The Xi-Modi Mamallapuram meet has a major economic context — RCEP

It is a curious coincidence that the summit between Xi Jinping and Narendra Modi at Mamallapuram and the RCEP (Regional Comprehensive Economic Partnership) Ministerial at Bangkok are being held at the same time. The strategic importance of the Chinese President’s visit can hardly be underscored. It comes in the wake of the fracas with Pakistan over Kashmir; China’s economic interests would possibly lie in securing its investments in the Pakistan-leg of its belt and road project which skirts the region. China would be keen to ensure freer access to the Indian Ocean and the Straits of Malacca, where India’s strategic presence is not insignificant. Yet, trade and investment ties are bound to be a central aspect of bilateral exchanges, more so because the strategic differences are loaded with legacy problems. China, keen to offset the impact of its tariff war with US, would push for higher market access in India. It is the dominant player in RCEP and is subject to MFN (or non-FTA) tariff rates on its exports to India.

India is under considerable pressure from the RCEP (ASEAN plus six) countries to eliminate tariffs on at least 80 per cent of its traded products. Recent and hectic stakeholder consultations reflect apprehensions over the impact of such a move, with the Centre too recently deciding to review its FTA with ASEAN. China’s upper hand in trade, even in the absence of any pact, is all too evident across sectors. China’s trade surplus with India has risen from $0.67 billion in 2000-01 to about $60 billion today (out of bilateral trade of about $95 billion). China has broadly been exporting semi-finished or finished manufactures, while importing raw material and intermediates. While there are gains to be made from deeper trade engagement with its eastern neighbours, India must secure its side of the bargain, particularly with respect to services access. India has been unable to secure any commitment from the RCEP countries in this regard. Also of concern are the lax ‘rules of origin’, which permit exports to be routed through third countries. As a result, China’s exports to India are higher than the numbers suggest. The entry of garments and bicycles from Bangladesh, Sri Lanka and Vietnam is only too well known. India’s demand that automatic tariff triggers be allowed in case exports cross a certain level, in order to protect domestic industry interests, too has not been accepted. It would be difficult for India to make fresh offers in the absence of commitments from the other side. It should allow access to its large markets more on its terms.

A breakthrough is possible if investment enters the equation. In view of the recent corporate tax cuts and steps to ease doing business, India can become an attractive FDI destination. We would then finally be talking beyond tariffs.

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