India’s dilemma on regional trade agreements
Comprising of the ASEAN members, China, Japan, Korea, Australia and New Zealand, in addition to India, Regional Comprehensive Partnership Agreement (RCEP) is poised to be the world’s largest free-trade agreement. With a combined GDP of US$49.5 trillion, about 39% of the global GDP, RCEP would cover nearly 3.4 billion people. There are significant outstanding issues that remain for India till the recent summit that took place in Thailand between 2-4 November 2019. India is negotiating RCEP and has informed its intention to walk-out of the negotiations if its concerns are not addressed in a satisfactory manner. In a statement issued by RCEP’s joint leaders on 4 November 2019, it has been mentioned that all the participating countries will work together to resolve India’s outstanding issues in a mutually acceptable way. India’s final decision to sign up or otherwise to the RCEP Agreement will depend on the outcome of the discussions to be now undertaken with the other participating countries.
While joining the RCEP is expected to help cut through the spaghetti bowl of free-trade agreements that India has signed with various Asian countries, the agreement poses its own challenges. India currently runs a goods trade deficit of US$104 billion with 10 out of the 15 RCEP partners. The country is particularly concerned with the competition that products from China will offer upon signing of this agreement. Appropriate emergency safeguard measures to prevent damaging import surges is a necessity but this is yet to become a part of the RCEP architecture. India’s comparative advantage lies in adjusting in the trade deficit in goods by counterbalancing it with services trade. However, most developed RCEP countries where India can export services, have been unwilling to negotiate wide-ranging disciplines in services that can create new market access for trade in services in this region.
A unique time to redo the trade policy
The current regional and global trade dynamics collectively make a strong economic and strategic case for India to relook at its trade policy afresh and comprehensively, keeping India’s investment and industrial policies in mind. India should also utilize the time-out from RCEP negotiations to carefully examine the lessons learnt from the existing free-trade agreements.
The Government of India is already taking proactive steps. To address the declining private investments, corporate taxes have been recently slashed. A new WTO compatible export support scheme, Remission of Duties or Taxes on Export Products (RoDTEP), has been announced by the Finance Minister of India, which is expected to replace the primary export incentive scheme that has been declared ultra vires by the WTO dispute panel. Given the complexity of applicable WTO rules, there is a need to provide a similar level of support as is given to the present schemes. To show compatibility with WTO-rules, it is essential for the government to carefully work out enough details for drafting the scheme. While doing so, it is also imperative for different industry sectors to help provide the details/ peculiarities of their sector to the government.
Similarly, the WTO panel decision allows India to recast its trade development and promotion efforts, such as through the special economic zones, to meet its developmental objectives. Extensive input from businesses and other stakeholders, alongside systematic coordination with various domestic regulators may help India firm up its negotiating position and update its trade policy to version 2.0 which will account for the contemporary economic realities as well.