Get RCEP done soon

Swift conclusion of trade negotiations in India's interest

The  Regional Comprehensive Economic Partnership, or RCEP, was supposed to be concluded by the end of the current calendar year. But the commerce ministers of the 16 countries involved, meeting in Singapore, have agreed on a joint statement that pushes agreement on the deal back to 2019. There are still major gaps to be filled. The joint statement indicated that the “ministers guided the negotiators to deliberate further on e-commerce, competition and investment chapters where consensus could not be reached during this meeting”. At one level, this is excellent news for India. It was India’s negotiators who were being seen as the principal objectors to any movement forward without greater “balance” in the final deal. This had led to veiled threats that the RCEP could be signed without India — in much the same way that the Trans-Pacific Partnership or TPP was eventually signed without the United States. For many of the other RCEP nations — designed around the Association of South East Asian Nations or Asean, together with India, China, Australia, Korea and New Zealand, all of which have free trade pacts with Asean — this would have been a disappointment but not a calamity. It is thus fortunate that India has made progress in convincing some other countries in the RCEP — Vietnam and Malaysia among them — that a delay would be useful. 

The central concern in India is two-fold. First, the bilateral trade deficit with the People’s Republic of China has already scaled great heights even in the absence of free trade. It is over $50 billion now, although total trade was only $84 billion. This is an extraordinary imbalance, and it is not surprising that the Indian government is concerned. The other concern is that New Delhi seems to have soured on freer trade in general — many free trade pacts are being “reviewed”. Officials have expressed worry, for example, that the Asean free trade agreement had “benefitted” Asean more than India. The government thus both wants to go slow on new FTAs and work on ensuring greater market access for Indian goods and services in mainland China.

There is nothing inherently wrong with India’s desire to balance trade with China. However, it is important to note that if Indian companies have not been able to take advantage of free trade agreements in the past, that is mostly due to insufficient improvements to the business climate and infrastructure within India. The government is working to improve both — and these must be followed up by further reductions in the red tape and tax paperwork that weigh down exporters. The RCEP must not be turned into a scapegoat for slow progress on such issues. The new 2019 deadline must also be taken seriously. Major work on concluding outstanding issues should ideally be done before the general election season begins next year. The current government is in a secure political position, with a majority in the Lok Sabha and a stable leadership. It is not certain that this situation will endure beyond the 2019 elections. Thus, it is in India’s interest to conclude the RCEP as soon as possible.