RCEP: Rare Consensus at Home; Rebukes from Abroad

Raman Swamy

When was the last time tycoons and tillers performed a victory dance together? Well, it happened this week when news came that India had backed out of signing the RCEP agreement.
This how FICCI, the forum of corporate India, reacted: “We fully support the decision to stay out of RCEP.  We compliment the Prime Minister for his bold and pragmatic decision to safeguard the interests of Indian industry”.

Here is what the left-wing All India Kisan Sangharsh Coordination Committee said: “Opting out of RCEP signifies a big victory for peasants and workers who have forced the present government to backtrack from entering into a disastrous mega-free trade agreement that would have been worse than demonetization”.

Virtually all middle-of-the-road parties in India have also expressed great joy and relief.   Perhaps the only one who was taken aback was Piyush Goyal, who had declared just a few days earlier: “Staying out of RCEP will isolate India and would be against national interests”.    

But, of course, Goyal can be forgiven for not knowing what the Prime Minister would decide at the last minute; after all, he is only the token Commerce Minister and is hardly in the loop of trade policy -  much like the late Sushma Swaraj was Foreign Minister only in name and even former Finance Minister Arun Jaitley was reportedly unaware of demonetization till after it was announced.

The important point is that India has refused to join the historic Regional Comprehensive Economic Partnership with China and 14 other Asian countries.  That is all that matters. 

That, and the fact that almost everybody has welcomed - including the Sangh Parivar’s Swadeshi Jagran Manch, which gushed with fulsome praise: “We thank the Prime Minister for taking the courageous decision of not entering the RCEP trap.  It is a farsighted decision which will benefit farmers and milk producers, shopkeepers and small businesses, as well as the data security agencies and manufacturing industries”.

In these days of political and intellectual polarization, such unanimity of opinion across the ideological spectrum is rare indeed, and therefore only to be welcomed. 

However, just as an academic exercise, it would be useful to know how others look at it.  Countries like Japan, Indonesia, South Korea, Thailand and even New Zealand and Australia, are sad and disappointed.  What an opportunity India has lost, they say, what a wonderful thing it would have been for all of us and all of Asia.

RCEP, they say, is potentially the world’s biggest trade agreement.  The 15 participating countries make up nearly one-third of the world’s population.  If only India had joined, RCEP would have covered 50 percent of human beings on the planet.  Even without India, the new agreement represents 33 percent of global GDP.    

While other RCEP signatories are lamenting, China is outwardly saying “not surprised” but inwardly seething.  After the recent Mahaballipuram informal summit between President Xi Jinping and Prime Minister Narendra Modi, expectations were high in Beijing that India had been persuaded to say yes.  That was also the impression in New Delhi – which was why Union Ministers like Piyush Goyal were openly taking a pro-RCEP line. 

Now that Modi has had second thoughts, some Chinese analysts are using razor-sharp expressions, even while maintaining that India’s absence is “understandable” and will not make much difference anyway. 

One Chinese commentator has written: “India's domestic politics has played a decisive role. The recently-concluded assembly elections in Maharashtra and Haryana states have shown that the support base of the ruling party led by India’s Prime Minister has shifted toward urban centers. This means that employment generation and industrial development have become vital for the Modi administration’s survival.  Avoiding the RCEP is a safe choice.  After all, unemployment and low industrial growth have badly hit India's urban economy”. 

An editorial in a Chinese newspaper avoids such political sabre-thrusts, but says: “The move not to join RCEP is partly driven by India's cost-benefit analysis of its national interests.  The Indian state’s limited ability to undertake the desired reforms is proving a hurdle.  Although India has a large number of FTAs (free trade agreements), India's trade deficit with its FTA partners has been growing”. 

It adds:   Take India-Korea Comprehensive Economic Partnership Agreement. Indian imports from South Korea have surged faster than imports from the world, while the growth rate of exports to South Korea has been much slower than India's overall exports. This has led to a considerable increase in India's trade deficit with South Korea from 5 billion dollars in 2009 to 12 billion dollars in 2018.   Decision-makers in New Delhi are alarmed and so are the ordinary people, who fear that RCEP will cause great damage to India, especially because of China's participation. 

Another analyst is scathing. “Modi has faced joint opposition from the rightist Rashtriya Swayamsevak Sangh and its affiliate Swadeshi Jagran Manch and also the center-left Indian National Congress and the leftist Communist Party of India.  Both sides have held protests against the Modi administration signing the RCEP.

“Hence, the RCEP issue has been so highly politicized that economic benefits and long-term interests count for little.  India has thus wasted the opportunity to integrate into the industrial ecological system of East Asia at a low cost as a founding member of the RCEP.  The RCEP is an international issue, but Modi's decision not to join by catering to public demands turns it into a purely domestic farce”. 

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Nov 6, 2019

Raman Swamy [email protected]

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