Modern Liberalisation Politics and India’s Stand

India exited the Regional Comprehensive Economic Partnership (RCEP) in November 2019, after extensive negotiations to protect its economy from the continuously rising trade deficit with the other participant nations that comprised of 10 ASEAN nations[1] along with China, Japan, South Korea, Australia and New Zealand. RCEP is considered one of the largest Free Trade Agreement constituting roughly 25% of the world’s GDP. However, it has left a special window open for India to join the agreement anytime in future.

One of the major reasons behind the failure of the negotiation was the over-involvement of China in the partnership. It was not only giving China access to markets in Japan and South Korea but was also making India a dumping ground for Chinese products. Joining RCEP required India to eliminate the tariff on 90% of items from ASEAN countries, Japan and South Korea. It also removed the obstacle of rules of origin which determines the country of origin of the product, in absence of which it provides the freedom to countries like China to dump their products by routing them through other countries. China also enjoyed the privilege of lower tariff in India[2].

India’s concerns seem genuine keeping in mind that liberalisation of the Indian economy and lowering the tariffs has led to cheap imports from countries that have good trade relations with India, so much so, that there has been an exponential increase in demand for imported products in the last 15 years signifying that Indian products have failed to compete with their foreign counterparts. For now, not joining RCEP is a step in-furtherance of India’s ‘Vocal for Local’ policy.

The ties between India and China have been strained since the rise of military involvement in eastern Ladakh and the Line of Actual Control. Post the pandemic, there was a huge demand in India for boycotting Chinese products and for the promotion of indigenous products. Besides, India being a welfare state is required to provide basic economic security to its citizens and hence, joining the RCEP was surely not in favour of its decision as cheaper imports from foreign countries would mean the closing of 93% of informal sectors in the country. For example, the dairy industry would receive stiff competition from Australia and New Zealand which are chief players in the field. Also, it could have affected India’s ‘food sovereignty’ which was brought about by the Green Revolution.

Rejecting RCEP’s proposal becomes all the more significant when seen in the light of the ongoing farmer’s protests. The passing of Farm Bills by the present government has enraged the farmers and they have been protesting since December 2020. If India had joined the RCEP and there was the impact of foreign products on Indian markets making the indigenous products way cheaper than the accepted rate, consequences would have been calamitous. Joining RCEP could have done more harm within the country than the good it would have bestowed upon India internationally.

However, it cannot be said that not joining RCEP was completely in the favour of India. Along with wrecking India’s international collaboration and cooperation, it has provided other countries with an open possibility to establish their hegemony in Asia-Pacific.

Joining RCEP could have boosted India’s Act East Policy through a reduction in trade costs. Act East Policy focuses on boosting economic co-operations, building infrastructures for greater connectivity and most importantly strategic & security ties. This was initiated to tackle the changing geo-political scenario due to dominance by China in the South China Sea and its increasing influence in the Indian Ocean Region. However, India’s exit from RCEP signifies damaged relations with these countries and a greater influence of China on them.

India was given a “first-mover advantage”. The first-mover advantage refers to an advantage gained by a company that first introduces a product or service to the market. The first-mover advantage enables a company to establish strong brand recognition and product/service loyalty before other entrants in the market. Post the COVID-19 crisis, several companies decided to move out of China and also stopped their imports. Most of these countries opted for the Philippines and Japan as their suitable new markets. Had India not exited RCEP, it surely would have received some benefit from the collaboration with the countries.

To counter China and Pakistan, India requires the strong support of countries like Australia and Japan and exiting RCEP is surely not in favour of the same. In the last meeting which was organized in November 2019, the trade ministers of Australia, Singapore and Japan expressed their hope that India will join RCEP in future. More than a year later, now it seems like an inaccurate proposition.

The biggest drawback of exiting the RCEP would be a strain in the relations between India and the ASEAN countries. ASEAN countries have always been an important trading partner of India and it was becoming all the more important with the deterioration of India’s relation with its immediate neighbours, China and Pakistan. Joining RCEP would have had provided East and South East of India through better access to a vast regional market ranging from Japan to Australia.

Before the tensions between India and Pakistan heightened, the South Asian Association for Regional Cooperation functioned in a completely institutional way. However, in 2018, India openly said that it was not possible to go ahead with SAARC, citing Pakistan’s continued cross-border terrorism. Today, SAARC has reached the extent of becoming non-functional. If not joining RCEP presents a similar situation with the ASEAN nations, which India is not a part of yet, receives considerable support, it would not only affect the Indian economy but can also pose a serious threat to India’s international security. Cooperation plays an important role in Asia-Pacific.

The next big plan is making a self-sufficient India or “Aatmnirbhar Bharat”. India has taken some major steps in this direction and recovering the national economy from the plight of COVID-19 remains the priority. India’s foreign trade policy for five years, 2021-25, will be an important deciding factor in judging India’s relations with other foreign nations and determining whether or not rejecting RCEP was a good idea.

[1] Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam [2] Particularly Japan and South Korea

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