Will India give way to the RCEP in a post-pandemic world?
India, a country that sits in the southern part of Asia is not only at a strategic position by virtue of its geography but also because of the various perks it offers to the global economy by being one of the fastest developing countries attracting investments, with advantages such as a mammoth working population as well as ease of business administration. As a trading country we have been an integral part of various multilateral trade agreements and have also developed bilateral ties with several countries, but in recent years when the ASEAN countries decided to formulate what was named as the Regional Comprehensive Economic Partnership or RCEP, India remained stringent on its demands and refused to compromise ultimately backing out of the agreement in November 2019. But, in the post-pandemic world, will India have to rethink its position in this trading bloc?
Firstly, what is the RCEP and why was it formulated? The ASEAN trading bloc includes 10 countries across Asia who proposed this free trade agreement in the summit of 2012 to promote economic growth and trade in the region and form the largest trade bloc constituting 16 countries (ASEAN countries plus 6 strategic partners that have FTA agreements with these countries). Since it is a ‘comprehensive’, ‘free’ trade agreement, the countries were looking forward to a strong integrated market of 16 nations with lower trade barriers and increased market access addressing all issues from goods and services to intellectual property rights. The plan was to form the largest trading bloc in the world which covers half of the world’s population and 27% of global trade.
The RCEP was certainly different from any of the previous agreements, especially from the CPTPP or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a transformed version of the U.S. backed TPP (Trans-Pacific Partnership) which lost its largest member U.S. in 2017 with Donald Trump coming into power. As compared to the RCEP, the CPTPP had much stringent rules and regulations relating to labor, environment and dispute resolution. While the TPP was formulated to keep China out of the picture, in case of the RCEP we saw President Xi Jinping assuring China’s support for a speedy conclusion of the agreement at the 2019 G20 Summit held at Osaka because the CPTPP devoid of the U.S. is weaker as compared to the RCEP, which gives China a huge opening for defining trade in today’s times.
As we approached 2019, India was not sure of going ahead with the deal. Not only were several communities of India including dairy farmers opposing the idea but there was also added political pressure. Industries including but not limited to steel, dairy and textile were worried of cheap South-Asain products taking over the manufacturing sector and a big fish like China whose involvement in our markets is currently controlled by several import duties will acquire a major share of the market. Not only do India’s neighbours like Bangladesh provide cheap manufacturing opportunities but the steel industry also offers easy take over opportunities and our dairy sector is neither ready to import nor can it allow foreign solid milk product manufacturers to enter the market. At one point due to the massive trade deficit that exists in case of India and China, India was planning to keep different terms for China in the RCEP deal.
With these being some of the key concerns, India provided a big relief to numerous stakeholders in India’s GDP when it backed out of the deal in November 2019 stating how the face of the deal changed over the years as the global scenarios changed and how several outstanding issues of India were not addressed satisfactorily in the agreement. While on one hand we missed on certain advantages like the inflow of manufacturing opportunities through participation in the global value chain which allows big corporations to delegate their manufacturing to other nations for which India could have been a hotspot due to availability of cheap labor, we also realised that this could not have been capitalised properly due to lack of infrastructure. Besides, it was also expected that with the signing of this agreement, owing to uncompetitiveness of Indian exports and a flood of imports from partner countries, many Indian players could have been easily wiped out.
A new advancement in this scenario came in the form of the outbreak of coronavirus. Not only did geopolitical dynamics change, but the question of localisation vs. globalisation dominated government decisions all over the world. The pandemic called for the 29th meeting of the 15 RCEP member countries via video conferencing in April 2020 and in the joint statement issued by the committee they said, “RCEP will provide a more stable and predictable economic environment to support the much-needed recovery of trade and investment in the region, which has been adversely affected by the COVID-19 pandemic.” The same statement also said that the member countries see India as a valuable player and will be open to negotiations, opening a door that India shut last year. While this seems like a futuristic approach especially with countries eyeing India for a shift in their manufacturing processes and the recent stress on policies like Make in India and Atmanirbhar Bharat, India is still skeptical of moving forward with China being a key player in these negotiations. On the other hand economists world-wide suggest that it's time for India to open its markets to the world to meet global demand. The current scenario makes India a future hub of globalisation which means that trade deals become utmost important to the country and it also calls for a shift of workforce from the agro to service sector to support upcoming industries. But, with Indo-China relations not seeming to flourish and India eyeing the U.S. as a potential partner the chances for us to take up this deal seem skim at the moment.
