India-Thailand free trade agreement: a critical analysis through Indian auto-components industry

Abstract

In the global era, Countries have understood the need for trade liberalization by lowering their trade restrictions unilaterally, bilaterally, regionally or multilaterally. Regional or bilateral trade agreements have become increasingly popular among the Nations. India, for long, had remained a closed market till it started to liberalize its economy unilaterally from 1991. India has become active in recent years in finalising bilateral Free Trade Agreements. India s economic growth in recent years and its market size have attracted the attention of Countries, which were hitherto hesitant to do business with India. Though India s trade agreements with its neighbours such as Srilanka and Afganistan did not affect the domestic industries, the India-Thailand Free Trade Agreement, signed in September 2004 had raised strong protests from domestic manufacturing industry such as Indian auto-component industry. This first part attempts to understand the strategies of these countries in using the FTA and to see what could be the dynamics if there are different strategies. The second part will look at the feedback obtained from the on the Indian auto-component cluster in Chennai-Bangalore region. The feedback has been obtained through in depth interviews with the players from the Indian automotive and auto-components industry as well as the policy-makers in the Government of India to understand what the free trade agreement means to them.The findings indicate that for a trade agreement to be successful has to be owned by the industry in the country. If partner countries have different strategies and objectives to be achieved through a free trade agreement, it creates a different kind of dynamics, which may not be mutually beneficial to the partner countries. Again, if the trade policy of a country is not synchronized with the industrial/investment policies of the country, the trade agreement may not exactly achieve the desired objectives. In such a scenario, it is better for a country to go in for unilateral or multilateral trade liberalization than going for bilateral trade arrangement. The study on the Indian auto-component industry indicates that the automobile majors are outsourcing their manufacturing to low-cost manufacturing countries including India and Thailand. Thailand appears to be better prepared to leverage the benefits of the Free trade arrangement since they have a focused approach to make Thailand, the Detroit of the East . The study also indicates that India lacks institutional mechanisms to consult the think tanks and industry before going for a free trade arrangement with a Country vis-à-vis the partner countries. There are important lessons to be learnt and the policy recommendations have been made at the last Chapter.