Aligning Trade Policy with Domestic Value Addition: Insights from India’s Cocoa Sector Under AIFTA

The ASEAN-India Free Trade Agreement (AIFTA) came into effect in 2010, and the agreement was intended to support agri-food value chains and promote regional integration. Though the share of agricultural trade with ASEAN increased, the effects were not even for India’s processed food industry. The present study was conducted to investigate the impact of AIFTA on India’s cocoa industry. The cocoa processors of India import beans from Africa, which are subject to high tariffs. While processed cocoa products are imported from ASEAN at a minimal duty, this leaves Indian cocoa processors at a disadvantage. The cocoa bean and processed product trade data from 1988 to 2022 were sourced from the UN Comtrade database and analysed using trend analysis, a Poisson Pseudo-Maximum Likelihood gravity model and SMART simulation. The results showed that the inverted duty structure has promoted the import of processed cocoa products from the ASEAN region. The finished products from ASEAN have threatened the domestic cocoa processing sector. Therefore, the study emphasises the importance of aligning tariff structures with the needs of domestic cocoa processors. The results of the study are equally relevant to other processed agricultural and industrial products.