By: Anirudh Prakash
India crafted a well thought out strategy by announcing that it would not join the Regional Comprehensive Economic Partnership (RCEP), because joining RCEP would have given benefits to the member countries. The interests of domestic industry, the ongoing indigenisation and above all farmers’ interests were given importance by India while taking a decision on the RCEP. The decision was taken at the 35th ASEAN Summit held in Thailand last month. Expressing concerns about dumping and the agriculture sector, the Prime Minister Narendra Modi categorically said that “the present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of the 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 RCEP Agreement.” Touted as one of the biggest trade blocs in the Indo Pacific and Indian Ocean Region, the RCEP negotiations covered ten members of ASEAN and six other countries including India and China and nearly one third of the GDP of the entire world economy. The decision to remain out of RCEP reflects both New Delhi’s assessment of the current global situation as well as of the fairness and balance of the agreement.
Also, India’s concerns regarding its core issues were not addressed sufficiently enough to allay the fears of industry and agriculture. India’s trade deficit with China rose to US$57.86 billion in 2018 according to official Chinese data on India-China bilateral trade of about US$95.54 billion. China-monitored negotiations at the RCEP hinted at lowering of tariffs further, which could have amounted to flooding of Indian and other markets with cheap Chinese goods, undermining indigenous industry in many countries. Nevertheless, the trade pact is likely to be linked by other countries without India being part of the trade architecture. With China, Japan, Australia and South Korea besides other former Asian Tigers as members, many countries which are partnering with the US on trade will walk out of those respective bilateral pacts and join the new Pan-Asian-Indo Pacific trade bloc. New Delhi will have to do serious homework to calculate the extent of damage its absence in RCEP could cause and also look for ways and means to minimise or annul those damages. Trade negotiations tend to linger on for an astronomically long period of time and still remain inconclusive. Adam Smith’s division of labour and Ricardo’s theory of cooperative advantage of trading between nations spurred the idea of international trade on the ruins of mercantilism. The idea of global village is easier to conceive but difficult to forge. What began as International Trade Organisation back in the late 1940s in the backdrop of the end of Colonial rule culminated in General Agreement on Tariffs and Trade (GATT) way back in 1947.
The Uruguay Round in 1986 ended in WTO nine years later in 1995 with more than 150 countries as members, but continues to be a work in progress. Meanwhile, new trade wars and trade pacts have appeared on the scene and more trade wars are likely to be fought and many more pacts negotiated. Trade blocs are the new regional tools in geopolitics that determine the strengths and weaknesses of member countries continuously looking for realignment in balance of power equation. RCEP was one such tool which was forcefully spearheaded by China for reasons not difficult to comprehend. The Trump administration pulled out of the TPP at a time when it was being shaped as a major trade bloc in Asia, without China being part of it. Additionally, the trade war struck a body blow not only to the gradually weakening Chinese economy, but the entire global trade as a whole. China had to react in two ways. One was to keep negotiating with the US to minimise the damage and keep the US engaged.
Meanwhile, Beijing grabbed the opportunity of forging RCEP into a new special purpose trade vehicle, with China safely occupying the driver’s seat. For India it was a damned if you do and damned if you don’t moment. But now that New Delhi has opted out of RCEP, albeit temporarily, there is an urgent need to look for strengthening our existing bilateral and multilateral trade and business architectures. BIMSTEC is one such trade institution, which India now may need to harness to its full potential. New Delhi should overcome its lethargy and fire on all cylinders to revamp and reenergise BIMSTEC to its optimum level of efficiency. To begin with, a team of experts drawn from various ministries should be constituted to look into all the shortcomings of its functioning and build a robust business model around it. India’s efforts to focus on self reliance-Make in India-and ease of business has not met with the kind of success that was expected by the domestic market and international investors. The general sluggishness in demand and industrial indolence have added to the economic reversal fuelled by interventionist policies that were criticised as being good in intent but bad in content and implementation. With or without India, RCEP will chug on, with Beijing driving it. India will have to join the bandwagon at some time, but till then work hard to turn the green shoots in the economy to a mighty and powerful growth engine.
India in the current context would require reinvigorating and emphasising on strengthening BIMSTEC. It would help India to intensify all its efforts in leveraging BIMSTEC by focusing on connectivity projects in and around the Bay of Bengal region. This will also help unleash the potential of the seven northeastern states in India. Such development will also help in realising the goals of India’s Act East policy. BIMSTEC seems to be emerging as a new orientation for India’s foreign policy. India will be able to make a conducive environment both in its neighbourhood as well as its extended neighbourhood by forging a better regional economic integration. Physical connectivity with BIMSTEC would also help India in integrating itself with ASEAN’s Master Plan of Connectivity 2025. There remains a Free Trade Agreement (FTA) issue with BIMSTEC also. India’s total trade with six BIMSTEC countries (Bangladesh, Nepal, Bhutan, Sri Lanka, Myanmar and Thailand) has grown at an annual growth rate of 10.4 per cent. The absence of free trade agreements and the lack of seamless movement of goods and services within the region explain these low levels of intra-regional trade. The foreseeable future will completely be dependent on how all the connectivity projects are realised at a faster pace and BIMSTEC becomes the guiding force for the economic prosperity and stability of the region. INAV