India signalled change in mindset at RCEP talks

Although India did not join the RCEP, Prime Minister Modi sent out the message that, in a break from the past, it wants to engage in trade talks.

Prime Minister Narendra Modi (L) shakes hands with China's Premier Li Keqiang during the 3rd Regional Comprehensive Economic Partnership (RCEP) Summit in Bangkok. (AFP photo)

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 for India.  

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 political harakiri they would commit, 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 those, like the India-EU free trade agreements. 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 with abroad. The losers, instead, have been easier to identify. 

So there is no surprise that India has not signed on to RCEP. The surprise 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 has thus two elements to it. First, by attending the final countdown to the agreement he made it clear to the world at large that there was indeed a lot at stake for India about 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 more ambitious levels like those with South Korea or even preliminary dialogues like those with China, the Five-Year Development Program for Economic and Trade Cooperation, or with USA under the India United States Commercial Dialogue. 

Unlike the past then, India under Modi has clearly sent out a different signal—that it wants to engage in trade talks. It must be pointed out, that India did have genuine concerns: The average industrial import tariffs that China imposes is 8.5 per cent, not low by any standards. Added to the non tariff barriers, it is a significant obstacle for Indian exports. Nations negotiate specific annexes for the product areas of their special interest to obviate any surprises, once the agreement has come into force. That India would also want to do so is obvious. 

The second surprise from Bangkok is India’s signing on to the joint statement with all the participating countries at the end. In New Delhi, Commerce and Industry minister Piyush Goyal made it clear that too much should not be read into the open door left by the other fifteen member countries of RCEP. Goyal said at the moment India’s decision to not join the trade deal, is final. Again, that statement is on expected lines. The element of surprise is 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 2019, at the G20 summit, India refused to attend a meeting called by Japan and USA on the sidelines 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 onto a rigid doctrinaire position on trade issues. New Delhi is demonstrating a pragmatism to engage in global trade agendas, but by writing a new set of rules to engage itself. Some of that pragmatism is a result of twining trade with other concerns like security issues. Two of the maritime quad members (Japan and Australia) are also in the RCEP deal. No doubt this will be a high risk policy for India. 

The downside is clear as many commentators have pointed out. The cause for their 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 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 in the trade pacts like RCEP, India could see foreign investors 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 for engaging in trade negotiations with the ultimate goal of being a partner rather than holding on to a defensive position. Indian industry will be wise if it reads these portends to improve its competitiveness instead of sliding back into a comfortable position, post RCEP.

(Subhomoy Bhattacharjee is a business journalist. He can be reached at bhattacharjee@ris.org.in)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.

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