Evaluating the ASEAN-India FTA: Implications for India's Black Pepper trade

The impact of the ASEAN-India Free Trade Agreement (AIFTA) on Indian black pepper was analysed using the SMART and gravity models. The reduction in tariff under AIFTA increased black pepper imports from the Association of Southeast Asian Nations (ASEAN) countries after 2000 and caused a trade creation effect of 19.36 lakh US$. This allowed Indian consumers to benefitted from low-priced black pepper imports from ASEAN countries. Indonesia and Vietnam collectively accounted for nearly 100% of the trade creation. The distance between India and ASEAN was found to have a negative effect on trade, whereas the GDP of the importing country positively influenced the likelyhood of trade between India and ASEAN countries. The main variable of interest was the AIFTA dummy, which captured the effects of trade creation and trade diversion resulting from the regional trade agreement. The estimated coefficient of the AIFTA dummy was positive and significant, indicating a trade creation effect among AIFTA member countries as a result of the agreement.