India Needs To Reorient Economic Engagements

Business World,16 July 2014

By Surendar Singh

India should take leadership in Asia along with other developing countries in global trade negotiations, says Dr Surender Singh of CUTS International

Dating back to its independence, India has been a strong supporter of multilateral framework and the rule making process of World Trade Organisation (WTO). However, the emergence of regional trading arrangements and the increasing share of global trade through under bilateral and regional free trade agreements has forcedit to reorient its process of economic integration with the global economy.

Regional economic arrangements are aimed to build regional blocks and to move forward for ambitious multilateral trade liberalisation under the WTO. A majority of regional trade agreements are well aligned with the basic tenets of GATT Article XXIV, the Enabling Clause and the General Agreement on Trade in Services (GATT). This is one of key factors behind the rapid expansion of regional trade agreements in the last two decades. However, the recent developments on regional trade integration particularly on-going trade negotiations under three mega FTAs: the Transatlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), and the Regional Comprehensive Economic Partnership Agreement (RCEP) are quite different in terms coverage and their compatibility with the WTO agreements. Thus, they are likely to redefine the trade rules in global trading system.

However, India is not the participating the first two agreements led by the United States and has only joined the dialogue of China led RCEP agreement. As argued by Ram Upendra Das, a Delhi-based think tank , Research and Information System for Developing Countries, in his article “A Menu of India’s Economic Engagements” the present framework on mega FTAs and the rise of so called platinum standards in TPP and TIPP, defined as labor standards,government procurement, environmental standards, competition policy and intellectual property rights. It seems very difficult that India will compromise on these aspects only to join to the US led regional trade initiatives. Moreover, India does not want participate in any international binding agreement which has far reaching implications to its domestic industries. But these developments have instigated India to reorient its approach towards regional economic engagements particularly due to its high stake RCEP negotiations.

The rise of South South tradeand Asia increasing share of global trade, made it mandatory for India to keep a close eye on regional developments around the Asia Pacific region. This is one of the strong factors behind the India’s engagement in the RCEP dialogue. Moreover, it also supports to the basic tenets of its economic diplomacy on “Look East Policy”.

This therefore leaves only an option for India to actively pursue RCEP dialogue along with other economic giants – China, Japan, ASEAN, South Korea and Australia. However, India needs to becareful while negotiating in RCEP. This may include several aspects. First, India should try to achieve substantial reduction in tariff lines in the range of 85-90 per cent. In this respect, the existing bilateral and regional trade arrangements such as (the India-Singapore CECA, India-Japan CEPA and China-ASEAN FTA) may be reference points.

Second, India must emphasise that the RCEP agreement should not contain any kind platinum standards while considering the development imperatives of India. In this respect, India must join hands with other least developing countries (LDCs) which are also at similar stage of economic development and their development imperatives are more-less same.

Third, it is important to note that India has a huge trade deficit with China and selected member countries of RCEP. Therefore, it is advisable the RCEP agreement need to be balanced in terms of tariff reduction in order to minimize the impact of trade diversion. The same stands true in case of other LDCs. However, there is also need to give the focus on a kind of economic cooperation which allows the member countries to import the cheaper raw material, intermediates and capital goods.

Fourth, it is crucial that India needs to undertake economic reforms in domestic industries particularly in labor intensive, textile, leather and agro food processing. In this respect, India needs to invest massively in, supply chain network; trade-related infrastructure and technology in order to enter in the ASEAN production network.

Finally, India’s trade engagements need a comprehensive review of its regional integration strategies particularly focussing on Africa and Latin America. It is essential that India should reorient itself towards Central America and CIS countries and this require great amount of homework. India needs to give focus on better alignment between India’s trade policy and the objectives of other major macroeconomic policies, such as the national manufacturing policy. Moreover, the emphasis should also be given to conseus building across developing countries on the vital economic and trade issues. Most importantly, India should take leadership in Asia along with other developing countries in global trade negotiations.

(The author, Dr Surender Singh, is Policy Analyst, CUTS International, a Global Think Tank. Write to

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