A treaty and a message

Published : Jul 29, 2005 00:00 IST

The Comprehensive Economic Cooperation Agreement with Singapore, which combines liberalised commercial transactions in goods and services with two-way investment flows in untapped areas, is also a signal from India to other members of ASEAN about its credentials as a potential economic partner.


A "VERY big psychological step" for India. This is how Singapore Prime Minister Lee Hsien Loong has described his country's Comprehensive Economic Cooperation Agreement (CECA) with New Delhi.

The accord, which Lee and Prime Minister Manmohan Singh signed in New Delhi on June 29, truly signifies a new direction in India's economic diplomacy. The CECA is New Delhi's first overarching economic pact with any country. It combines the essence of liberalised commercial transactions in goods and services with two-way investment flows in untapped areas. Besides, it creates the political ambience for exploring the possibility of selective but high-degree exchanges in science and technology, inclusive of exchanges in the sensitive domain of defence, on the basis of mutual interest.

Irrelevant to the importance of this immense framework is the fact that Singapore is just a city-state while India is a huge subcontinent. Relevant, however, is the attention that Singapore commands on the international stage as a dynamic economy and even as "an exceptional state", as Michael Leifer, a long-time observer of the South-East Asian scene, portrayed it.

Singapore's strategic location, at a critical intersection of international commerce and in the geo-strategic vicinity of India and China, is a widely recognised factor. No less noteworthy is the way in which the city-state tries to maintain close security links with the United States without becoming its "ally". At the same time, Singapore seeks to be on the right side of evolving history by enhancing its ties with both China and India, while not neglecting the more immediate environment of South-East Asia. These are empirical facts which do not have to be romanticised, or even looked at with scepticism, in order to be seen as being important to countries like India.

Not surprisingly in this context, Lee noted with satisfaction, on the eve of the signing of the CECA, that the accord was "not a partisan matter" in the Indian political domain. Coincidentally but topically, the CECA was signed even as the Congress-led government in New Delhi came under potent and spectacular fire, notably from the Left parties, on certain crucial aspects of its overall economic policy and its foreign policy.

With Manmohan Singh having joined Lee in seeing the CECA as a pioneering step in India's economic diplomacy, what does a reality check show?

Integral to the CECA is a wide array of established practices and proposed initiatives, which range from dispute settlement arrangements and a review mechanism to an updated avoidance of double-taxation and other measures. However, the political importance of the CECA goes beyond the nitty-gritty of a complex agreement that can be translated into action with imagination on both sides.

From New Delhi's standpoint, the CECA is a positive signal to the other members of the Association of South East Asian Nations (ASEAN) about India's credentials as a potential economic partner. Also in focus now are India's willingness and ability to navigate the intricacies of dealing with countries that had often seen it as a lackadaisical player in the harsh international economic arena. Some of these countries, in ASEAN and beyond, were even used to viewing India as a vibrant democracy that did not, however, care to practise the principles of a "free market economy".

This perception is adequately addressed in Lee's perception of India's CECA-related move. Lee said: "It is a very big psychological step: to go from your old policy of substantial self-sufficiency, now to one where you want to link up, open up, your markets in a controlled sort of way and encourage greater linkages and exchanges. And, I think, the groundwork is laid for agreements with many other countries."

Noteworthy is the inherent political nuance in Lee's observation. India's egalitarian economic priorities at home and diplomacy abroad are summed up, with a great deal of political sensitivity, as the "old policy of substantial self-sufficiency". This view steers clear of criticism, often heard on the global circuit in the past, about India's alleged anachronism of "socialism".

TWO aspects of India's CECA-related diplomacy have come in for special notice on the ASEAN scene. Both can benefit New Delhi.

First, Singapore's decision to be the first country to sign a comprehensive economic pact with India is seen as the culmination of an active diplomatic process, involving "due diligence", on the part of the free-market-savvy city-state. The argument is that Singapore, an acknowledged international financial market with "free enterprise" practices, would not have done a deal with India without being reasonably sure of its implementation in the specific context of India's economic mores of growth with social justice at home and fair play in international commerce and other related activities.

