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Economy

Asia's Mega Free Trade Pact is Born Sans India, But Door Remains Open for New Delhi

While ASEAN members hope that India will change its stance, New Delhi will likely walk on its own path.

New Delhi: After almost a decade of fierce negotiations, the Regional Comprehensive Economic Partnership (RCEP) was signed on Sunday, forming a mega Asian trading bloc that will include most major nations in the region barring India.

While Prime Minister Narendra Modi dramatically pulled out of the pact last year, stating that it did not satisfactorily address New Delhi’s “outstanding issues and concerns”, the Asian group of nations have made it abundantly clear that the door is open for India to return at any time.

A joint RCEP statement said that once India submits a request of its intention to join the pact “in writing”, negotiations will re-commence. 

In addition to this, India can continue to participate in any meetings as an observer.

“India can attend RCEP meetings and activities as if India were a member. Meetings on running RCEP and activities like capacity building,” a senior Southeast Asian diplomat told The Wire, adding that ASEAN members always speak in terms of India joining the future trade agreement one day in the future. 

Fifteen countries — all of ASEAN (Association of Southeast Asian Nations), Japan, South Korea, Australia, New Zealand and China — will be part of this giant trading agreement. 

Watch: ‘RCEP Is Neither Necessary nor Sufficient for Us to Achieve Our Export Targets’

Indeed, a number of nations such as Japan have made it clear that they would strongly prefer India to eventually join and intend to work towards creating an environment in which this happens.

On Sunday, Sidharto Suryodipuro, Indonesia’s ambassador to India tweeted: “… India’s weight and value for its Eastern neighborhood is without question, as is the reverse. Do remember that #RCEP is an ASEAN initiative and no one else’s”.

The dragon burden

The subtext in Suryodipuro’s tweet is of course China º which was one of the primary sources of India’s worries during the negotiations.

In particular, New Delhi was concerned that RCEP didn’t include adequate protection to prevent a surge of imports from Beijing – two technical disagreements that centred around this were the question of what ‘base year’ would be used to reduce tariffs on products traded as part of the pact and the ‘rules of origin’ provision, which would determine the national source of a product.

Debate within policy circles in New Delhi quickly centred around whether RCEP would be structured around providing maximum benefits to China at the cost of other trading partners – a legitimate and justified concern.

“…Conversation [on RCEP] has been so uninformed… nearly all countries have a deal that predate RCEP. India has deals with ASEAN, Japan and Korea and will strengthen them.  None with China. Signing up now amounts to India rewarding China the champion of trade perversion,” Samir Saran, president, Observer Research Foundation, tweeted on Monday morning.

Indeed, another issue at the heart of India’s discomfort with RCEP has been its own abysmal performance with many other FTAs – with concerns that range from gross under-utilisation to Indian exporters getting a raw deal.

Also read: India Wants to Urgently Review its ASEAN Goods FTA, But Other Countries Are Slow to Play Ball

According to one NITI Aayog study of India’s FTAs, India’s trade deficit has worsened in sectors that account for approximately 75% of India’s exports to ASEAN. Currently India’s trade deficit with ASEAN countries stands at around $24 billion.

“Overall it can be concluded that India’s quality of trade has not improved under AIFTA (ASEAN-India Free Trade Area). India’s tariff rates declined for Japan-FTA from 11.4% to 7.5% and for Korean-FTA decline from 11.1% to 8.3%. This had implications for the domestic industry,” the study noted.

Other experts, however, feel that this line of thinking isn’t particularly robust.

“There are, of course, two problems with this line of reasoning. First, as the government itself has pointed out, Indian exporters simply aren’t as aware of free-trade benefits as they should be. (Last year, the government set up an “FTA utilization mission” to correct that.) Second, just because imports have increased more than exports doesn’t mean India has been hurt. India is Indians and, through free trade, Indians have gained access to more and cheaper goods,” economic commentator Mihir Sharma wrote in a piece on Monday morning.

While ASEAN members are hoping that India will reconsider RCEP, it doesn’t appear if this is on New Delhi’s list of immediate priorities.

Strengthening other free trade-agreements – New Delhi is keen to urgently review the ASEAN Goods FTA, as The Wire recently reported – and creating its own supply chains is what it appears to be focusing on at the moment.