Connect the dots, RCEP is heavily loaded against India

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Arjun Raghavendra M

The Regional Comprehensive Economic Partnership (RCEP) cannot and ought not to be viewed in isolation. We are on the verge of experiencing tectonic shifts in global trade with the global tariff war already in its second year. The US has imposed tariffs on more than $350 billion of Chinese goods and China in turn has retaliated with levies on more than $100 billion of US products.

News reports have emphasised on how the economic slowdown clubbed with the trade war are forcing Chinese authorities to offer huge subsidies to avoid a manufacturing exodus. Evidently, China desperately needs every possible inch of the RCEP market. This is good enough reason for Indian manufacturers to fret over Chinese “dumping”. Beyond jargons and legalese, the commerce ministry appears to have no answer about probable RCEP benefits to our exporters.

The experts who are making intellectual choices about RCEP being the biggest game-changing trade reforms post 1991 are quietly glossing over the theorem that India will have an opportunity to be part of the global value chain only in theory.

A major part of the reason appears to reside in the complex journey of Indian negotiations through the RCEP channels since 2013. The negotiators primarily gave in to China and the ASEAN viewing the RCEP as a bloc that fundamentally promotes duty-free Chinese imports to India.

The global value chain makes no sense in the Indian context as we offer varied tariff concessions to different RCEP countries, because of which India will neither be a destination for intermediate manufacturing nor a consequent exporter of those products at a time when end to end manufacturing is not possible in any single nation.

The dialogue on services got quietly buried in the RCEP backyard even before it could take off. The rules of origin negotiations, as detailed in the previous piece, having reached a point of no return, are against our national interest. To add to the ongoing plight, every piece of trade data is awfully discouraging and disappointing, in equal measure. In 2018-19, India has registered trade deficit with 11 RCEP countries, including China, South Korea and Australia.

Certain think-tanks and consultants have been engaged by the government, according to news reports, to analyse and evaluate the long-term RCEP gains and losses. Strangely, these reports have not been made public even as the final rounds of RCEP dialogue are expected to commence shortly.

V K Saraswat, Member, NITI Aayog, published a report which vehemently argues that “…opening our market to China can prove to be disastrous, given that proper standards and processes are not in place in India”.

Intriguingly, this negative pronouncement on the RCEP, as close to being called official, carries a disclaimer that it does not represent the opinion of the institution, albeit being available on the website of the government’s premier policy think-tank.

It is an undeniable fact that the RCEP will directly affect the indirect tax collections. At a time when GST, more than two years after introduction, is still “settling in”, this will not be good news, especially against the backdrop of a precarious economic slowdown. Furthermore, the government does not seem to have factored in compliance costs, resource diversion, administrative delays, dumping anxieties and the absence of existing standard procedures in India to deal with circumvention, post implementation of the RCEP.

The US President recently threatened to pull out of the WTO agreement, something that does not appear to be political posturing against the backdrop of Donald Trump withdrawing from the Paris Agreement and Trans Pacific Partnership (TPP) and renegotiating many other trade pacts. This is not surprising for a President who predicated his election campaign on defining American global interests almost purely in economic terms. India has a serious lesson to learn here.

The Make in India initiative, launched by Prime Minister in 2014, states to be part of a wider set of nation-building initiatives devised to transform India into a global design and manufacturing hub. Ironically, the comprehensive RCEP, which will be signed by PM Narendra Modi, without an iota of exaggeration, will aim to strike at the very heart of the Make in India.

India’s foreign minister during a recent interaction with the media in Singapore was quoted as saying “The RCEP, at the end of the day, is an economic negotiation. It has a strategic implication but the merits have to be economic”.

Unfortunately, the facts do not seem to suggest any economic advantage. Diplomacy around the world is being shaped by economic considerations and it would not be wrong to drive our foreign policy epicentred on ‘India first’ approach to trade.

Is India ready for the RCEP now? The answer seems to be a resounding No.

(This is the concluding piece of the three-part series on the evolving dynamics of the RCEP.)