RCEP: A calculated miss

India was the conspicuous absentee at the weekend virtual signing of the world’s biggest free-trade deal, the Regional Comprehensive Economic Partnership (RCEP). Pushed over the finish line by China, RCEP brings together 2.2 billion people in 15 countries including advanced economies like Japan, South Korea, Singapore, Australia and New Zealand and weaker players like Cambodia and Laos. Despite its unexpected pull out of negotiations nearly a year ago, India has been given a special fast-track procedure should it wish to join RCEP, which accounts for 29 per cent of global GDP. Australia and Japan are still particularly keen that India should join RCEP as a counterweight to China, which will clearly be the dominant force for the foreseeable future. Now, though, due to the Ladakh standoff, it’s very unlikely that India will join RCEP any time soon.

Ladakh aside, India’s reluctance to signing up was also because of the fear that we would be deluged by cheap Chinese products that would destroy small industries, killing jobs and hurting the poor. In particular, there was strong opposition from the textile and dairy industries. Also, the pharmaceutical sector opposed joining because RCEP wanted drug-makers to accept stricter patent rules, threatening India’s role as a generic “pharmacy to the world”. With the economy already slowing sharply pre-Covid, political parties, including the Congress which was an original RCEP proponent, too were unusually united against the deal. Moreover, India has always run huge trade deficits with China and its free trade pacts with other Asean countries haven’t met expectation. It would probably also be unwise to subject many Covid-hit Indian companies to a blast of fresh competition when they’re still recuperating from the pandemic.

Still, there are valid concerns that India is losing out by staying away as it won’t be part of global value-chains generated by RCEP and may miss out in attracting export-oriented foreign direct investment. Trade analysts see India creating a vicious circle: It can’t join the region-wide pact because it’s not competitive enough and without being forced to introduce economic reforms that would up the game, it may never do so. At another level, it can be argued that RCEP hasn’t stopped China from slapping tariffs on, or raising other barriers to, Australian products from barley to coal. India could also have used countervailing duties and other means to block products if needed. Another fear is that RCEP will allow China to set global standards and boost its overall standing worldwide, especially in the context of the still-born Trans-Pacific Partnership. And, that, by rejecting RCEP, Delhi has reinforced its protectionist image. In the longer run, we may turn out to have done ourselves no favour by being isolationist. Still, RCEP members have told India its membership invitation is always open — but there seems little likelihood of this being accepted in the near future.

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