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RCEP Is Not The Missed Opportunity Many Believe It To Be
We have continuously underestimated the commercial side of the relationship. Therefore, India needs to be cautious and pragmatic about power shifts in the region.
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A lot has been written on India's decision to not be part of the Regional Comprehensive Economic Partnership (RCEP) as a missed opportunity. RCEP effort is led by China and 10 South East Asian countries, South Korea, Australia, and New Zealand. Theoretically, RCEP will have 33% of the world population and 29% of global GDP, which makes it bigger than US-Canada Mexico and EU alliances. China holds disproportionate economic power as well as influence in this alliance, and it may end up gaining the most. However, I believe that we rather have a shot at strengthening our relationship with developed nations, especially the US. Additionally, the Atmanirbhar Abhiyaan allows us to improve our domestic ecosystem without becoming pure protectionists. The initiative does place a significant focus on embedding India as a crucial hub in global value chains.
India is at an inflection point in Asia and Asian evolution. There is a significant discontinuity in Asian Politics leading to complex fluidity emerging in the region. A large part of it is due to what is happening between China and the USA and within their respective country. It has led to political consequences in alliances in the region, leading to several realignment and dealignment. In the last decade, we have seen Chinese weakening the US alliances in the Asia region, despite American military presence in China front-yard. It is part of this move that China is forming RCEP, BRI as a new structure for dominance against the old structure led by the USA after world war to counter USSR during the cold war.
According to Niti Aayog report on Free Trade Agreements (FTAs), there are over 455 Regional Trade Agreements (RTAs) globally, and India is part of 14 of them. India. Our track record with RTAs is not very good – our exports to RTA regions have kept the same pace as to other regions. On the contrary, our imports and trade deficits have increased:
The RCEP negotiations first began in the year 2013 between the ten-member of Association of Southeast Asian Nations, and with Japan, China, South Korea, Australia, New Zealand, and India. India took part in the initial negotiations for RCEP and was backed by Japan. But on November 4, 2019, the Indian Prime Minister, Narendra Modi, chose to opt-out of the RCEP, at the Bangkok summit. While announcing India's decision to pull out of the pact discussions in 2019, PM Modi had raised several concerns with the agreement, saying that, "The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not satisfactorily address India's outstanding issues and concerns. In such a situation, it is not possible for India to join RCEP Agreement". 'When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the talisman of Gandhiji nor my own conscience permits me to join RCEP,' he added. Other major issues that have been highlighted include the "rules of the origin" criteria. Apart from that, the agreement requires the gradual elimination of tariffs, would open the country's domestic markets to a flood of cheap Chinese goods and agricultural produce from Australia and New Zealand that would harm local producers.
India has a US$53-billion trade deficit in 2018-19 with China, which is the country's second-largest trading partner. The Indian Government tried hard pushing safeguards into the RCEP agreement to prevent a sudden surge in imports. Still, inadequate protection was among the key issues that persuaded India not to sign the pact. The country's domestic market has witnessed a flux of imported products, especially in the sectors of edible oil processing, automobiles, electronics, telecom and white goods, over the last two decades.
In a lot of ways, Prime Minister Modi has taken a historic political decision by walking away from RCEP considering our 'look east' policy did not yield much result in the past. Indeed, his Government’s Atmanirbhar Bharat call is a timely intervention considering how a large population in the USA, which has lost on globalization effect is pushing political leaders cut down on Free Trade Agreements, Visa rule and trade deals. Similarly, in China, the Government under XI Jinping is going for "dual circulation" economic strategy to cut its over-dependence on the overseas market and technology in its long-term development goal. The shift is also done at a time when there is a deepening rift with the United States. The "dual circulation" policy is closer to Atmanirbhar Bharat policy of Prime Minister Modi. Of course, the scale of dual circulation is too big in scope and size. The "dual circulation" strategy could become a key priority in China during the 14th five-year plan (2021-2025), due to be unveiled during the annual parliament session in early 2021.
Today under Prime Minister Modi, India's relative capability is stronger than ever before. The question is, can India deploy it for carving out a niche for itself in the new regional order. Walking away from China, RCEP is an opportunity for India to focus on nationalism as a uniting force to stop China from increasing hegemony in the region. At the same time, it is an opportunity for India to strengthen ties with the USA, to better manage the advancement of China in the Asian region. In the past, we have focused on the political side of the Sino-American relationship in the Asia region. We have continuously underestimated the commercial side of the relationship. Therefore, India needs to be cautious and pragmatic about power shifts in the region.