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Why India was right in staying out of RCEP

The Regional Comprehensive Economic Partnership (RCEP) was signed on November 15 at a virtual meeting of member-states, on the margins of the annual East Asia Summit, eight years after the bloc was launched in Phnom Penh. The timing is neither surprising nor linked to any geopolitical development — it was announced during the East Asia Summit in Bangkok in 2019.

India joined the negotiations in 2012 and continued to be part of them until the Bangkok meet. It was flexible in negotiations and made adjustments in pursuit of a comprehensive, fair and a balanced agreement. In the end, the final document did not meet any of the three parameters.

For one, it remained weak on services, especially in areas where India had a competitive advantage. But the breaking point was the absence of specific safeguards on imports from China. One circuit breaker was the steep rise in imports; another, because RCEP permits differential coverage of market access between countries, India wanted, but did not get, full assurance that China would not be able to take advantage of the higher coverage permitted to Association of South East Asian Nations (Asean) countries. And a third was adequate protection on tariff increases it had instituted on some products since the negotiations commenced, partly to remove anomalies such as levies on inputs being higher than those on finished goods.

Facing a growing trade deficit with China, the risks were too high.

There are also no guarantees that China will play by the rules. It did not do so as a World Trade Organization (WTO) member. India has found it hard to access Chinese markets in areas of its competitive advantage, despite this being routinely taken up at the highest levels. China has not stopped using coercive trade measures to express political displeasure against The Philippines, Vietnam, and even Singapore — all partners in Asean-China Free Trade Agreements (FTAs) – or, for that matter, with Japan, Korea and, more recently, Australia.

India started entering into FTAs and Comprehensive Economic Partnership Agreements (CEPAs) from the mid-2000s. Among RCEP members, it has FTAs or Comprehensive Economic Cooperation Agreements (CECA) with Asean, Singapore, Japan and Korea. RCEP would have added China, Australia and New Zealand to the list. But it would have been an FTA with China.

India’s domestic industry, however, wasn’t competitive enough to benefit from the existing FTAs. In any case, India’s largest exports were going to countries it did not have FTAs with. It is unlikely that India would have been able to withstand the import surge (from China) and damage to its industry in the short-run had it signed RCEP.

India’s focus should first be on becoming industrially strong through a “Make in India” programme. Many RCEP members have reached this stage. An industrially weak and economically vulnerable India would have hardly been able to shape the region’s rules, no matter what those arguing on the strategic merits of joining RCEP believe. And China, after all, did not become the world’s biggest manufacturing power by entering into FTAs.

RCEP is being touted as a triumph of multilateralism in an age of protectionism. But it is, at best, regionalism and it militates against multilateralism, pursued through WTO.

FTAs did not prevent supply shocks and disruptions during the pandemic. Supply chain resilience, trust and efficiency have become more important these days and will influence trade.

Will RCEP shape or influence strategic relations? Unlikely.

China is already the largest-trading partner for most RCEP members. That has not prevented friction among them. Nor has it stopped countries from making strategic hedges. Japan and Australia joined the Malabar Exercises; 35% of Australia’s exports go to China, but, China has just presented 14 grievances to Australia. On the eve of RCEP’s signing, Japan and Australia signalled stronger defence ties. Australia has also become part of a trilateral with India and France. Japan and China are close trading partners, but tensions between them remain high over China’s territorial claims. Neither the existing FTAs nor RCEP will stop China from trampling on Southeast Asian claimants in the South China Sea. The United States (US)-China trade integration has not restrained the two countries from turning into strategic rivals. And European enthusiasm for China is waning, with the latter using its economic clout to divide Europe.

To deepen trade and economic ties in the Indo-Pacific region and with current RCEP members, India does not need RCEP as much as it needs to get its own house in order. For a start, it must make its industry innovative and competitive, its research and development on par with the best, its logistics and trade infrastructure efficient, its human resources skilled, its financial markets healthy and capable of low-cost finance, its administrative and legal systems responsive, and its taxation stable, competitive and predictable. This is the mission of Atmanirbhar Bharat (self-reliant India).

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