RCEP exit: A bargaining position or a disaster?

What is the reason for sudden change of mind and deciding to not join RCEP?

Prime Minister Narendra Modi’s decision on Monday not to join the  Regional Comprehensive Economic Partnership (RCEP) took me by complete surprise. I had loudly supported his earlier position, urging his government to join the RCEP, and make it a win-win situation for India and Asia. He took this position against stiff opposition from big industries, his ministers, the Swadeshi Jagaran Manch, and his bureaucrats. What changed his mind suddenly? There must be a reason to this change in stance?

In my view, the prime minister’s switch is a bargaining move. The thinking in the government appears to be that India is needed to make the RCEP a real Asian trade agreement.  The prime minister, therefore, is counting on China and other member countries giving India some time to make its industries competitive, or exclude some of its long list of sensitive industrial and agriculture products. His negotiators are playing the same bargaining game as we did in the Uruguay Round for Trade-Related Aspects of Intellectual Property Rights (TRIPS). 

If this is so, we are again going to lose out, and finally yield in.  Then, the prime minister can tell the industry and the groups against the RCEP that he tried his best and failed. The door to joining the RCEP as a founding member is still open till the proposed signing date in February 2020. So there is time.

But the present situation is different from the Uruguay Round negotiations. Unlike agreements with the World Trade Organization , mega-regional deals, such as the RCEP, are not bound by the rule of consensus. So there will be less pressure on the part of China and other member countries to continue negotiating with India. It is likely they will move on without India, except some countries politely expressing  their concern, as Japan just did. Southeast Asian countries are already badly affected by the US-China trade war initiated by President  Donald Trump, who changes his position on a daily basis. These countries want an Asian deal to be concluded as quickly as possible. India is a small player for them. They will not wait for India. Hence, like in the Uruguay Round in TRIPS, and Trade Facilitation Agreement of the World Trade Organization, we will ultimately cave in with our heads hanging down.

The other alternative is to really opt out of the RCEP. That will be a big disaster for India. It will put to rest our Act East Policy, and delink us with the most successful countries in the Southeast, Far East, and the Pacific. We will also be delinked with the Asian regional global value chains. Our exports will slump, unemployment will rise, and gross domestic product growth will decline further. Inclusive growth will become more elusive.

We are, then, out to protect our over 70-year-old “infant industries”, which are afraid to face international competition and want to continue to make profits from the largest protected domestic market in the world.  Imagine the trade diversion loss for India from this line of thinking, as the world moves in the direction of forging more regional agreements, including mega-regional trade deals, with India staying out of them. Genuine consumers and innovative entrepreneurs will then not be allowed access to lower-priced inputs and material that would have enabled  them to flourish, and helped India inch higher up the value-chain. Imagine a country where you protect plastics, pricing it higher so those who can make advanced plastic products are shut out of competition. Where you protect advanced metallurgy products so your dyeing and machining industries that make industrial parts and components never take off. 

The prime minister has decided to opt out of the RCEP to protect our people, so he asserts. But is he really doing that? Or just helping big industry that wants to remain an infant forever? Why is he ignoring consumers and innovators? Why is he supporting moving back to the old Hindu rate of growth of 3 per cent that we with herculean efforts overcame with bold reforms in 1991 under then Prime Minister  P V Narasimha Rao, and carried through and strengthened by Atal Bihari Vajpayee?

Hope the prime minister changes his mind. We don’t want our big industry slogan to be: “Long live Protectionism. A long, long life to it !”

The writer is a former economic advisor in the Union commerce ministry