RCEP to break barriers between ASEAN and India

Autocar Pro News DeskBy Autocar Pro News Desk calendar 19 Jun 2013 Views icon8292 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
The first round of negotiations for the world’s biggest mega-regional trade agreement, the Regional Comprehensive Economic Partnership (RCEP), was held in early May in Brunei. This trade agreement will unify existing trade deals ASEAN has separately with Japan, China, Korea, India, Australia and New Zealand. The outcome of the framework will cover around a third of global GDP and more than 40 percent of intra-regional trade. One of the most anticipated benefits of forming the trade deal will come from further expansion of the Japanese regional automotive value chain into India.

This view is shared by Masao Suematsu, EVP of Denso Asia. During a conference in August 2012, he raised examples of current market harmonisation between India and ASEAN to prove his point that formal integration between the two markets is needed to fully benefit the automotive industry in the mega-region, covering Japan-ASEAN-India, as has been the case with the FTA between ASEAN and Australia. There are already several car platforms shared between ASEAN and India, such as the Toyota Etios, Honda Brio, Suzuki Ertiga and Suzuki Swift. Japanese automotive firms have been very critical about the slow progress of formal trade agreements, despite their highly sophisticated de facto production networks in East Asia. They usually refer to not just the successful implication of AFTA (ASEAN Free Trade Agreement), which has helped create competitiveness in car production in ASEAN, but often to the expanding competitiveness of Korean automotive firms in the EU and the US, resulting from official trade agreements made by the Korean government with these major markets. Even though Japan had, in fact, already signed a trade agreement with India in 2011, the effects on the automotive industry are thought to have been very limited. This is not only because automotive products included in the trade pack are limited to less than 40 percent, but it is also uncompetitive to directly import automotive products to India because of high labour costs in Japan.

Japanese automotive firms have been calling for better trade integration with India through Keidanren, the most influential lobbyist organisation in Japan with a Toyota executive as one of its vice-presidents.

A week before the negotiation of RCEP, Keidanren released an official request to the Japanese government, pressing for the enhancement of the Japanese supply chain in emerging Asian markets through FTAs. The president of the Japan Automobile Manufacturers Association previously expressed a similar view during a speech in March 2013. It is not practical for Japanese automotive firms to localise their production and establish another production network in India because of its close proximity to ASEAN. Also, it is more economical to leverage existing bases, as the industry trend is to rationalise production by maximising volume of mega-regional platforms in a few selective production bases. There are, of course, other challenges in establishing a base in India. A survey of Japanese automotive firms by JETRO reflected that these challenges include poor infrastructure development in areas such as electricity and transportation, and a comparatively high cost of labour.

Therefore, many automotive firms see more potential in exporting products from their well-established production hubs in ASEAN to India. Besides, the Japanese electrical appliance industry has been very successful in utilising ASEAN-India FTAs, both multi-lateral and bilateral, to link their production bases between the two markets. India has now become a part of mega-regional supply chain of Japanese televisions and air-conditioners.

With deeper formalisation of existing trade by unifying the overlapping frameworks among Japan-ASEAN-India through RCEP, Japanese automotive firms in India will be able to procure more parts from their bases in ASEAN and vice-versa, and thus can fully utilise their facilities and conceivably raise their competitiveness.

Photograph: Officials of the 16 governments participating in the RCEP met in Brunei Darussalam on May 9-13 to start detailed negotiations aimed at concluding RCEP by the end of 2015.

Kon Thueanmunsaen is Senior Analyst, ASEAN, LMC Automotive Konjanart@lmc-auto.com
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