On balance, it is better if India joins RCEP

0
12

By DM Deshpande

November 15th is a landmark day for China and 14 other nations that have launched Regional Comprehensive Economic Partnership (RCEP) sans India. A year back India, rather abruptly, decided to opt out of the negotiations after being in it for seven long years mainly due to the China factor. The group includes 10 ASEAN countries and five others- Australia, New Zealand, Japan, China and Korea. Member nations account for 30 per cent of the global output and population.

There is a clear and perceptible shift in world economic order. East has become the new growth focus region of the world. As per an estimate, this bloc may see its importance rise to more than 50 per cent of the world output by the end of this decade. 

India has a free trade agreement with ASEAN. This was signed in 2010. Since then, Indian trade has doubled which underscores the potential of the region and the scope it offers to India. India also has free trade agreements with Korea and Japan. With Australia it is in the process of finalizing the treaty. Most other members in this group too have their own treaty with one another. Hence, is there nothing to be gained or lost by joining the bandwagon that is seen in India as China driven?

The main benefit, that is, if India decides to rejoin, is that it will smoothen and sort out issues arising out of multiple treaties. For instance, India has three trade treaties with Thailand. RCEP grouping has an implicit understanding that it will not offer concessions in excess of what is contained in the existing bilateral agreements.   

India’s main concern perhaps was that swathe of Chinese goods would come into India. Being in RCEP, India could have addressed this issue through issue of origin and stricter check and control at the border. Truth is global production has become highly complex, intricate and roundabout. Bulk of the goods from China have significant values added by ASEAN nations. Very often China becomes the ‘finishing’ last destination. Not surprisingly China, therefore, runs a deficit with ASEAN.

Similarly, fears of dairy products from New Zealand flooding India are exaggerated. For one thing, zero duty regime is heavily back loaded, coming into play only after twenty long years. In addition, there are other safeguards too, in agricultural trade that can be used to safeguard our interests. 

Not joining the new trade bloc will cost India dearly. Its GDP growth will remain suboptimal, if it chooses to remain isolated. It can still export to these nations but with a cost disadvantage; other members will have a significant advantage and access to markets in the Asia Pacific region. At stake is the Indian dream of turning into a $ 5 trillion economy. 

WTO, a multilateral trade body remains riddled with problems and inaction. That is the reason why several countries are pursuing bilateral ties and multilateral agreements on their own. The other option for India is to join Trans-Pacific Partnership (TPP). Its genesis is that it was conceived as a means to counter China and its ever growing economic clout.

The ambitious treaty was signed in 2016. But the US under Trump’s presidency withdrew from the group while the other members continued on a much diluted new form and name called Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP). Even if the US rejoins, yet in terms of new economic reality, it will be a better bet for India to go with RCEP.

Even the US allies and members of CPTPP are a part of RCEP. Japan had earlier taken a stand that it will sign only if India comes back. The group members do realize that there will be a considerable heft if India decides to come back. There are smaller countries that look to India as they are not in a position to stand up to China. Should India decide to join, it will get an opportunity to frame rules and fix tariffs that will be fair, transparent and equitable to all member nations.

The treaty has to be ratified by the parliaments of respective member nations. Australia has maintained that it will accord sanction 60 days after the deal is passed by at least six ASEAN nations and three other member countries’ Parliaments. Presently, services are out of bounds in RCEP. This can be a plus point for India as it looks to access global capital and markets. Environment and labour standards are kept out of the purview of RCEP. This will mean difficulty for member countries to trade with the US and the EU. But it will give much needed breathing time for Indian companies to comply with more stringent environmental and labour norms.

RCEP is expected to provide a single set of rules for markets in 15 countries. This will lower compliance and other intermediary costs and will boost trade. 

What emerges from the agreement is that even the American allies will not shy from closer economic integration with China. And a significant part of Asia-Pacific region too sees no harm in forming an economic association for mutual benefit. It would be prudent, pragmatic and beneficial for India to join the treaty where it is welcome to do so by most member nations. India joining will certainly add to the strength and appeal of the organization. 

The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh.