At the recently held ASEAN summit in Bangkok, the long drawn negotiations over the Regional Comprehensive Partnership Agreement (RCEP) were concluded with India deciding to stay away from the mega free trade agreement. Originating in 2012, as a counter to the US-led Trans Pacific Partnership Agreement (TPP), the pact expected to be concluded in 2015 was delayed by four years owing to the lack of consensus among its members on key issues underpinning the agreement. Originally, the 16 members’ framework which included 10 states of the Association of Southeast Asian Nations (ASEAN) along with China, India, South Korea, Japan, New Zealand and Australia, RCEP was described as the world’s largest trade agreement involving trade in goods, services and investments.[i]
(Image taken from asean.org, November 4, 2019)
Invoking the “talisman of Mahatma Gandhi and his own conscience”, the Indian Prime Minister Narendra Modi argued that the draft agreement “did not fully reflect the basic spirit and the agreed guiding principles of RCEP” and neither did it “satisfactorily address India’s outstanding issues and concerns”.[ii]He added that the decision to stay outside the pact was conceived keeping in mind the well-being of the Indian farmers, professionals, industries, as well as the consumers and the workers.[iii]Reflecting a cautious stance, India’s decision is being widely debated and discussed. Infact, it has revealed the domestic economic faultlines growing deeper and affecting country’s external economic engagements more than ever before.
India also faced some flak for making last minute demands, which were outside the purview of the agreed pact. While the Malaysian Prime Minister (PM) blamed India for delaying the RCEP negotiations, other countries of East and South East Asia were keen on having India on board.[iv]In their view, India’s participation in the RCEP would have lent greater geo-political and geo-economic clout to the comprehensive free trade pact, particularly at a time when the world economy is reeling under the effect of Sino-US tariff wars, slow growth, unemployment, etc. Also, the defenders of the multilateral economic system like the United States are turning protectionist leading to a crisis like situation in the global economic governance.[v]Amidst this backdrop, a regional pact like the RCEP has been viewed as an instrument propelling growth and confidence for the Asian markets.
Describing the RCEP negotiations, it can be conceived as a two stage process; the first comprising of bargaining between the negotiators, leading to a tentative agreement; and the second level includes separate discussions within each group of constituents about whether to ratify the agreement.[vi] Thus, the politics of international negotiations as Robert Putnam describes, is a complex process involving two level game, being played at the domestic and the international level.[vii]Drawing from the above logic, it can be argued that the pressure from various domestic groups had upset the Indian government’s calculations related to benefits of joining RCEP and all other policy pronouncements that preceded the Bangkok summit in November. Faced with opposition from its own party affiliates, Swadeshi Jagran Manch (SJM) and Bharatiya Kisan Sangh (BKS), the Modi government chose for a no-agreement on RCEP, precisely because the political costs for no-deal was lesser than going ahead with it.[viii] The last five years has seen a spike in farmers protests in India owing to the decline in agricultural profits, rising farmers’ debts and unemployment among farm labourers. Thus, the bargaining to attain a consensus between the two sides, domestic and international parties became hard for the Indian government leading to its ‘withdrawal’ as a means to minimise the adverse consequences of the external economic engagement.
Although the Indian government has managed to lower the political costs, the economic costs or the costs of missed opportunities related to its RCEP decision loom large. Firstly, staying away from a regional free trade pact, so comprehensive in nature, would deny India the opportunities related to expanding trade, and new markets and investments. Secondly, the duty free access to large Asian markets would have attracted multinationals to invest in India and simultaneously created opportunities for Indian firms to operate overseas.[ix]Thirdly, countries’ raising tariffs cannot be deemed as the only solution to protect the local industries. Infact tariffs hurt the competitiveness of the domestic products, hinders their diversification and upward movement in the regional value chain. Thus, India’s RCEP decision seems to reflect the short term gains which New Delhi prioritised over possible long term economic benefits.
On the other hand, concerns raised by the Indian side vis-à-vis RCEP cannot be dismissed. Some key concerns are part of the long standing issues that India faces in its trade relations with China and the ASEAN states. Owing to the burgeoning trade deficit that India has with China, a large section of the primary and intermediate producers were wary of the import surge from the Chinese goods. This would hurt local businesses and the small medium sized enterprises (SMEs) to a large extent once duties are eliminated or reduced under the RCEP framework.[x] Despite the auto-trigger provisionin place to manage the import surges beyond the threshold limit, New Delhi was apprehensive about the RCEP countries’ adherence to the rules of origin (ROO) and the increase in third country imports.[xi]New Delhi feared that the enhanced market access and flexible standards related to ROO, there will be flooding of cheap goods from China via South East Asian countries into India. The other concerns relate to the trans-border sharing of data, which is against the spirit of New Delhi’s newly drafted e-commerce policy and the rachet obligations under which a member country would not be allowed to raise tariffs once the free trade pact comes into effect.[xii]
Thus, the debate on RCEP being a ‘boon’ or ‘bane’ will continue despite India’s decision to abstain from the pact. Infact it acts as a timely reminder to the Indian policymakers that the country continues to lag behind in several economic parameters, which make it less competitive and less conducive for participating in mega free trade agreements. It is therefore imperative to devise long-term strategies to make Indian manufacturing sector, agricultural and pharmaceutical industry competitive and enhance their efficiency.[xiii] India is still catching up in the field of science, technology and innovation and for the country to leap to the technology frontier, requires encouraging private sector investments in research and development (R&D) as well as attracting Foreign Direct Investments (FDI). Perhaps this would pave the way for India to join RCEP in the years to come.
Dr. Priyanka Pandit is a Research Fellow at the Indian Council of World Affairs, New Delhi.
Disclaimer: The views expressed are that of the Researcher and not of the Council.
Automatic Trigger Safeguard Mechanism or ATSM is considered as an effective tool, under which duties automatically increase once imports cross a given threshold.
 Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.
[i]Sahane, Girish (2019), “Why ditching the RCEP is a massive setback for the Indian economy”, Scroll.in, URL: https://scroll.in/article/943502/why-ditching-the-rcep-is-a-massive-setback-for-the-indian-economy. Accessed on 17th November, 2019
[ii]Gupta, Saurabh (2019), “India’s RCEP blunder”, East Asia Forum, URL: https://www.eastasiaforum.org/2019/11/09/indias-rcep-blunder/. Accessed on 17th November 2019
[iii]‘My Conscience Won’t Permit’: Why PM Modi Decided to Keep India Away From the RCEP Trade Deal”, News18, URL: https://www.news18.com/news/india/my-conscience-wont-permit-why-pm-modi-decided-to-keep-india-away-from-the-rcep-trade-deal-2373631.html. Accessed on 12 November 2019
[iv]RoyChowdhury, Dipanjan (2019), “RCEP member countries split over deal for India”, The Economic Times, URL: https://economictimes.indiatimes.com/news/politics-and-nation/rcep-member-countries-split-over-deal-for-india/articleshow/71884653.cms?from=mdr. Accessed on 12 November 2019
[v]Ghitis, Frida (2019), “America-first trade policy is crushing the global economy”, CNN Business, URL: https://edition.cnn.com/2019/09/01/perspectives/trade-protectionism-us-trump/index.html. Accessed on 18 November 2019
[vi] Putnam, R. D. (1988). “Diplomacy and domestic politics: the logic of two-level games”, International organization, 42(3), 427-460.
[viii]Anuja& Roche, E. (2019), “The politics behind India's no to RCEP deal”, LiveMint, URL: https://www.livemint.com/politics/policy/the-politics-behind-india-s-no-to-rcep-deal-11572936377571.html. Accessed on 17th November 2019
[ix]Sharma, H. (2019), “Arvind Panagariya: RCEP in our interest, no MNC will come if we sit outside”, Indian Express, URL: https://indianexpress.com/article/india/rcep-asean-india-narendra-modi-arvind-panagariya-6116909/. Accessed on 15 November 2019
[x]Kondapalli, S. (2019), “RCEP and the China factor”, Deccan Herald, URL: https://www.deccanherald.com/special-features/rcep-and-the-china-factor-774948.html. Accessed on 14 November 2019
[xi]Sen, A (2019), “RCEP: India wants auto-trigger mechanism to curb import surges”,The Hindu Business Line, Accessed on 17 November 2019
[xii]Choudhury, G. (2019), “India decides not to join RCEP: Decoding the reasons behind its decision”,MoneyControl, URL: https://www.moneycontrol.com/news/economy/policy/india-decides-not-to-join-rcep-decoding-the-reasons-behind-its-decision-4602701.html. Accessed on 17 November 2019
[xiii](2019), “View: India needs RCEP to push much-needed domestic reforms”, The Economic Times, URL: https://economictimes.indiatimes.com/news/economy/foreign-trade/view-india-needs-rcep-to-push-much-needed-domestic-reforms/articleshow/71945030.cms. Accessed on 17 November 2019