tough, high-stakes talks with the United States, widely regarded as the hardest trade partner, where India has refused to be hurried or strong-armed into a deal that doesn't serve its national interest. The Modi government is also pushing back against China's economic tactics, battling for access to rare earths, confronting non-tariff barriers, and standing firm on restricting Chinese investments even as China pressures India to reopen its markets.
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At the same time, India has already secured major wins, sealing a historic free trade deal with the UK this year and a powerful CEPA with the UAE in 2022, while actively negotiating with the European Union and Australia for stronger, more balanced agreements. All of this signals a shift: under Modi, India is not swayed by free trade idealism, but is recognised as a sharp, strategic negotiator that puts national interest front and centre, rewriting its trade playbook amidst a global churn in trade relations.
India's new approach is neither protectionist nor isolationist – it's simply pragmatic. It means playing by the rules, but ensuring those rules are fair. If ASEAN wants continued access to India's booming market, it must show real progress on services, on imports, and on closing the loopholes.
About the Author
Shubhangi Sharma
Shubhangi Sharma is News Editor - Special Projects at News18. She covers foreign affairs and geopolitics, and also keeps a close watch on the national pulse of India.
tags :
ASEAN finepoint pm narendra modi tariffs
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Location :
New Delhi, India, India
First Published:
July 21, 2025, 11:58 IST
News opinion Finepoint | India Plays Hardball With ASEAN After $45 Billion Trade Disaster
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