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The Economy without RCEP

India’s moving out of the Regional Comprehensive Economic Partnership is less likely to heal its ailing economy.

 

How can we characterise the Government of India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP)? Is this decision accounting for the electoral verdict of those common Indians who have voiced apprehension about the adverse impact of such free trade agreements (FTAs) on their livelihoods? Or, is it the victory of the government’s autonomous political will over the temptations of entering into such plurilateral negotiations that are potentially beneficial in its bid for regional (economic) supremacy? Or, is it coerced by the diplomatic interests of the top players in the global economy? Whatever may be the case, we must compliment the ruling government for its courage in pulling itself out of a trade bloc that is conceived to govern two-fifths of the world trade. Unfortunately, however, when viewed on a historical spectrum, this valour falls flat, for the government’s choice emerges more as a politically contingent, if not superficial, “act”, than any cohesive “policy” of economic integration.

The RCEP, like many other regional trade agreements (RTAs) in the Asia–Pacific region, is centred on the Association of Southeast Asian Nations (ASEAN). Though the ASEAN, over the past decade or so, has led a number of trade-related dialogues/strategies in the region, it has failed to address substantial generic issues of regional trading such as dumping. For instance, China’s use of the ASEAN, particularly Singapore—where India has both FTAs and double taxation avoidance agreements (DTAAs)—as the route for dumping its low value products into India, though recognised, still continues unabated. Without an “origin of product” clause in most of the FTAs signed by India, establishing the source of dumping remains difficult. With India insisting for such clause in the RCEP, its being in the partnership is potentially conducive for its overall trading arrangements in the region. Is RCEP then a lost opportunity for India? Will withdrawal from RCEP affect India’s credibility as an intra-regional trading partner? If intra-regional trade is so important for economic well-being, why did the Indian government not persist on negotiating favourable terms by staying in the group, instead of quitting it?

While one may argue that the ASEAN, and hence the ASEAN-led RCEP, can neither be a natural trade partner for India, nor can India establish close relations with a region like China, we should not lose sight of the fact that India’s bilateral trade with many of the individual countries in ASEAN (and RCEP, too) is more substantial than its trade with the region as a whole. Contrary to the theoretical significance assigned to the ASEAN as a free trade area, its share in world trade stands at a meagre 7% even after five decades of its existence, and India’s share in the total ASEAN trade is only about 2%–3%. Even with such a minuscule share, India has been a dialogue partner of the ASEAN for years, and is likely to continue being so, notwithstanding its membership in the RCEP. On the other hand, though India’s withdrawal is estimated to bring down the volume of RCEP trade by a third, the bilateral trade of many of the individual RCEP member countries with India will remain unaltered as long as the benefits from such arrangements can factor in the transaction costs of plurilateral economic agreements.

On the other hand, moving out of the deal at the last minute is in fact a political master stroke of the Indian government. It comes with similar kind of political expediency—rather than economic functionality—that has kept non-starter agreements like the South Asian Association for Regional Cooperation (SAARC) alive for over three decades now, despite the tenuous relationships among its member countries. A strand of the discourse on Asian regionalism identifies individual countries’ drive for political legitimacy to be a determinant of their decision to participate in regional organisations. If participating in such organisations, even though structurally weak, had lent legitimacy to a country during the heydays of liberalisation, then retraction is not unlikely to generate similar benefits today, when major global economies are resorting to protectionism.

To the global audience, this (last-minute) move demonstrates the ruling government’s accommodative diplomacy towards its Asia–Pacific counterparts, while back home it provides fillip to the dwindling “common-man friendly” image of the government. However, the relief that it brings for some players in the economy is only temporary, for addressing the current structural anomalies of the economy is beyond its scope. For instance, of what relevance is (non)participation in RCEP to those innumerable small and marginal dairy farmers who could hardly move out of the trader-intermediated local markets of fresh milk? While the bigger (domestic) players’ monopoly power in the domestic markets gets safeguarded, this move is certainly no booster for the international competitiveness of Indian dairy products. But, is this not the government that speaks of diversifying into high value agriculture for “doubling farmer’s income” (vis-à-vis a conveniently varying timeline)? Then, should it not reflect upon “enabling” policies for empowering producers to access and/or choose between alternative markets, instead of delimiting their marketing options in the name of “cautious multilateralism”?

International trade is as much a matter of politics as of economics. In executing such trading agreements, therefore, governments must exercise adequate caution. While a government can be cautious from its sense of accountability, it can also “design” caution to evade its responsibilities. It is high time for us to be mindful of this fine line of distinction when showering praises for our ruling government’s stance on the RCEP.

Updated On : 12th Nov, 2019

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