The second but not the lesser observation is about the CECA-related "spin-off" that India can hope to generate in the ASEAN context and elsewhere. The reasoning is based on the acknowledgement that India, regarded globally as an astute player that relies on the power of argument, has done its own assessments with as much "due diligence" as Singapore. So, India may be able to project the CECA as a model while negotiating economic pacts with other states, especially in the ASEAN setting.

Closely related to this "spin-off value" of the CECA is the manner in which India's framework accord with Thailand on trade issues, signed in 2003, ran into rough weather. The causes need not necessarily imply that either India or Thailand, or indeed both, had not adequately anticipated the likely pitfalls while being eager to clinch an accord in time for the prime ministerial visit to Bangkok in October 2003.

However, the fact remains that Thailand Prime Minister Thaksin Shinawatra said that "part of [his] mission to India [a meeting with Prime Minister Manmohan Singh on June 3] this time [has been] to reinvigorate our current FTA [free trade agreement] negotiation process". A "commitment to pursue an FTA [with India] by 2010 remains our goal", Thaksin emphasised in the context of the unforeseen difficulties in the implementation of the relevant framework accord.

With Malaysia, a key ASEAN member, and Australia having evinced a great deal of interest in entering into economic cooperation agreements with India, not restricted just to trade, the CECA-linked "spin-off" will be a major issue.

With India having already initiated a serious process of negotiations with the wider ASEAN itself for strong economic links to be underwritten through a detailed accord, the "feel good" factor that the CECA can generate among the group's members in their collective talks with New Delhi is another likely opportunity for Indian diplomacy, according to regional officials and analysts.

On the purely India-Singapore front, the city-state, for long a trader with no import duties except on tobacco products, alcoholic products and motor vehicles, will benefit immensely from the CECA as New Delhi throws open over 500 items for duty-free entry under the "early harvest" scheme. However, as Finance Minister P. Chidambaram had said during the final stages of the two-year-long and often-tough negotiations, the principles that drove the parleys were not one of using a golden scale to measure whether Singapore would gain a few grams more or whether India should get some grains more.

Not surprisingly, Singapore, which had already signed FTAs with both the U.S. and Japan, tends to see the CECA as a new window of opportunity to upscale its engagement with India beyond the purely economic domain. Defence-related research is being mentioned as a possibility, while the accord itself was fashioned in a climate of incremental interactions across a wide spectrum, ranging from education and culture to the defence cooperation agreement of 2003 and beyond, at another level. All three wings of Singapore's defence forces have held exercises with India.

The city-state is also keen that New Delhi plays an appropriate role in a "creative" fashion in the maintenance of security along the Straits of Malacca. This narrow waterway, whose littoral states are Singapore and Malaysia besides Indonesia, is a vital sea lane for global trade and it is vulnerable to not only pirate attacks but also, potentially, terrorist strikes.

Within the larger regional context, Singapore has played a prime role in influencing ASEAN to extend a collective invitation to India to the inaugural East Asia summit, slated to be held in Kuala Lumpur later this year. The other non-ASEAN participants will be China, Japan and South Korea, besides possibly Australia and New Zealand in certain anticipated circumstances that have not yet materialised. The idea is to move towards an East Asian Community over the longer term.

Looking at the CECA as an aspect of Singapore's diplomacy in this larger perspective, Lee has spoken glowingly about the perceived rise of not only China but also India as the definitive leitmotif of an emerging new Asia, where, in his view, the U.S. will remain the "hyper power" for the foreseeable future. Obviously, and unlike in some other quarters of the world, he does not see such a "hyper power" status as a negative factor in East Asia.

Apart from the asymmetry between the U.S. on one side, and China as also India and Japan on the other, there is considerable asymmetry between Beijing and New Delhi, too, at the current levels of their economic progress and political activism on the global stage. Not surprisingly, in this context, but without touching upon this evolving dimension, Lee has said that the world "will have to feel our way forward" as China and India "rise".

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