“India should be a part of RCEP and CPTPP,” according to B V R Subrahmanyam, CEO of the National Institution for Transforming India (NITI) Aayog, the Indian government’s top public policy think tank and nodal agency for catalyzing economic development.
Speaking recently to the Associated Chambers of Commerce and Industry of India (Assocham), Subrahmanyam said inclusion in the Asia-centric trade blocs “…will be best for India’s micro, small & medium enterprises sector…40% of India’s exports are from MSMEs. Big corporates are not great exporters.”
The NITI Aayog CEO also suggested that high tariffs have prevented India from taking full advantage of the rising diversification of supply chains away from China. “I don’t think we have captured the ‘China plus one’ opportunity as much as we could have,” he added.
The Indian government was involved in the negotiations that eventually birthed RCEP, a 15-member Asia-Pacific free trade agreement that is the world’s largest in terms of GDP. However, it decided against joining on the belief it would put Indian business and agriculture at a net-net disadvantage.
But views in New Delhi are apparently shifting as the global trade environment enters an uncertain new era.
India’s early involvement in forming RCEP, which took force in January 2022, gives the lie to widely held notions the bloc is, at its core, a China-led initiative aimed at rewriting the rules of international trade to Beijing’s advantage.
In actuality, RCEP originated in August 2011 at the ASEAN+3 (China, Japan, South Korea) conference, which adopted a joint Japanese-Chinese proposal known as the “Initiative on Speeding up the Establishment of an East Asia Free Trade Area (EAFTA) and Comprehensive Economic Partnership in East Asia (CEPEA).”
All of the Asia-Pacific democracies were involved in the long process of RCEP’s development, and all, barring India, signed it on November 15, 2020. The RCEP includes Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, South Korea, Singapore, Thailand and Vietnam
RCEP will eliminate tariffs on about 90% of traded goods within 20 years and standardize many customs, investment, intellectual property and e-commerce regulations. Covering roughly 30% of the global economy, it is also the first trade agreement linking Japan, China and South Korea.
The New Zealand government summed up RCEP’s benefits as:
- A single set of trade and investment rules across the entire RCEP region, increasing certainty and reducing complexity.
- The opportunity for our exporters to get their products into RCEP-wide regional value chains.
- More market access opportunities, especially for services and investment into China and some ASEAN member states.
- Less red tape for exporters, and more streamlined trade; and
- New rules on government procurement, competition policy and electronic commerce, which will help New Zealand exporters take advantage of increased business opportunities.
RCEP could do the same for India.
The CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is a separate free trade agreement comprised of 11 countries around the Pacific Ocean, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Replacing the original Trans-Pacific Partnership (TPP), which the US was instrumental in developing under President Barack Obama but abandoned in January 2017 under Donald Trump, it entered into force at the end of December 2018.
The Indo-Pacific Economic Framework for Prosperity (IPEF) promoted by the US government as an alternative to the CPTPP is long on feel-good jargon but short on measures to lower tariffs and improve US market access for its 13 other participants: Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam. IPEF was launched in May 2022.
In the words of the Office of the United States Trade Representative (USTR), “This framework will advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies. Through this initiative, the IPEF partners aim to contribute to cooperation, stability, prosperity, development and peace within the region.”
According to the USTR, this will be accomplished through “…negotiations on the following pillars: (1) Trade; (2) Supply Chains; (3) Clean Energy, Decarbonization, and Infrastructure; and (4) Tax and Anti-Corruption. The IPEF is designed to be flexible, meaning that IPEF partners are not required to join all four pillars.” Neither India nor China participated.
Then, in November 2023, Biden abandoned the IPEF trade pillar. And now incoming president Trump plans to raise tariffs not only on Chinese products but across the board.
Former US Trade Representative Robert Lighthizer, who served in the first Trump administration and may serve in the second, explained the bipartisan US turn to protectionism in an essay published by the Financial Times on November 1:
“In the past three decades we have lost millions of jobs, many of them high-paying manufacturing ones. We have seen median wages stagnate…. Communities across America have been destroyed… We have run up giant trade deficits every year for decades. This transfers trillions of dollars of our wealth overseas in return for current consumption… We are also losing the future innovation that goes with manufacturing.”
After drawing a distinction between countries that practice free trade and those “adopting industrial policies that are designed not to raise their standard of living but to increase exports…,” Lighthizer concludes that “Countries that run consistently large surpluses are the protectionists in the global economy. Others, like the US, that run perennial huge trade deficits are the victims.”
Never mind that industrial policy has been key to economic development and rising standards of living in Germany, Japan, South Korea, China and other countries, and that for a long time US corporate profits, stock prices and economic growth were boosted by outsourcing to low-cost foreign suppliers.
Furthermore, for much of its history, the US itself prospered and built its own industrial base behind a wall of tariffs as high as 40%. And unlike quotas and sanctions, tariffs are a market-based instrument that simply change price incentives. In any case, Trump has made up his mind and other countries must adapt.
India has the world’s fifth-largest national economy in US dollar terms, ranking between Japan and the UK, but the third-largest in purchasing power parity terms, behind only China and the US. And it is outgrowing all of them with GDP forecast to rise by 6.9% this year, according to the The Economist Intelligence Unit.
With more than four times the population of the US, India might eventually replace it as a source of demand if participation in regional trade agreements gave its own companies comparable access to new markets.
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India should first fix up its poor infrastructure before talking about being a manufacturing or industrial giant. Learn from Japan and China.
it’s best if its USD-free
The same concern China had before joining WTO – that opening up would wipe out local businesses and industries. Look at what happened since. India should have joined RECP then, and its not too late to join now.