With RCEP now in force, India must strengthen trade & engage with other blocs12/01/2022 38
The world’s largest trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which includes China and 14 other Asia-Pacific nations and covers a third of global GDP, came into effect on 1 January, but without one Asian economic giant: India. The Narendra Modi government had walked out of the pact in November 2019.
On 1 January 2022, the RCEP came into force with an eye on providing a “tremendous boost to the post Covid-19 economic recovery efforts” for the member countries involved.
The trading bloc includes 10 ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam — and their five major trading partners — Australia, China, Japan, New Zealand and South Korea. However, countries like Indonesia, Malaysia and the Philippines are yet to ratify the agreement and ratification by Myanmar, which has been ruled by a military junta since February 2021, is pending acceptance from other members.
India pulled out of the pact in November 2019 after talks failed to address its concerns over issues like rules of origin, opening up of services etc. There were also fears of the flooding of Chinese imports in Indian markets.
Given certain developments such as the pandemic, new geostrategic partnerships like the Quad and India’s active pursuit of new FTAs (Free Trade Agreements) with six other countries, ThePrint reached experts to understand what India could have gained, or not, from the RCEP.
According to experts, India should focus more on BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) countries and Africa while working towards strengthening the trade ecosystem.
Engage with African trading blocs, BIMSTEC
According to Sachin Chaturvedi, director general at Delhi-based think tank Research and Information System for Developing Countries (RIS), India made a necessary decision to pull out of the RCEP in 2019, but that now it must also look to engage with and revive other trading blocs.
“India made a timely decision to pull out of the RCEP and there’s a certain comfort with that, given it has FTAs with 13 out of the 15 members. But having made that decision, India must now actively engage with other trading blocs like AfCFTA (African Continental Free Trade Area) and SACU (Southern African Customs Union),” he told ThePrint, adding that India should also revive BIMSTEC.
BIMSTEC is an inter-regional grouping among India, Thailand, Myanmar, Nepal, Bangladesh, Sri Lanka and Bhutan.
India curbed ‘one-sided’ trade relationships
India stood to face “one-sided” trade relationships with countries like China and New Zealand if it was part of the RCEP, said Srikanth Kondapalli, professor at Jawaharlal Nehru University’s Centre for East Asian Studies.
“China hasn’t upheld certain WTO obligations in terms of market economy access for India. It still has not opened up to pharmaceutical or IT products from India. So, if China wasn’t reciprocal in the bilateral relationship, why would they be reciprocal to us in RCEP? It would have been one-sided,” he told ThePrint.
With New Zealand, there is a fear on the Indian side of the dumping of dairy products, he said.
“India’s National Dairy Development Board (NDDB) goes into villages to reach dairy farmers, but in New Zealand, the industry is highly mechanised and they often have surplus. If we had swung open our doors to them by being in RCEP, at least a few hundred million dairy farmers in India would be unemployed,” he said.
Asked why India is then pursuing a CEPA (Comprehensive Economic Partnership Agreement) with Australia, where there are similar concerns, he said: “That’s a much larger deal and it’s easier to deal with such sensitivities on a bilateral level.”
Strengthening India’s trade ecosystem
Experts have argued that India needs to strengthen its trade ecosystem and develop domestic capabilities in critical areas like electronics products.
According to Chaturvedi, as India negotiates more FTAs, it needs to strengthen its own trade ecosystem through credit creation, infrastructure support, institutional preparedness, production quality assessment etc.
“We are making progress. For example, our dependence on Singapore and Colombo ports have declined. India’s 41 ports are seeing more and more investments come in. But supply chain resilience definitely needs work.”
Speaking to ThePrint, Sunitha Raju, Professor of Economics at Indian Institute of Foreign Trade who in 2019 co-authored a study suggesting India’s concerns about Chinese imports were exaggerated, said India needs to focus on upgrading domestic capabilities in the sphere of technology.
“Electronics is a major sector for all countries. Let’s look at imports of solar batteries in India, for example. The reason imports of Chinese solar batteries is so high is because Indian manufacturers are not able to match prices. Domestic technological capabilities are not as strong and firms don’t spend enough on R&D,” she said.
“If it’s not China, it’ll be some other technologically advanced country flooding our markets. We need to focus on upgrading the domestic capability and be competent on our own,” added Raju.
Asked whether the RCEP was a missed opportunity for India, she said: “We were always too paranoid with the idea of China using RCEP to enter through the backdoor. The assumption that by not joining RCEP we would deprive China of tariff concessions and other measures, is wrong. We still have a large trade deficit with them,” she said.
India’s trade deficit with China stood at $44.1 billion in 2020-21, according to commerce ministry data. It stood at $53.57 billion in 2018-19.
Reducing Chinese imports
According to Chaturvedi, by not joining the “China-focused” trade bloc, New Delhi has worked on reducing imports from Beijing. “For example, in pharma, India has worked to reduce the types of major Active Pharmaceutical Ingredients (API) it imports from China from 48 to 24,” he said.
According to Indian commerce ministry data, imports from China have steadily reduced in the last three years, from $76.3 billion in 2017-18 and $70.3 billion in 2018-19, to $65.2 billion in 2019-20 and $65.2 in 2020-21. Exports to China, meanwhile, hover around $20 billion.
Asked whether Quad members like Japan and Australia’s membership to the RCEP would be a concern, Chaturvedi said that these countries have “pre-stategised” economic interests. “There are huge Japanese investments in the Chinese economy and Australia too is heavily dependent on Beijing,” Chaturvedi added.
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