RCEP calls for India to converge its trade and industrial policy instruments: CUTS International

December 09, 2020

‘If India misses out on attracting some of those supply chains, connections and infrastructure opportunities, it could be locked out of many years of growth and an opportunity to be on the table in RCEP when mechanism, guidelines are being formulated.’

Whether we like it or not, the global trading order has been disrupted by the Covid-19 pandemic and the US-China trade war, and we need to take these into account for our own economy., said Pradeep Mehta, Secretary General, CUTS International. He was moderating a webinar organised by CUTS International, ‘Why India Should Join, or Not, the RCEP; its pros and cons’.

New supply chains are being explored; new connections are being made; trading infrastructure that will last for decades is being built, Mehta added,

The discussions were kicked off by Montek Singh Ahluwalia, former Dy. Chairman of the Planning Commission. He said that he was disappointed to see that even after Act East Policy, the decision was taken to opt out of RCEP. However, the decision to not join RCEP was not bureaucratically driven, he added.

He pointed out that it’s time for India that it starts pulling its weight. We need to be there on the table to balance China. It will be better to be in the tent than out of it.

A major argument posed against RCEP is India’s high trade deficit with China but we need to be cognizant of the fact that there is an element of implicit trade deficit. Most products imported from China are not entirely manufactured or processed in China. They are a part of some global value chain. Thus, the solution to trade deficit is in macro policies rather than trade policies.

Mr Ahluwalia also mentioned that joining the RCEP is very important and government needs to take advice from successful industries than otherwise who will invariably not support this mega deal.

Amita Batra, Professor of Economics, JNU, made a very significant point that the deciding parameter to join RCEP or to not join RCEP should be on the basis of well evaluated potential of global value chains (GVCs) and regional value chains (RVCs) and also the gains that would accrue through forward and backward linkages.

She very aptly pointed out that Free Trade Agreements (FTAs) serve a different purpose than regional integration. Joining RCEP can make India an attractive destination for value chains which can cover up for trade deficits.

According to Gopal Agarwal, BJP’s Spokesperson on Economic Issues the government is not against free trade agreements but the composition of trade is a contention at this juncture.

Mr Agarwal said that the country hasn’t seen any major reforms since 1991, and hence, domestically, there are large reforms in agriculture, land and labor that are required before opening up to the world.

He also pointed out that our factors of production are not competitive enough to translate competencies in our products in the international market. According to him, it will be better if India concluded free trade agreements with US and EU.

When asked about the erosion of consultation process in mega deals like the RCEP, Rajeev Gowda former Congress MP and Professor on Public Policy, responded that consultation needs to be enhanced with political parties and other stakeholders.

“Without the same the opportunities like RCEP are opportunities wasted. We need to be projecting better to be able to negotiate from a position of strength” he asserted.

Ashwani Mahajan, Co-convenor of the Swadeshi Jagaran Manch, mentioned that in 2018 when the negotiations on RCEP were at a high, then Commerce Minister, Nirmala Sitharaman asked this question in a stakeholder consultation whether or not India is ready. And the answer was in the negative.

Mr Mahajan added that to improve our competitiveness we should stop working in silos and that there should be a convergence among trade policy, industrial policy, logistics policy and agriculture policy.

Speaking on the occasion, Naushad Forbes, Co-Chairman, Forbes Marshall and former President of the Confederation of Indian Industry said that we worked out a very good deal at RCEP investing so many years into negotiating it and it’s a pity we didn’t join it.

He highlighted some points as to why RCEP is good for India. Firstly, agriculture was excluded; secondly, we got an opportunity to be a part of the most vibrant part of the world.

He also mentioned about an interesting poll done recently with top 100 industrialists in India on this issue and 57% regretted India’s decision to keep out of RCEP with only 27% supporting it.

“We are stuck in the loop of poor articulation that we need to protect our industries from international players from accessing Indian market. Rather it should be the other way round.”

On being asked on how do we attain competitiveness he said that we need to open up before we are ready because competitiveness is always forced, otherwise you are never ready. He also urged that engaging with RCEP is an opportunity we should take sooner than later.

Pradeep Mehta made a very thought provoking point here. He said that our self-esteem as nation is very low. If we think well and plan we can go global. We have seen many Indian start-ups like OYO Rooms and OLA become global players that in recent times.

Furthermore, many of our SMEs too have become global, who do not make headlines, Mehta added. Also, RCEP is important for its strategic interest other than trade interest.

Prof Anwarul Hoda, former Deputy Director General of the World Trade Organisation and Professor at the Indian Council for Research on International Economic Relations, added that RCEP is definitely a geopolitical imperative but before that we need to focus on development of infrastructure and coming up with reforms to improve our competiveness.

Towards the end Montek Ahluwalia said that we need to be present inside the RCEP to be able to discipline China, and any competiveness can be leveraged through floating exchange rates.

He also said that if we go about asking if we are ready we are never going to get that consensus and it so might happen that we miss a major opportunity of development when economies are reformulating the new normal post the Covid-19 pandemic.

To this Amita Batra added, that we need to graduate from comparing ASEAN FTA with RCEP as ASEAN FTA was goods only agreement while RCEP is a comprehensive agreement involving investments and services.

While WTO comes back in full swing, regional trade agreements will be running the show and India should rightly evaluate the same, she added.

Concluding the session, Bipul Chatterjee, Executive Director, CUTS International underlined that there is a broad consensus that there should be a convergence between trade policy and industrial policy and that the whole of government approach should be. He said that the question we need to ask is ‘when’ do we join RCEP and not why.

For more information, please contact:

Bipul Chatterjee, +919829285921, bc@cuts.org

Apoorva Lalwani: +918619110291, apl@cuts.org