Be RCEP-tive, Take The Middle Ground
There is nothing wrong with India being hesitant in completely liberalising, writes Srividhya Ragavan.
India is at the brink of another trade deal and finds itself at yet another crossroad with the Regional Comprehensive Economic Partnership or RCEP. On one hand, we have the trade enthusiasts egging India on to liberalise, while on the other, the trade skeptics long for the old times of heavy protectionism. Fact is, the truth, for India, lies somewhere in the middle.
The Setting
Politically, the timing for an Asian regional trade agreement led by ASEAN members cannot be better. With Europe and the United Kingdom tangled in a ‘to Brexit or not’ drama and the United States looking inward with its ‘America First’ attitude, RCEP will represent a shift in global trade. Yet, the same issues that plagued the WTO will be present in the RCEP as well. If anything, the bargaining (im)parities between the different RCEP member countries will be much higher. It can result in countries that would originally form a trade bloc under WTO being pitted against each other under the RCEP. Similarly, a promise of an increase in intra-Asian exports or even an increase in GDP per capita from the RCEP does not mean that the fruits of such trade would be distributed evenly nationwide.
The realities in America wherein foreign goods and services made it more consumer-friendly while continuously affecting local businesses is a stark example for India to consider and exercise caution.
Domestic Impact
Thus, India is right in fearing that this will result in skewing its engineering, service and other sectors. After all, India was a forerunner in farmer’s suicides because of the displacement that an entire class faced from globalisation and (un)sustainable development. Further, considering that the Indian economy is showing signs of slowing, India needs to ensure that the economy does not slow down especially from trade and that too in a manner detrimentally affecting important sectors of the market, whether it is manufacturing or service, even if it increases access to goods for the middle class. Furthermore, India is already under constant pressure from the U.S. to open its markets, more often than not, to its own detriment. Considering this, India needs to carefully determine how much and how well it can do the same tango with China.
Notably, while the process of dispute settlement is desirable, arguably the WTO process has been educational on all the pitfalls of such processes.
The United States’ trade war with China is not being played within the WTO nor is the USTR’s Special 301 process which, clearly, sits uncomfortably on the multilateral dispute settlement understanding of the WTO. Within the RCEP, China will have the most powerful bargaining parity which will force India to up its game.
As a general rule, reduction of trade barriers is a good objective. Yet, historically, no country, not even the United States institutes a blanket reduction of trade barriers in a manner that affects local industries.
The current farm bills of the U.S., the agricultural subsidies of the European Union are classic examples to showcase how even countries that are fierce enthusiasts of free-trade shy away from competition to protect local industries by perpetrating protectionist policies. The contemporary example is the trade tension between America with China, with both countries wanting more rather than less protection for local industries should serve as a lesson for India to seek negotiated flexibilities and gradual reduction of trade barriers. Thus, if India embraces the free flow of imported goods, it needs to negotiate reciprocal arrangements in service, engineering, health care, and related areas.
Importantly, to the Modi government, the RCEP provides an opportunity to showcase its ability to negotiate a nuanced trade deal in a manner befitting India’s stature into a new Asian trade agenda. The prevailing trade tensions of China with the U.S. provide a good opportunity for India to carefully and strategically negotiate its position within the RCEP. After all, China will rightfully look for new markets to increase and maintain its stature.
While India can fill that requirement given its robust middle-class market, the line between a robust trading partner and a dumping ground is thin.
India needs to exercise caution to ensure that it becomes a robust trading partner that mutually benefits from the RCEP arrangement.
Playing To India’s Strengths
The two big differences between now and the time that India became a WTO member in the 1990s is that unlike then, India’s global trade power gives it increased room and bargaining leverage. Similarly, today India has the benefit of more local trade experts who can deftly guide the country. For instance, Surujan Gupta and Surendar Singh have advocated a three-pronged strategy that proposes a dual tariff structure, minimises non-tariff barriers of Indian exports to China and proposes rules to reduce circumvention of Rules of Origin to minimise indirect dumping of goods into India.
Advocating caution is by no means a call deterring India from the RCEP.
Indeed, trade arrangements play into one of India’s strengths. These are akin to arranged marriages.
They can work blissfully well to mutual benefit if the terms are clear, transparent before the arrangement fructifies. If parties are aware of pitfalls and conflicting national objectives of the other(s), it would lead to the establishment of adequate flexibilities in sectors which have national significance. Given the failure of the Trans-Pacific Partnership, the RCEP can potentially help the Asian side of the globe heralding the WTO into a new orbit of power politics. It is up to India to take carefully considered positions to seek a negotiated position with the RCEP.
Srividhya Ragavan is a Professor of Law at Texas A&M University School of Law.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its Editorial team.