India, free trade and RCEP

India has less than a month to decide whether it will join the 16-nation Regional Comprehensive Economic Partnership (RCEP) which is being projected as the world’s biggest pact for trade in goods and services. The RCEP negotiations were launched by leaders from 10 ASEAN member states (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and six Free Trade Agreement partners (Australia, China, India, Japan, South Korea and New Zealand) of the ASEAN. It is estimated that the RCEP will account for 25 per cent of the world GDP and 50 percent of the world trade by the year 2050.

A final decision to launch the firmed-up RCEP is likely at the November 4 summit of the 16 countries to be held in Bangkok where Prime Minister Narendra Modi is expected to be present. Ahead of the summit, Indian Commerce and Industry Minister Piyush Goyal is in Bangkok to attend the crucial ninth round of RCEP ministerial meeting on October 11-12. Its significance can be assessed from the fact this will be the last ministerial before the summit where the RCEP is scheduled to be announced as concluded. Senior officials of the 16 countries have already 28 round of negotiations for the RCEP and the last one was held for nine days in Da Nang, Vietnam, in September when they dealt with controversial issues of market access on trade in goods, services and investment as well as on other areas like rules of origin, intellectual property and electronic commerce. Out of the 25 chapters of the proposed RCEP, negotiations for 21 chapters have been wrapped up but the crucial chapters of investment, electronic commerce, rules of origin and trade remedies are yet to be settled and the next ministerial meeting in Bangkok will deliberate on these issues.

But there are already serious concerns in India’s trade and industry circles about the wide-ranging impact of the RCEP on India. That is why in the run up to the Bangkok ministerial round this month, Goyal  held several consultations with the representatives of the Indian industry for firming up India’s position and for taking into consideration industry concerns and sensitivities. Commerce and Industry Minister chaired several inter-ministerial meetings at the official level and also with ministers of the key line ministries.

There is assessment in a section of India that a majority of 

the FTAs with other countries bilaterally has not benefitted the 

country much and it is time to review them. Will the RCEP be any different?

 But India, which repeatedly advocates against trade protectionism and pitches fora rule-based 

world trade order, cannot risk isolation and afford to stay out of bilateral and regional trade pacts

When negotiations began in early 2013, the RCEP aimed at achieving a modern, comprehensive, high quality and mutually beneficial economic partnership agreement among the ASEAN member-countries and ASEAN’s six FTA partners. But questions still remain how far the proposed pact will help many of the RCEP member-countries with a wide as asymmetry in their economic status. To begin with, the RCEP was pitted as an alternative to the now-defunct Trans-Pacific Partnership (TPP) led by the United States. But after Donald Trump moved into the White House, the US pulled out of the TPP and later set off the trade war with China, the world’s second largest economy.

India views the RCEP as a key extension of its Act East policy of closer economic engagement with ASEAN countries and its FTA partners hoping it would pave the way for integration with global value chain in manufactured goods and result in greater investment. But Indian industries and a section of experts are skeptical. The questions are: can India secure a good deal out of negotiations for the RCEP and will it bring the intended benefits for its economy? India so far is not part of any trade pact which has in it China. What is undisputed is the RCEP offers both challenges and opportunities for India.  

On one hand there is apprehension that India will be swamped with goods from China once the RCEP is finalized. India already has a huge trade deficit of 70.3 billion dollars in 2018-19 in favour of China. There is speculation that this trade gap may widen further as apart from bilateral route, goods from China from both in consumer and industrial segments will also be routed to India’s huge market through other RCEP countries. To guard against that, can India ensure adequate and clear-cut safeguard provisions in the RCEP including a stringent rule of origin to prevent dumping of goods especially from China? China, according to India’s official think-tank Niti Ayog, accounts for nearly half of India’s total foreign trade deficit. India’s trade gap with ASEAN, Japan and South Korea too has been growing. In fact, one estimate says India’s total trade deficit with all the 16 RCEP countries stands at a staggering 105 billion dollars. The Indian industries which fear cheaper imports under the RCEP are: dairy, iron and steel, textile, fishing which feels threatened by automatic fishing trawlers and chemicals and plastics. On the other hand, India can look forward to make major gains if the Indian industry makes itself competitive and can extract concessions for the movement of its skilled IT professionals and other services providers at cheaper wages in areas where local labour is costlier. The Indian pharma industries specializing in generic drugs and cotton yarn makers see a lucrative market in RCEP countries.   

According to Abhijit Mukhopadhyay, Senior Fellow at the leading private think-tank Observe Research Foundation in New Delhi, India will find it difficult to make any significant headway in moving up the global value chain in manufactured goods for two reasons: one, is dominated by large multinational companies including those from China and second, India is placed at the bottom of the chain as a raw material supplier like copper, ore, Sulphur, salt, mineral fuels and oils. Mukhopadhyay  also doubts how much India, with its cheaper skilled professionals, stands to gain in services sector under the RCEP because such cheaper labour is also available in plenty in three ASEAN countries—Vietnam, the Philippines and Malaysia.   

There is assessment in a section of India that a majority of the FTAs with other countries bilaterally has not benefitted the country much and it is time to review them. Will the RCEP be any different? But India, which repeatedly advocates against trade protectionism and pitches for a rule-based world trade order, cannot risk isolation and afford to stay out of bilateral and regional trade pacts. 

Pallab Bhattacharya is a 

journalist based in India