A comprehensive guide to the ASEAN-India Free Trade Agreement (AIFTA): Unlocking opportunities for importers and exporters

In the dynamic landscape of global trade, few partnerships are as vital as the connection between Southeast Asia and South Asia. For logistics managers and business owners in Vietnam, understanding the ASEAN-India Free Trade Area (AIFTA) is no longer just “good to know”-it is a strategic necessity.

With a combined market of approximately 1.8 billion people and a GDP exceeding US$4.5 trillion, the economic corridor between ASEAN and India represents one of the world’s largest free trade zones. However, for many importers and exporters, navigating the complexities of tariff reductions, rules of origin, and documentation can be daunting.

What is AIFTA? An executive overview

The ASEAN-India Free Trade Area (AIFTA) is a comprehensive economic cooperation agreement signed between the ten member states of the Association of Southeast Asian Nations (ASEAN)-Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam-and India.

While the framework agreement was signed in 2003, the crucial Trade in Goods Agreement (AITIGA) was signed in 2009 and became fully effective on January 1, 2010.

➡➡➡Why Does It Matter?

For a Vietnamese importer sourcing raw materials from India (such as pharmaceuticals, machinery, or textiles), or an exporter selling agricultural produce or footwear to Mumbai, AIFTA is the legal mechanism that allows your goods to bypass standard tax rates. It fosters a seamless flow of goods by lowering barriers, effectively treating the participating nations as a unified market for qualifying products.

The core benefit: tariff liberalization and duty reduction

The primary motivation for utilizing AIFTA is cost reduction. Under the agreement, the participating countries have committed to lifting tariffs on over 80% of traded goods.

Understanding the “Tracks” of liberalization is essential for accurate costing:

The Normal Track (NT)

This category covers the majority of goods. Tariffs for products in this track have largely been reduced to 0%. If your product falls under the Normal Track and you have the correct documentation, your import duty is eliminated.

The Sensitive Track (ST)

Not all industries are ready for full openness. The Sensitive Track includes goods where domestic industries require protection. For these items, tariffs have been reduced-often to 5%-but not fully eliminated. It is crucial to check the specific HS Code against the latest Vietnam-India tariff schedule to confirm the exact rate.

The Exclusion List (EL)

These are products explicitly excluded from tariff concessions, often due to reasons of national security, public health, or extreme sensitivity in the domestic agricultural sector. Goods on this list are subject to the standard MFN (Most Favored Nation) rates.

Mastering the “Rules of Origin”

This is the most technical aspect of the agreement and the most common source of friction during customs clearance. For a product to qualify for the AIFTA preferential tax rate, it must prove it “originates” from a member country.

Unlike some agreements that allow you to choose between value content or tariff shifting, AIFTA generally requires both for non-wholly obtained goods:

1. Regional Value Content (RVC) of 35%: At least 35% of the FOB (Free on Board) value of the goods must originate from the ASEAN-India region. This includes local material costs, labor, and direct overheads
2. Change in Tariff Sub-Heading (CTSH): The non-originating materials used in production must undergo a change in classification at the 6-digit HS Code level

Expert Tip: Always ask your supplier for a preliminary cost breakdown before shipping. Our team at FASTRANS can help verify if the declared HS Codes meet the CTSH requirement.

Critical documentation: The C/O form AI

To claim the benefits of AIFTA, the physical proof of origin is mandatory. This document is the Certificate of Origin (C/O) Form AI.

Key Characteristics of Form AI:

1. Issuing Authority: In Vietnam, this is managed by the Ministry of Industry and Trade (MOIT). In India, it is issued by the Export Inspection Council (EIC) and other designated agencies
2. Validity: The C/O must be issued at the time of export or shortly thereafter (usually within 3 working days). If issued later, it must be marked “ISSUED RETROACTIVELY.”
3. Data Consistency: The information on the C/O (Consignee, Weight, Invoice Number, HS Code) must match the Bill of Lading and Commercial Invoice exactly

Transition to e-C/O

Both ASEAN and India are moving toward Electronic Certificates of Origin. While physical copies are still widely used, the digital exchange of data via the ASEAN Single Window and Indian customs systems is increasing. This reduces the risk of lost paperwork and speeds up the “lead time” for document checking-a critical KPI in our import SOPs.

Logistics & Supply chain implications

Understanding the trade agreement is only half the battle; moving the cargo is the other. The trade dynamics influenced by AIFTA have created specific trends in the freight market.

Freight Rate Imbalances

Due to the trade imbalance (Vietnam imports significant raw materials from India, while exporting finished goods), freight rates often fluctuate differently on each leg.

• India to Vietnam: Capacity is generally stable, but rates can spike during the monsoon season or due to port congestion in Nhava Sheva or Chennai.
• Vietnam to India: Demand is high. Securing booking slots requires forecasting-ideally 2 weeks prior to ETD.

The Role of the Forwarder

At FASTRANS, we act as the safeguard between the trade agreement and the physical shipment. Our role extends beyond transport:

1. Pre-Alert Checking: we cross-check the Draft C/O Form AI against the Invoice and Packing List before the vessel departs
2. HS Code Consultation: We advise on the most appropriate HS Code to ensure the C/O is valid and the duty is minimized

Turning complexity into competitive advantage

In a market where margins are thin, paying 0% duty instead of 10% or 15% can be the difference between profit and loss. The ASEAN-India Free Trade Agreement (AIFTA) offers massive potential for businesses to lower landed costs and expand their market reach. However, the benefits are reserved for those who strictly adhere to the Rules of Origin and documentation requirements.

Don’t let complex paperwork become a bottleneck in your supply chain. Whether you are importing pharmaceutical ingredients from Mumbai or exporting electronics to Delhi, you need a partner who understands both the logistics and the legislation.