The Hindu | 19 August 2018
RCEP and beyond
The Centre does not appear to be comfortable with the general drift of negotiations in the 16-member Regional Comprehensive Economic Partnership (RCEP). The reasons are not too far to seek. The RCEP is led by China, with the 10 ASEAN countries, Australia, New Zealand, India, Japan and South Korea as partners. India’s trade engagement with these countries has not been favourable, when seen in terms of the trade deficit. A recent NITI Aayog “note” on Free Trade Agreements and their “costs” points out that India’s trade deficit with the RCEP group (it already has FTAs with the ASEAN, South Korea and Japan) has risen from $9 billion in 2004-05 to over $80 billion today. Its trade deficit with China alone was $63 billion in 2017-18, or about 60 per cent of its overall trade deficit. The bilateral trade deficit has risen exponentially from $0.6 billion in 2000-01 to current levels, and there are no signs of this trend reversing. This surge in Chinese imports — from electrical and electronic goods, plastics, chemicals, boilers and mechanical appliances to toys and stationery items — has undeniably hurt Indian manufacturing, without helping it move up the technology and productivity ladder. A government committed to ‘Make in India’ cannot be expected to embrace a deal that entails zero tariffs on over 70 per cent of goods traded with China, and a higher level of openness with ASEAN. Trying to drive home the point that FTAs in general have not paid off, the NITI Aayog paper says that “exports to FTA countries have not outperformed exports to the rest of the world.”
While this is a protectionist view, it is also a product of both domestic and global circumstances. Given the discontent over lack of jobs and agrarian distress, with the general elections less than a year away, this cannot be an opportune time to throw open sensitive sectors such as dairy products. If the RCEP countries are keen on a slice of India’s market, they must sweeten the deal.
The push for trade blocs has acquired a new urgency, with the Trump administration unleashing a trade war of sorts against China and even the EU. The RCEP countries, which account for 25 per cent of global GDP and 30 per cent of global trade, could act as a countervailing influence. India too has reversed its years-long policy of reducing tariffs by raising them across the board in the last Budget. Meanwhile, Malaysia’s Prime Minister Mahathir Mohammad has mooted an ‘East Asian Economic Caucus’ to offset China’s economic might. India should seriously consider the impact of any exit from RCEP on its links to global supply chains. The East Asian Tigers were, like India, remarkably protectionist economies, but they opened up at the right time, and at the right pace. India could still learn a few lessons, given its botched experience in industrial development.