At the recently-concluded Regional Comprehensive Economic
Partnership (RECP) Summit, Prime Minister Narendra Modi announced that despite
seven years of negotiations, his Government had decided not to join this
plurilateral regional trade bloc that was launched by the Association of
South-East Asian Nations (ASEAN) leaders and six other countries during the 21st
ASEAN Summit in Phnom Penh in November 2012.
The objective of launching RCEP negotiations was to achieve a modern,
comprehensive, high-quality and mutually beneficial economic partnership
agreement among the ASEAN member States and its Free Trade Agreement (FTA)
partners.
Announcing
the country’s decision to stay out, Modi said, “India stands for greater
regional integration, as well as for freer trade and adherence to a rule-based
international order. India has been pro-actively, constructively and
meaningfully engaged in the RCEP negotiations since inception. India has worked
for the cherished objective of striking a balance, in the spirit of give and
take. Today, when we look around we see during seven years of RCEP
negotiations, many things, including the global economic and trade scenarios,
have changed. We cannot overlook these changes.”
Modi’s
decision came in the backdrop of intense domestic pressure from various
stakeholders, including political parties, State Governments and various
industry lobbies. Indian decision-makers were persuaded to shun the free trade
partnership due to shrill concerns that India would become a dumping ground for
Chinese products, adversely impacting Micro, Small and Medium Enterprises
(MSMEs) and also cripple its dairy industry due to the presence of majors such
as Australia and New Zealand in this trade grouping.
Interestingly, India’s decision to withdraw from the RCEP came despite the
Ministry of Commerce’s High-Level Advisory Group (HLAG) recommending that the
country adopt an optimistic outlook towards RCEP. The HLAG, constituted under
the chairmanship of Surjit Bhalla — Executive Director for India at the
International Monetary Fund (IMF) and former member of the Prime Minister’s
Economic Advisory Council — comprised other high-ranking members such as
Foreign Minister Subrahmanyam Jaishankar and former Commerce Secretary Rajeev
Kher. The HLAG was tasked with recommending steps to boost the country’s share
in global merchandise and services trade, and formally came out with its
recommendations only days before the Prime Minister announced India’s
withdrawal from RCEP. Since then, the Commerce Minister has clarified that
India may still join the partnership if its concerns are addressed, though such
an eventuality seems unlikely in the near future.
To
an extent, India’s decision to withdraw was also influenced by the perceived
negative outcomes of earlier trade pacts it had entered into with Japan, Korea
and the ASEAN. A central theme which emerges across trade discussions, of which
India is a part, is the country’s perennial inward focus. This stance is
counter-intuitive since India has benefitted greatly from globalisation and
liberalised market access, evidenced not only in its services exports but also
through import of primary and intermediate goods for domestic value-addition
and re-export.
Further, the impending stalemate at the World Trade Organisation (WTO),
precipitated by the US’s efforts to render the WTO appellate body comatose,
necessitates an exploration of other routes for trade enhancement. Bilateral
and plurilateral trade arrangements such as the RCEP have thus emerged as a
preferred alternative. Since the beginning of the Doha Round of trade
negotiations at the WTO in 2001, the number of such arrangements in force
globally has grown more than three-fold. During the same period, India inked
trade agreements with the ASEAN, Japan, South Korea and Singapore. However,
since 2011, India has not signed any further bilateral or plurilateral trade
agreements, primarily due to a growing perception that opening up of trade
borders has not served the country well.
Contrary
to this perception, such agreements have contributed immensely towards trade
creation. For instance, India currently has a trade surplus of $2.5 billion
with Singapore. Similarly, India’s trade deficit with ASEAN vis-à-vis its total
trade deficit witnessed a continuous decrease from 9.9 per cent in 2007 to 6.6
per cent in 2017; despite the fact that ASEAN’s share in India’s total trade
has remained more or less constant. Meanwhile, India’s deficit with China, a
non-FTA partner country, increased from 18 per cent of the total trade deficit
in 2007, to 40 per cent in 2017. Even within the aegis of the WTO, the concept
of flexible multilateralism has found several supporters. Flexible
multilateralism allows WTO members to advance and conclude plurilateral
agreements where full consensus is not yet possible. Examples of such
plurilateral arrangements include the Information Technology Agreements (ITA-I
and II) — while India is a signatory to ITA-I, it has refrained from adopting
the second iteration. More recently, taking forward the approach of flexible
multilateralism, 76 countries decided to initiate discussions on trade related
aspects of electronic commerce. India has so far not joined the discussion,
citing the erosion of policy space and the digital gap between member countries
among other reasons, for not doing so.
Looking
ahead, if India wants to achieve its target of becoming a $5 trillion economy
by 2024, then considerable efforts and resources are required to push its
exports. More importantly, the country will have to review its frozen approach
towards bilateral and plurilateral arrangements. Indeed, along with other
like-minded countries, the country should continue to ensure that the relevance
of a multilateral trading system is maintained. However, it is also important
that in light of changing global trade dynamics characterised by forward and backward
linkages, it cannot afford to ignore preferential agreements, or even limited
trade deals like the one it is currently exploring with the US.
Given
India’s political-economy compulsions, it is understandable that the country
remains wary of entering into far-reaching trade agreements proposed by
advanced jurisdictions. But India must nevertheless adopt an alternative
strategy to advance its self-interest. It is better to sit in the negotiating
room and disagree than to leave the room altogether.
Going
forward, the Indian leadership must resist the temptation of abstaining from
decisions due to perceived costs in the short-run. To begin with, there is an
urgent need to fix internal decision-making mechanisms. A more concerted and
coordinated effort across Government departments in evaluating trade
partnerships should be the way forward, instead of convening inter-ministerial
discussions as a reactionary measure. Government departments should engage with
the industry on a more frequent basis on issues of market access and to
determine sub-sectoral competitiveness.
Further,
the country’s relative strengths and domestic industry participation in
specific value chains should inform prioritisation of trade partner
negotiations. At present, the Commerce Ministry reaches out to the industry for
inputs only after the country has initiated trade discussions — this mechanism
largely remains ineffective as it fails to solicit detailed and usable
submissions within predefined timelines.
To
ensure that there is coherence in the decision-making process, the Government
should explore the establishment of a nodal body, on the lines of the erstwhile
Trade and Economic Relations Committee (TERC) of the Cabinet. Such a body can
enable consultative decision-making, efficient inter-ministerial coordination
and better definition of the country’s trade priorities and strategies.
(Kalawatia and Priyadarshi work at Koan
Advisory Group, New Delhi. The views expressed here are personal.)
