India should heed appeal by RCEP members to return to negotiating table; then battle hard for equitable deal

On Wednesday, representatives from ASEAN, along with Japan, New Zealand, South Korea, Australia and China participated virtually in the 10th RCEP inter-sessional ministerial meeting

Karan Pradhan June 25, 2020 14:07:13 IST
India should heed appeal by RCEP members to return to negotiating table; then battle hard for equitable deal

On Wednesday, representatives from the Association of South East Asian Nations (ASEAN), along with Japan, New Zealand, South Korea, Australia and China participated virtually in the 10th Regional Comprehensive Economic Partnership (RCEP) inter-sessional ministerial meeting. This was the third major RCEP meeting to be held via video conference — on account of the coronavirus pandemic — this year, following the 29th and 30th rounds of negotiations in April and May.

The joint statement that emerged at the end of the ministerial meeting was a brief one that limited itself to just four points — two of which acknowledged COVID-19 and the grouping's 'unwavering' support for multilateral trade despite the pandemic. While the first point merely took note of the fact that a meeting was held, it was the fourth that caught the eye:

"India has been an important participant in the RCEP negotiations since the launch in 2012. We believe that India's participation in RCEP would contribute to the advancement and prosperity of the region. We therefore wish to emphasise that the RCEP remains open for India."

And why not? As the data below shows, India is already a pretty useful trade partner for most of the RCEP members:

Now, imagine those numbers in a scenario where tariffs and duties are slashed following India's hypothetical return to the fold and the signing of an agreement — the latter is something members are keen to conclude this year.

It was in November, it may be recalled, that India took an unprecedented — or at least deemed to be so in some quarters — step and walked away from the RCEP. "The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India's outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP agreement," said Prime Minister Narendra Modi at last year's Bangkok summit as the country withdrew from the negotiating table.

The RCEP dilemma explained (without lazily appropriating Hamlet)

The biggest concern for India at present, and about what the prime minister was most likely speaking, is the elimination of tariffs that would have to be undertaken if he was to put pen to paper on the RCEP agreement. With tariffs out of the way, India's domestic markets would be flooded with cheaper products and agricultural produce and local producers would lose business.

Of course, and much as with the entry of foreign e-retailers, there's always two sides to the coin. Before — and for some time after — the entry of the Amazons of the world into the Indian market, there was a sense of both enthusiasm and concern. Apprehension was writ large across the faces of those who prophesied that the end of 'mom and pop' kirana stores was nigh. On the other hand, customers and those small-time retailers who envisioned being part of the mega e-retailer's network were excited at the prospect.

The RCEP raises a similar dilemma — despite the fact that the ruling party, Opposition parties (see here) and a handful of irrelevant political stragglers (see here) were largely on the same page after Modi's remarks last year. Meanwhile, such commentators as former NITI Aayog vice-chairman Arvind Panagariya and economist Jeffrey Sachs expressed their disappointment at India's decision to opt out of the mega trade agreement.

India should heed appeal by RCEP members to return to negotiating table then battle hard for equitable deal

Virtual 10th Regional Comprehensive Economic Partnership (RCEP) Intersessional Ministerial Meeting. ASEAN Secretariat's Flickr page

So what's the Government of India to do?

On offer is access, for Indian agriculture, manufacturing and other sectors, to a variety of untapped markets (Laos, Cambodia and Brunei to name a few) and the opportunity to make further headway into such markets as Australia, New Zealand and the Philippines. So too is greater access, for Indian consumers, to a greater variety of products — electronic and otherwise — and produce at affordable prices. Additionally, being part of the RCEP will allow Indian players the opportunity to participate in major global supply chains. All of which sounds great, except when you consider the downside.

India's misgivings stem from the hard-to-dismiss and very real notion that as a member of this partnership, cheap Chinese goods (largely) and Antipodean agricultural exports (to an extent) will take over Indian markets and could force local businesses and farmers out of business. In any case, India has always — and it could be argued, rightly, considering the number of people who will be affected — demonstrated a wariness when it comes to opening up certain markets to FDI, leave alone market access. And this has left the country open to accusations of protectionist policies. In its bid to protect a key industry, New Delhi this week slapped anti-dumping duty on steel imports from China, Vietnam and South Korea.

In fact, it is this circumspection and unwillingness to let go of key tariffs and duties that has seen several of India's free trade agreement negotiations stall or fall by the wayside. The India-EU FTA talks are an example of this phenomenon and the resumption of the process to review the India-ASEAN FTA has been put off until after the RCEP is inked.

The next step

Compared to November 2019, the Indian economy today is much worse off — not least because of coronavirus -related reasons. However, and if the joint statement is anything to go by, getting back into the RCEP fold is still something the 15 countries in the grouping are interested in pursuing. This is evident in Vietnamese Ambassador to India Pham Sanh Chau's remarks to The Print that "We believe that if India does not feel comfortable in joining RCEP at the moment then Vietnam, as the chair of ASEAN, will facilitate the conclusion of the agreement in Vietnam territory under our chairmanship. And after that we will facilitate the entry of India into this agreement at a later stage, which is at the most comfortable time for India."

Signing a free trade agreement in coronavirus -affected (never mind post-COVID) world is likely to invite greater risks and will amplify existing concerns due to all the uncertainty that abounds. It is for that very reason that India must not rush to get back into the RCEP. However, returning to the negotiating table with a view to bargaining hard for a more equitable deal for India is the way to go. While it is more than likely that back-channel discussions to this effect are already underway, New Delhi must prepare an airtight case — that includes preparing for everything China may throw its way — and go public with its desire to return to negotiations. If for no other reason, this will at least signal India's intentions to return to the fold, even if the final result is an RCEP minus India.

As for being thorough about preparation, The Times of India's report in the wake of India's decision to walk out of the deal is instructive. It points out that "as [RCEP] negotiations proceeded, it became clear to Indian negotiators and their political leaders, that this was an unequal FTA between India and China, where China has refused to concede on any of the big issues that India had. It wasn't also helped by the fact that Indian officials negotiated very poorly, making concessions that were indefensible."

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