India has invited officials of the member countries of Regional Comprehensive Economic Partnership (RCEP) to a meeting in New Delhi on September 14-15 for “discussing ideas.”
This is happening only a week after the 7th RCEP Ministerial Meeting at Bangkok on September 8 in Bangkok and a week before the next negotiating round scheduled to be held in Da Nang, Vietnam, on 19-28 September.
Delhi’s initiative is the clearest indication so far that India would like to be inside the RCEP tent rather than outside. Such a choice was virtually handed down by the rest of the RCEP, who asked Delhi at the Bangkok meeting last weekend to decide if it wants to remain a part of the proposed regional trading bloc.
The Indian rhetoric has since transformed, as borne out by the remarks by Commerce Minister Piyush Goyal after a crucial meeting to hear out the concerns of Indian exporters on trade remedial measures on Sept 11in New Delhi.
Goyal’s remarks were finely balanced but with a discernible “tilt” in favour of the big picture that much as India negotiated doggedly so far for securing its interests in the RCEP, India should not miss the wood for the trees. Goyal struck the correct chord:
“Prime minister Narendra Modi has directed me to enter RCEP negotiations while taking all steps to protect the domestic industry. At the same time, we have to keep in mind the opportunity to increase business activities of new technology, new foreign investment and opening up of the services sector, new market access to Indian exporters. Otherwise, Indian exporters will be at a disadvantage.”
“But national interest cannot be hijacked by one or two sectors. National interest has to be seen in the overall context. Having said that, we will certainly balance even those industries which feel that there could be at an unfair advantage to Chinese companies and ensure that whatever agreement we make, will be good for India in the balance of convenience. But you will certainly appreciate that if I have to look at 100% sectors, then no negotiation can ever be complete.”
“We are literally vertically split. We have half the industry saying ‘please bring RCEP’, and we can increase exports dramatically’ and there is a section of industry which feels that we should not have RCEP.”
Elsewhere he added that to safeguard the interest of local industry, the government has sought a review of India’s FTAs with not just ASEAN but also Japan and South Korea, which have contributed to its huge trade deficit.
Asked if India is in favour of concluding the RCEP negotiations by November, Goyal said the sooner it is done with adequate protection for our industry, the better. To a question whether New Delhi will continue to insist on “no early harvest” policy (that negotiations on all pillars of the proposed agreement such as goods and services must be concluded at the same time) at RCEP, the minister said in all negotiations, one has to be nimble and positions can’t always be constant.
Suffice to say, the RCEP negotiations have reached “a critical milestone as the deadline for the conclusion of negotiations draws near” — to quote from the joint media statement after the ministerial in Bangkok last week, which, by the way Goyal had attended. Thailand’s Deputy Prime Minister and Commerce Minister Jurin Laksanawisit is on record that an agreement on RCEP is expected to be signed by 2020.
What gives impetus to the RCEP negotiations to speed up are the stark economic uncertainties due to the trade tensions between the US and China, the UK’s exit from the European Union (Brexit), and the overall weakness in both global investments and consumer demand.
In particular, the ASEAN seeks to further reduce tariffs and non-tariff barriers. A statement on September 11 following the ASEAN Economic Ministers meeting held in Bangkok said the member countries “remain resolute in their commitment to the region’s economic integration agenda and to achieve the target to double intra-ASEAN trade by 2025, supported by an open, inclusive, and rules-based international trading system”.
The key concern from India over the RCEP is that the free trade deal may give greater market access to Chinese goods, and it will be difficult for its domestic market and manufacturing sector to withstand such an impact. It seems understandable, considering that India already has free trade agreements with ASEAN, Japan and South Korea, and the RCEP negotiations for India are more like free trade talks with China.
But on the other hand, the trade imbalance is caused by the imbalanced economic structure due to the underdeveloped manufacturing sector in India. It is useful to recall that the Obama administration did not consider India as a member when it advocated the Trans-Pacific Partnership (TTP), and later the TPP-11 mooted by Japan also did not invite India in. If India again misses the RCEP, which is centered on China, Japan, South Korea and ASEAN, it may end up losing the opportunity to integrate into the globalised trade system forever.
Fundamentally, India needs to take a geopolitical call. Geo-economics cannot be ignored. The obsessive rivalry vis-a-vis China warps Indian thinking and the growing danger is that while Delhi is moving forward alongside Washington on a strategy to balance China, and is forever striving to find common ground between the US’ Indo-Pacific Strategy and India’s concerns about China’s rise, the priorities of the ASEAN countries lie elsewhere.
Evidently, talks between China and Japan, the largest and second-largest economies in the region, have been progressing smoothly, and negotiations over tariffs between Japan and South Korea also do not pose a major obstacle to the RCEP. What’s really up in the air is India.
The rise of China is not the only show in town. The ASEAN countries are also rising. The ASEAN region collectively reported higher trade and foreign direct investments in 2018. Trade in goods went up 8.7 percent, while trade in services expanded 10.6 percent. Total FDI inflows to the region increased 5.3 percent to $154.7 billion.
Thus the ASEAN looks forward to the immediate conclusion of RCEP’s negotiations as the trade pact will open up more markets. Once the RCEP partnership is in place, ASEAN can access bigger markets such as China, India and Australia.
Again, China’s cooperation with its neighbouring Asian countries, including India, has seen unprecedented strengthening and it is unrealistic to remain wedded to the outdated balance of power theory. We are long past the point to stop the Chinese economy from developing. And China’s rising strength will continue to change the structure of the Asia-Pacific region.
A new Asian order is needed. Since China’s development is unstoppable, India should focus on opportunities for cooperation with China. According to a PwC estimate, the GDP of RCEP member states is likely to be nearly $250 trillion by 2050 and for India, the RCEP is its most important trade pact that is under negotiation.
India’s main problem is of a systemic nature — rather than that its domestic industry will face immediate heat from China, ASEAN, Japan and South Korea.
The legacy of protectionism has prevented our exports from achieving the competitive edge and disabled the country from leveraging its FTAs to increase its presence in the markets of its partners. Hence, trade deficits run high.
The smart thing to do will be to remove structural bottlenecks. This involves designing forward-looking industrial and technology policies to make globally competitive products and deliver skill-intensive services as well as seizing opportunities to end India’s exclusion from global value chains through membership of RCEP.