The Art of Deploying Diplomacy to Advance Our Trade Interests

Live Mint, September 23, 2019

By Pradeep S. Mehta

Trade and diplomatic initiatives need to complement each other for a country to leverage the potential of its economy

India’s external affairs minister S. Jaishankar recently said that trade interests, and not diplomacy, will decide India’s participation in the Regional Comprehensive Economic Partnership (RCEP) agreement. While it is obvious that any trade agreement must be decided on its merits, smart diplomacy can aid in advancing our overall trade and strategic interests.

Trade benefits may emanate not only from the deal being negotiated, but also from strengthening existing trade relations, the opening of new trade avenues, and the fostering of competitiveness among domestic producers. The collateral benefits would include enhanced investment, policy certainty and regional security. For all this to happen, diplomacy is crucial. In other words, when trade and diplomatic initiatives complement each other, and are not pursued in isolation, it is possible to take a macro view of the medium-to-long-term future, and act accordingly to make the most of the economy’s trade potential.

Such a mature vision has already been displayed by the Prime Minister, whose strong push in favour of the country’s Act East and Act Far East policies has given Indian negotiators the vigour needed to quickly conclude negotiations for the RCEP. It is for this reason that commerce and industry minister Piyush Goyal recently mentioned that national interests cannot be allowed to be hijacked by a few industries, and the government must look at the greater good for the biggest numbers.
The early conclusion of RCEP negotiations and its implementation offers several strategic benefits to India. First, it will send a strong signal to the global trade community that the international trading system is alive and kicking, and India is ready to participate in the rule-making process for it. Given that RCEP countries constitute more than one-third of global gross domestic product (GDP), close to half of its population, and around 30% of its trade, not being party to the RCEP would be counterproductive to India’s trade and strategic interests.

Closer home, India’s participation in the RCEP can be viewed as a natural extension of its Act East and Act Far East policies, for it will enhance our maritime connectivity in the Indo-Pacific region. The RCEP holds enormous potential to facilitate economic growth and stability in the region, and to help make it free, open and inclusive. It could also be used as a key instrument to balance Asia-Pacific and Indo-Pacific constructs for shared prosperity with security. We can also use it as an anchor to launch several mini-lateral initiatives in the region, with countries like Australia, Indonesia and Japan, to strengthen our maritime connectivity and allow for the emergence of alternative power centres.

RCEP can be leveraged by India to make investments in connectivity and infrastructure development in our extended neighbourhood, such as the Sabang port in Indonesia, and Cam Ranh port in Vietnam. It can also help Indian companies form joint ventures for exploring and sourcing strategic resources, such as natural gas from countries like Vietnam and Myanmar.

India, however, has genuine concerns with the RCEP over possible import surges from countries like China, New Zealand and Australia, particularly in the agricultural and dairy sectors. While one needs to be cautious about any overestimation of such a negative impact, as portrayed in popular media, we should not forget that there will be gains for industrial consumers (of intermediate goods as inputs) and for consumers at large. In addition, the RCEP can be leveraged to help Indian industry become more competitive, participate in global value chains, and seek additional market access.

This would require overcoming several domestic challenges, particularly related to infrastructure and input markets. For instance, at present, road transport in India costs $7 per km, while the cost is only $2.50 per km in China. Similarly, economical and timely access to land, labour, capital and technology remains a challenge in our country. Correcting the situation will require domestic input market reforms and heavy investment in infrastructure to enable Indian companies to participate effectively in global value chains.

A troika of optimal competition, industrial and trade policies could help usher in such reforms and allow the Indian economy to compete with its RCEP counterparts in attracting and facilitating the setting up of businesses. Given that India is experiencing a structural and cyclical slowdown, the RCEP can also serve as an additional external factor for reformers to push for difficult yet important domestic reforms.

We can show maturity by acceding to the RCEP’s spirit of multilateralism while initiating parallel discussions with select countries on special safeguard mechanisms. We could designate some tariff lines as special products and even have tariff rate quotas for some others. While it has been reported that RCEP countries have decided to ease the application of investor-state dispute settlement procedures, the agreement may provide for the creation of an independent arbitrator or ombudsman, depending on the situation, as a first step to resolve such differences.

Once the RCEP is in place, diplomatic efforts will be required to achieve convergence between the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) and the RCEP. Over time, the RCEP may expand to include Russia and other central Asian countries. All this would require smart diplomacy in favour of our trade, investment and strategic interests.

Amol Kulkarni and Bipul Chatterjee of CUTS contributed to the article.
Pradeep S. Mehta is Secretary General of CUTS International

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