Limited gains

India should review its position on RCEP

After a decade of negotiations, India and Australia took the first step towards a comprehensive trade deal this weekend, signing an interim agreement that reduced tariffs on a set of traded goods with more to follow over 10 years. The agreement was signed by Union Commerce Minister Piyush Goyal and his Australian counterpart in a virtual ceremony, and cut tariffs on several Australian imports into India including mutton, coal, and rare earths. Politically difficult sectors including dairy — a major Australian export but one with a politically well-connected Indian domestic lobby — were left alone. This is the second trade agreement in just a few weeks, following the signing of a comprehensive economic partnership agreement (CEPA) with the United Arab Emirates (UAE). Given that this administration came into office promising to review all India’s existing free trade agreements, and subsequently froze negotiations on further trade openness, it is clear that something has changed in New Delhi’s attitude to trade.

This trade deal, while including some interesting and far-reaching components, clearly reflects more the desire to have a result delivered on a timeline rather than a final position for India-Australia trade. The incumbent Australian government is expected to face elections soon, and will want to demonstrate to its public that it is actively trying to open up new markets for Australian goods to replace those being lost in mainland China after a breakdown in relations between the two countries. This is visible in the highlighting in this “early harvest” deal of the new lower tariff status of such Australian exports as rock lobster, which became a highly visible symbol of the clash between the two countries. Meanwhile, major Indian exports including textiles and leather will receive duty-free access to Australian markets. Like the UAE CEPA, this deal includes fast-track approvals and quality assessments; it also includes a more liberalised visa regime, a long-standing Indian demand. This movement away from a purely tariff-based view of trade agreements is welcome.

Yet from neither India’s point of view nor Australia’s will this deal realistically change the orientation of trade. India does not yet have the sort of market that will be an effective replacement for China as far as Australia is concerned. And for India, piecemeal agreements with many of the various component nations of the Regional Comprehensive Economic Partnership (RCEP) cannot and will not substitute for its failure to join the group. If the government now understands the importance of freer trading, it is far from clear why the RCEP itself is still off the table. After all, while the apparent reason for India’s refusal to join the RCEP is that it is effectively a China-led and China-dominated bloc, it can hardly be said that Australia — a prominent member of the RCEP — is on the best of terms with Beijing. India must re-examine its attitude towards the RCEP. Or else it is important to outline how these step-by-step and isolated trade deals align together in a broader strategy to boost Indian exports and increase domestic consumer welfare. Is it an attempt to develop closer trade relations with only those economies that are in some way complementary to India’s? Or is it a political step first and an economic step only second? More trade agreements are due to follow the India-Australia interim deal, and will need to be evaluated against this strategy.