On 15 November, 2020, Sunday, 15 major countries of the Indo-Pacific region re-solidified their stand as signatories to the RCEP (Regional Comprehensive Economic Partnership). This partnership accounts for 30% of the world’s population (2.2 billion) with a global GDP of (26.2$ Trillion) makes it the largest Regional Trade Agreement in history.
India showed a sense of dissent that followed the decline of this offer to be a signatory. But the leading nations of this pact kept the doors open for India to be a party at the negotiating table. This pact aims to ensure the movement of products or goods and services smoothly for all countries across this region. India was a pioneer to ink this deal in 2013 but drifted away in November 2020.
The source of this decision dates back to 4 November, 2019, when the Indian Delegation passed its willingness to withdraw from all discussions relating to the pact on “significant outstanding issues”. India’s decisions are provoked due to facing repeated issues and concerns on negotiations that were unsolved before the deadline of signing the deal.
The agricultural and dairy industries form a core part of India’s service sector that was not ensured cover and safeguard under the current structure of the RCEP that finally provoked India to take such a decision. The present RCEP structure lacks a clear assurance of market access over countries like China that impose non-tariff barriers on Indian Companies.
India has 11 trade deficits with the 15 nations where the existing bilateral Free Trade Agreements have no leverage with the RCEPs increasing the export rate. This decision made India unable to use countermeasures to raise tariffs that crossed a threshold excluding the most-favoured nations in the investment chapter.
India does not want to abolish its relations with the nations having outstanding disputes and strategic alliances for geopolitical reasons. Therefore, this feeling forced India to extend the benefits for sensitive factors, like assuring security-aid to the RCEP members.
This stance originated from lessons previously gathered by India on instances of unfair trade balances with RCEP members that had FTAs with India. An internal assessment revealed the growth of trade in the last five years to 7.1%. There has been growth in the moderate “utilization rate” of imports and exports.
According to Professor Biswajit Dhar from the Centre of Economic Studies and Planning of Jawaharlal University, New Delhi, “The motive to enter into an FTA are meant to increase the presence of products in the markets of partner countries which has not yet been achieved by India.” Professor Dhar believes this is the main reason for the stagnation of India’s share of imports with the RCEP group.
Still, many experts believe this decision might have left impacts on India’s bilateral trade ties with Indo-Pacific countries that aim to bolster their economic relations through this pact. It might leave India with a little scope for getting access to the large markets in these nations.
Japan has been making concerted efforts to get India back into this pact based on prevailing decisions of the “QUAD Group of Nations” that stand as a buffer to the informal talks for promoting a Supply Chain Resilience Initiative.
The China Factor revolves around the motive behind India’s decisions over RCEP. The clashes in Galwan Valley between the Armies of India and China in June have left a wide-ranging impact. Even China’s exposure was unresolved during the negotiations of this pact.
As the inadequate surge of imports led to the dumping of products through countries that enjoy lower tariff rates under circumvention on the “Rule of Origin factor”. China’s hurried progress has always challenged the Sovereignty of many countries in the Indo-Pacific region, particularly in Southeast and East-Asia.
India is facing an economic decline for which the Government has reduced the defence budget and approached to seek defence equipment from Russia and the U.S. The recent standoff against China in the Himalayan region has proved India is capable enough to stand firm and face any action, which are results of ensuring “Operational Readiness” by the Indian Armed Forces. But when it comes to checking security over the vast Indian Ocean, India might require external support. An example of which was the expansion of the U.S. Pacific Command to U.S.-Indo Pacific Command.
New Delhi’s top priority over the Indian and Pacific Ocean’s contribution with the maintenance of the QUAD raises questions over India’s defence in the Indo-Pacific region, further giving a halt towards boosting economic and military capabilities.
External Affairs Minister Dr S Jaishankar cleared his stand by referring to this as a “clear calculation” of the costs and gains for entering into a new agreement that was not better than any “bad agreement”. While addressing his remarks at the Raisina Dialogue of New Delhi, he said that as India’s doors are open on the decision on RCEP, it will draw a cost-benefit analysis to evaluate the merit of India’s decision.
Soon after the creeping in of the COVID 19 pandemics, India unleashed a series of economic and digital retaliation against China. For ensuring participation in the global economy, there was a strong requirement to work on closing all gaps, which were a result of the disadvantages that were associated with strong capacity building.
As per Professor Srikanth Kondapalli of Jawaharlal Nehru University’s School of Chinese Studies:
“China is trying to overcome the disruptions of COVID-19 Pandemic by restructuring all supply chains with exerting pressure upon U.S.-President-elect Joe Biden. The Indo-Pacific issue ran on a twin-track mode on both economic and security lines where on the one hand China is trying to strengthening its bases and on the other hand, the U.S. is also trying to ensure its security aspects. It may not have any differences, as India has strategic pacts with the ASEAN member states and CEPAs (Comprehensive Economic Partnership Agreement) with Japan and South Korea.”
External Affairs Minister Dr Jaishankar further defended India’s stand over this decision saying, “The RCEP offers lessons to India’s Foreign Policy more than the trade domain. One must not go back to the old dogmas of economic substitution, but also embrace the new dogmas of economic substitution.” The RCEP is not meant to step back from the clutches of the Act East Policy, as it is deeply rooted in the distant contemporary history.
Referring to China Dr Jaishankar said, “A world of non-tariff barriers or subsidies and state capitalism arguing on stressing with an openness does not present a full picture.” He gave importance to the notion of the “Atmanirbhar Bharat Initiative” as a crucial process to decide to build strong capabilities for entering the global arena to play an important role to provide markets for other nations.
The Indian High Commissioner to Singapore, M Javed Ashraf in an interview with CNS News added, “All the FTAs are based upon a set of National and International Interests where India believes on the strategic and economic merits of the RCEP.” He further added, “India remains committed in the Indo-Pacific region for advancing towards a vision of open inclusiveness for securing trade and ensuring peaceful and prosperous means to do business with all the ASEAN member-countries.”
Some analysts also say that India’s absence will have limited gains in the RCEP, being the 3rd largest economy in Asia. As per studies by Renuka Mahadevan and Anda Nugroho on RCEP, India may add 0.8% of the estimated 2030 GDP of China. India has higher tariff rates than other RCEP countries which also have majority scopes to reduce them. India’s hesitation on RCEP might also affect India’s role in policymaking within terms of Foreign Investment initiatives.
However, if India has to serve the decision to a majority when there is a need to surf the interests by investing and negotiating in bilateral agreements elsewhere, those are in a growing view. New Delhi has to look towards framing new strategies to restrict trade practices and avoid entering into bureaucratic regulations that lead to the distinctiveness of the domestic product qualities.
Thus, India’s decision to opt for RCEP should be tested so that it does not happen like landing into isolation after opting out of China’s Belt and Road Initiative in 2017.
All information used for writing this article is based on observations from other blogs, news reports, YouTube videos and expert opinions.