India signalled change in mindset

Prime Minister Narendra Modi (Photo by AFP)

It is not surprising that Prime Minister Narendra Modi did not finally sign on the Regional Comprehensive Economic Partnership (RCEP). It is a surprise, however, that he came so near to doing so. This is the most important takeaway from the RCEP negotiations.

No Indian prime minister has ever signed on a free trade agreement. In fact, most left it to their commerce ministers to carry the can. Their commerce ministers, too, aware of the possibility of committing political harakiri, have tried to limit the damage to themselves by either diluting the content of any trade treaty by loading in a host of exceptions to the operative chapters, like the Asia Pacific Trade Agreement, or have simply delayed them, like the India-EU free trade agreement. International trade deals have not been popular with Indian political parties, irrespective of their ideology. It has been so ever since 1991 because there is no domestic economic constituency that has found benefits from trading. The losers have been easier to identify. 

So, the RCEP decision has not come as a surprise, but what did, is that India allowed the talks to go down to the wire, before pulling out. Prime Minister Narendra Modi’s speech at the RCEP event thus had two elements to it. First, by attending the meeting to finalise the agreement, he made it clear to the world at large that there was indeed a lot at stake for India in this trade deal. To reiterate, no Indian prime minister has attended any of the WTO ministerial conferences or any regional trade deals that India has signed on, either with its immediate neighbours, like South Asia Free Trade Agreement, or with the likes of South Korea, or even preliminary dialogues like those with China, the Five-Year Development Program for Economic and Trade Cooperation, or with the US. Unlike the past then, India has clearly sent out a different signal — that it wants to engage in trade talks.

India did have genuine concerns about the RCEP: The average industrial import tariffs that China imposes is 8.5%, not low by any standards. Added to the non-tariff barriers, it is a significant obstacle for Indian exports. Nations negotiate specific annexes for product areas of their special interest to obviate any surprises once the agreement comes into force. That India also wanted to do so is obvious. 

The second surprise from Bangkok was India’s signing on to the joint statement with all the participating countries at the end. In Delhi, Commerce and Industry Minister Piyush Goyal said too much should not be read into the open door left by the other 15 member countries of RCEP, but that India’s decision to not join the trade deal is final, at the moment. Again, that statement was on expected lines. The surprise was that India did not spoil the party by walking out. The history of global trade negotiations is replete with India staying away from joint statements. As recently as in June, at the G20 summit, India refused to attend a meeting called by Japan and the US to discuss the possibility of beginning talks on e-commerce issues at the WTO. India and Indonesia were the only absentees at that meeting. 

It is in this context that in the RCEP negotiations, India seems to have come a long way from holding on to a rigid doctrinaire position on trade issues. Delhi is demonstrating a pragmatism to engage in global trade agendas, but by writing a new set of rules to engage itself.

The downside is clear, as many commentators have pointed out. The cause for concern is that in the global value chains, companies set their production bases across countries with set rules of commerce.

Most of those have been established decades ago. India had shown little inclination to join these supply chains. It has only recently begun to gently shove itself into the game through efforts like phased manufacturing programmes for mobile phone parts. But its share is still peanuts. Of the current global market for mobile handsets and their components of about $485 billion, India accounts for less than $20 billion, with annual exports of less than $2 billion. By delaying joining trade pacts like RCEP, India could see foreign investors coming to its shores get jumpy. 

What about the upside? India is clearly not in a position to see foreign trade, with the attendant low tariffs, as a domestic political winner as yet. It has consequently donned on a protectionist mantle. But Prime Minister Modi has managed to whet the domestic constituency’s appetite to engage in trade negotiations, with the ultimate goal of being a partner in them rather than holding on to a defensive position. Indian industry will be wise to read these portends and improve its competitiveness, rather than sliding back into its comfortable position now that India is not joining RCEP.

(The writer is a business journalist)

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