Act fast on RCEP: India-Asean trade growth has been underwhelming

Last week, India played host to the leaders of 10 Association of Southeast Asian Nations (Asean) in a commemorative summit as the country celebrated 25 years of its association with Asean. It was even more special because Asean is celebrating 50 years of its existence. The Delhi Declaration talked about a wide range of issues — from cultural to political and from geo-strategic to economic — over which India and Asean are expected to collaborate more closely in the near future. Barring a couple of Asean partners, most countries have deep cultural ties with India and, as such, it was a fitting end to the summit meeting as the Asean leaders presided over this year’s Republic Day parade as chief guests. On the face of it, Prime Minister Narendra Modi’s government has taken a bold step towards reaffirming its commitment to its Act East policy. However, among all the concerns that were discussed, the central worry was India’s inadequate economic integration with Asean. To be sure, a coming together on trade and investment is a necessary requirement not just for the sake of the economic benefits that will accrue to both sides but also for India’s larger ambitions of being a force in the global economy.

 

By all accounts, India’s achievement in terms of growing trade relations with Asean has been underwhelming. As a trading partner of Asean, India is ranked a lowly seventh — well below rivals such as China, the European Union (EU), Japan, the US, South Korea, and Australia. The India-Asean free trade agreement (FTA), which came into force in 2010, has seen trade grow from $45 billion in 2008-09 to $71 billion in 2016-17. But trade with Asean still accounts for roughly the same share in India’s total trade — around 10 per cent. Moreover, against expectations, the composition of India’s trade with Asean has shown very little improvement in manufacturing goods. In fact, the data suggests that trade in goods like mechanical appliances, and electronics and electrical equipment has declined since the FTA came into effect. These goods are traded in big volumes between Asean and the rest of the world.

 

India has been further blamed by Asean partners as well as trade observers for not being proactive in moving ahead with greater trade integration with the regional bloc. A key element is the long-pending negotiations of the Regional Comprehensive Economic Partnership (RCEP). The RCEP is a proposed FTA between the 10 Asean partner countries and six other nations — Australia, New Zealand, China, South Korea, Japan, and India — with which Asean has individual FTAs. The RCEP negotiations were initially expected to be concluded in 2015 but continue to drag on. India’s insistence on differentiated tariff schedules and its demand for concessions in services liberalisation, in particular, in mode 4 have been key stumbling blocks.

 

The Delhi Declaration promises to “intensify efforts in 2018 toward the swift conclusion” of the RCEP. It is important that India walks the talk on this crucial bit. For one, the RCEP is important because it will help shore up India’s poor backward and forward linkages in global value chains. Moreover, the RCEP is necessary to bolster India’s case for its long-pending candidature of the Asia-Pacific Economic Cooperation. At a time when the multilateral trading system is under threat, India cannot afford to miss the bus on regional trading opportunities.