Negotiations on the 16-member “Regional Comprehensive Economic Partnership” (RCEP) bloc agreeement have gone adrift.
India should carefully weigh the pros and cons of the trade bloc.
What is India’s current trade situation with the RCEP bloc?
RCEP has a total of 16 members - China, ASEAN (10 countries), Australia, New Zealand, India, Japan and South Korea.
India’s trade engagement with these countries has not been favourable, when seen in terms of the trade deficit.
NITI Aayog has pointed out that trade deficits with the RCEP member countries has risen from $9 billion in 2004-05 to over $80 billion now.
India already has a “Free Trade Agreement” (FTA) with ASEAN, Japan and South Korea, which is largely the reason for the current unfair trade situation.
Significantly, even without an FTA, trade deficit with China rose from $0.6 billion to about $63 billion in 2017-18, or 60% of India’s overall trade deficit.
This surge in Chinese imports — from electrical, electronics, plastics, chemicals, boilers etc..., has undeniably hurt Indian manufacturing.
Notably, increase in imports from these countries hasn’t helped to increase the local manufacturing sector or technologies.
What is ideal for India?
A government committed to ‘Make in India’ cannot be expected to embrace a deal that entails zero tariffs on over 70% of goods traded with China.
Further, while FTAs in itself hasn’t paid off sufficiently for India’s industry, a higher level of openness with ASEAN is undesirable.
While this is a protectionist view, it is also a product of both domestic and global circumstances, and hence not necessarily bad.
Given the discontent over lack of jobs and agrarian distress, this isn’t an opportune time to throw open sensitive sectors such as dairy products.
Hence, India needs to bargain hard and play tough to secure a better deal from RCEP members or consider foregoing the deal altogether.
How does the future look?
The push for trade blocs has acquired a new urgency, with the Trump administration unleashing a trade war of sorts against China.
In this context, India too has reversed its years-long policy of reducing tariffs by raising them across the board in the last Budget.
Further, Malaysia’s new PM has mooted an ‘East Asian Economic Caucus’ to offset China’s economic might and trade surplus with the region.
In this context, India should seriously consider the impact of any exit from RCEP on its links to global supply chains and take a rational decision.
