RCEP: Caution, nuance called for

India will have to quickly decide on its continuation in the negotiations on the Regional Comprehensive Economic Partnership (RCEP). Before taking a final call, a national debate on the pros and cons of joining the RCEP trade block – the 10-member ASEAN plus six countries — would be in order. Proceeding with caution and pragmatism is the only way to clinch an equitable deal within RCEP that was hitherto viewed as a counter to the now-defunct Trans-Pacific Partnership (TPP). The Rashtriya Swayamsevak Sangh (RSS), the ideological parent of the ruling BJP, has cautioned the Centre against rushing into a deal without assessing the consequences for trade, businesses and agriculture. On the other hand, Chinese President Xi Jinping seems to be keen to push New Delhi into an economic partnership that may be untenable for India. At the recent Mamallapuram summit between Prime Narendra Modi and President Xi, the RCEP seems to have figured prominently. In a paper written for the Research and Information Systems think tank, Dammu Ravi, a senior official in commerce ministry, elaborated on the adverse impact of not joining the regional block. Instead of getting isolated, India may be better off taking an active role in designing the RCEP deal.

A thorough review of high tariffs on goods and services will have to be undertaken by India considering both scenarios, that is, being part of RCEP and sitting it out. Available trade data strengthens arguments against joining the RCEP, given India’s huge trade deficits with most ASEAN countries and over $50 billion annually with China alone. Also, opening up the Indian market with zero or nominal duty on over 95% products in 10 years could be suicidal for the economy. India’s experience with Free Trade Agreements (FTAs) that were inked in the last 15 years has not been very good. Especially, the partnerships with Japan and South Korea have led to virtual doubling of the trade deficits with them. This should serve as a stark reminder while negotiating for the RCEP deal.

India’s economic relations with China should ideally be part of the India-China strategic dialogue. Similarly, bilateral pacts on equitable terms with mature economies like Australia may be a better way forward. If India chooses to enter the RCEP deal, the only way forward might be to agree to open up the market to competition in a phased manner. Building cost and quality competitiveness of Indian companies should precede such opening up. A well thought out and nuanced approach to RCEP will help India protect its economic interests globally.