Submitted by Pranay Kumar Shome
Ever since it was announced that the 35th ASEAN summit would take place in Bangkok, the capital of Thailand, speculation was ripe that India may refrain from joining in, despite pressure from its allies to join the Free Trade Agreement (FTA). The agreement involves ten southeast Asian nation-states and six other countries (New Zealand, USA, China, Australia, Japan, and South Korea) making it one of the largest agreements as it would include almost 70 percent of the global population and over 30 percent of the Global GDP if India were to join. The purpose of the deal was to create an “integrated market” spanning all 16 countries. This means that it would be easier for the products and services of each of these countries to be available across the entire region. However, New Delhi chose to pander to its domestic constituency support base, choosing to opt-out until outstanding trade issues were resolved.
The RCEP was certainly a cliffhanger for India, particularly for the Modi government. Numerous economic and trade bodies, be it the Indian Chamber of Commerce (ICC) or the Federation of Indian Chambers of Commerce and Industry are opposed to such integration. In conjunction, what is perhaps more interesting, is the vehement opposition mounted by the Swadeshi Jagran Manch, the trade affiliate of the RSS, which advocated that India stands much to lose if it signs the agreement.
All the RCEP participating countries, except for India, have concluded text-based negotiations for all 20 chapters of the proposed deal and their market-access issues, which they are expected to sign in 2020. But India has held back because of “significant outstanding issues, which remain unresolved.”
Decoding the reasons for India’s protectionist approach
“The deal in its present form does not fully reflect ‘the basic spirit and the agreed guiding principles of RCEP.’ When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhiji nor my own conscience permits me to join RCEP,” Prime Minister Narendra Modi said in his statement at the 3rd RCEP Summit in Bangkok on Monday.
India runs a massive bilateral trade deficit of $53 billion with China, yet China has not made satisfactory efforts to reduce this deficit, which was certainly a major input in India’s decision. Second, India’s past experience with free trade agreements is not exactly positive. Though trade has increased post-FTA with South Korea, ASEAN, and Japan, imports have risen faster than exports from India. According to a paper published by NITI Aayog, India has a bilateral trade deficit with most of the member countries of RCEP. More importantly, while exports to RCEP countries account for just 15 percent of India’s total exports, imports from RCEP countries make up 35 percent of the country’s total imports. Given this, it is obvious that in the immediate context the country had more to lose than gain from joining RCEP.
India has attempted to rectify these losses through negotiation but their proposals have failed to pass. India’s request for country-specific tariff schedules was rejected early in the negotiations. So was its suggestion of an auto-trigger mechanism to check a sudden surge in imports from particular partner countries. India also argued for stricter rules of origin but this too failed to pass muster. Movement of professionals was another area that saw an impasse. As a result, there was little chance of the political leadership agreeing to join the bloc.
According to Soumya Kanti Ghosh, chief economic advisor to State Bank of India, India is the largest lender by assets, India has a trade deficit with almost 11 countries of the RCEP bloc with the total amount running to $107.28 billion; hence, India first needs to enter into intense negotiations not only to address the trade deficits but to establish trade on equal terms with its allies across Southeast Asia and Western Europe.
China had said that it is ready to address India’s outstanding concerns on trade and all issues pertaining to the RCEP. It is quite clearly discernible that China has much at stake when it comes to the RCEP; India is not only the second-largest bilateral trade partner with bilateral trade currently standing at over $80 billion, but its huge population holds much temptation. China is craving for a larger market and with the bruising trade war with the US not looking to be resolved in the near future (despite the announcement of Phase I of the deal), it is clear that China is desperate to make further inroads to the India market.
However, Japan and other southeast-Asian countries also seek to gain access to India’s huge market and regard China as an obstacle to achieving this access. Japan has indicated that it will not join the RCEP without India ahead of a series of diplomatic exchanges in the coming weeks that include a visit to Delhi by Prime Minister Shinzo Abe. Abe has sought to beef up ties with India across a range of fields to balance China’s regional dominance. Hence, bolstering trade with India is certainly on the agenda of Japan to counter the economic hegemony of China which has managed to enforce to a large extent the Chinese economic order through the Belt and Road Initiative (BRI).
Globalisation has limits as India bolted at the prospect of the gradual elimination of tariffs which would have opened up the floodgates for cheap Chinese goods and agricultural produce from Australia and New Zealand. Simon MacAdam, a global economist at Capital Economics and author of the report “Does Globalization Have a Future?” told Al Jazeera that it is important to bear in mind that on many metrics the world may have already reached “peaked globalization.” “This isn’t a new thing. It hasn’t just come about because Donald Trump entered the White House and launched into a trade war against China and it hasn’t just come about because of the collapsing of various trade deals in recent years.”
Nevertheless, it is imperative that a synergy is achieved where India will not only be able to protect the interests of its citizens but also promote multilateralism. This can only happen when India negotiates trade and economic agreements that are mutually inclusive and beneficial to all involved. At the same time, the strengthening of WTO as the beacon of multilateralism remains vital.
Pranay Kumar Shome is currently pursuing his Honors Degree in Political Science with a specialisation in International Relations from Jadavpur University. His research interests include India’s Indo-Pacific affairs, West Asia, and nuclear proliferation issues.