#BQDebates: Was India Right To Quit RCEP?
Prime Minister Narendra Modi with ASEAN leaders in Bangkok, on Nov. 4, 2018. (Photograph: PTI)

#BQDebates: Was India Right To Quit RCEP?

BloombergQuintOpinion

On Monday, Prime Minister Narendra Modi announced in Bangkok that India will not join the Regional Comprehensive Economic Partnership deal, as negotiations failed to address New Delhi’s “outstanding issues and concerns”. As many as 16 countries—the 10-nation bloc ASEAN and its six trading partners, including India—were negotiating the mega free-trade RCEP pact. Global trade and domestic policy experts interpret what this means for India going forward, and whether this was an opportunity missed to cementing India’s position as a nation that is open to cross-border business.

India Can’t Compete With Hidden Subsidies

- Jayant Dasgupta, Former Ambassador for India to the WTO

From what I have learnt, India’s main concerns were to do with insufficient market access that China was offering India. The two main reasons for concern are:

  • Non tariff barriers
  • Non transparent way in which China was giving subsidies to other countries

China gives various subsidies to companies that operate there, and these companies then export to the rest of the world. China has many joint ventures with American, Japanese, Taiwanese companies to boost its export efforts. China is mainly an export driven economy, and these above mentioned factors give it a certain cost advantage.

See, when we talk of a level playing field, and advantages which China enjoys like good infrastructure, India can still play catch up on that front. But how are we supposed to compete with subsidies?

Talking of subsidies, most banks in China are government owned, and hence two of the factors of production, labour and capital are highly subsidised.

We can’t compete with subsidies which are mostly hidden. 

Another point is to do with the safeguard duties. As a part of the World Trade Organization, there are things like Most Favoured Nation status and so on.

However, in a Free Trade Agreement, there are lesser safeguard duties, so special safeguard rules are needed. Here, the argument that WTO rules should be adhered to, don’t hold ground. Most Free Trade Agreements have special safeguard mechanisms.

All we are asking for, is some form of commitment, which China is unwilling to give. Giving unlimited access to China will also result in a balance of payments crisis for India. This issue with China is faced not only by India but also the United States.

Unless China gives a firm commitment [on subsidies] in a time-bound manner, India cannot go ahead and sign the deal.

There is also the question of protecting jobs, at the end of the day. What will happen if China floods our markets with cheap goods? The point of employment also has to be considered.

There have been discussions on India not jumping on the value chain bandwagon. Please understand that we have some very ‘deep’ free trade agreements with ASEAN, Japan and Korea, where India is playing to strengths of value chain.

China thought that they can just bully us into submission.That has not happened.

Also read: India Open To Engage On RCEP Again If Concerns Are Addressed, Says Goyal

Decision To Not Join RCEP ‘Understandable’ In The Short-Term

- Richard Rossow, Wadhwani Chair in U.S.-India Policy Studies, CSIS

I’m not very surprised by India’s withdrawal from the RCEP. India would not have agreed to a robust RCEP, or would have watered it down. Since Narendra Modi’s re-election as prime minister, there was hope that India would lean towards trade agreements. However, some moves that the country has adopted, like the increased customs duties, signalled otherwise. We know that the rules on e-commerce, data localisation, and foreign investment would have certainly gone against the ‘recent policy making moves in India’.

This decision is going to cement the global belief that India is a difficult country to do trade with. 

This is not the only trade agreement that was on the table.

Having said this, India’s decision in the short term of not joining the RCEP is an understandable one, if it doesn’t worsen India’s balance of trade with China. However, the decision won’t augur well for the long term. Trade integration is always a good thing in the long term.

Also read: Why Is India Allergic To Ambitious Free Trade Agreements?

Refusal To Be Part Of RCEP A ‘Serious Failure’

- Raj Bhala, Inaugural Brenneisen Distinguished Professor, University of Kansas, School of Law, and Senior Advisor to Dentons U.S. LLP.

I think this is a serious failure on India’s part for not agreeing to be a part of the RCEP. Serious, also because India has agreed not to be a part of the TPP agreement.

This decision shows that the Modi government is not serious about its intent of trade liberalisation. The Modi administration is wrongly clinging to a paralysed World Trade Organization. India is giving itself no ambitious free trade agreement alternatives. At some point, India will have to get into detailed technical negotiations with China on issues of trade. How is it that every other RCEP member was satisfied, save India?

My true concern is that what’s really going on is good old-fashioned protectionist politics.

If China is such a concern for India, and is serious about trade, then it should join the Trans-Pacific Partnership agreement. This government is doing neither.

Rules of origin are a concern, yes. Rules of origin are an indispensable mechanism, only certain goods qualify for free trade agreements. If the rules of origin are too lax, then there is a concern that Chinese goods will flood the Indian market, and tariffs will not be imposed on these goods as they should be.

This concern can be resolved by technical negotiations and stringent Indian customs enforcement. The government should increase training for ensuring that the Rule of Origin is implemented correctly, and that tariffs on goods are imposed as they should be.

The initial reaction of the world trade community will be disappointment, that the administration has failed to deliver on a single major success on trade liberalisation.

There is still hope that the RCEP has not yet been finalised, and that maybe India will re-engage. I think this will depend on how much pressure will come from the international arena, asking India to reconsider its stand.

Also read: Not Joining RCEP Will Protect Interests Of Indian Industry, Farmers: Trade Experts

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.