India through its negotiations under the Regional Comprehensive Economic Partnership (RCEP) currently stares at a defining moment. New Delhi will have to decide whether to adopt a protectionist stand or expose itself to competition from other economies in Asia.
RCEP was mooted by China and has gained in momentum ever since the US pulled out of Trans-Pacific Partnership, effectively making it defunct. Negotiations have been going on since November 2012. Countries involved in negotiations are Association of Southeast Asian Nations (comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam), India, China, Japan, South Korea, Australia and New Zealand.
The other block on the scene is the Asia-Pacific Economic Cooperation (APEC) and India is not a part of it. RCEP seems to be the only game left for New Delhi. However, there are many complex situations to be considered.
To start with, the negotiations were initially expected to conclude by November 2018. However, commerce and industry minister Suresh Prabhu said that negotiations will continue in 2019 and not end in 2018.
One of the pitfalls of India joining the mega trade agreement is that it will face severe disadvantage when it comes to goods traded among countries within the RCEP. New Delhi has a Free Trade Agreement (FTA) with Japan, South Korea, ASEAN in merchandise goods. Ever since the FTA, our trade deficit with those countries has only widened. Our strength lies in services sectors. To this, countries like Australia and Singapore have been averse to allow a free flow in human resource.
While India may lose the advantage in the goods sector, it has a strong services sector. However, countries like Japan and China (two largest economies in Asia) don’t present much advantage to New Delhi due to language barrier.
Opting out of RCEP by India will leave it out of the world’s largest trading bloc (accounting for nearly 45 per cent of the world’s population and with a combined GDP of $21.3 trillion). India then will lag behind on the economic front in Asia. Also, it would mean New Delhi will not be present at the rule-building negotiations for the bloc.
India’s main concern is that its markets will be flooded by goods from RCEP countries and mostly fears cheap Chinese goods being dumped in the domestic market. Shutting the market would mean, domestic manufacturers will be insulated from competition and lead to stagnation in the future.
India, in return for access to its market wants favourable conditions for its services sector as a starting point. To counter the threat of China dumping goods in our markets indirectly, the government has mooted stricter rules of origin to be imposed in RCEP. It would mean China will not be able to circumvent the system and export to us through a third country.
The Cabinet is currently divided over its stand on RCEP and the timing isn’t exactly advantageous as it comes during an election year (when normally protectionist measures go up). The previous budget saw import duties being raised in many sectors.
Opting out of RCEP isn’t the best option. Negotiating hard to get the best bargain seems to be.
