“India-China trade deal could be a stepping stone”

Prof Manoj Pant, Director, IIFT, asserts that RCEP did not provide any immediate gains to Indian manufacturers, but India must explore RTAs, as they will allow gradual adjustment to competitive forces in a multilateral set up.

IBT: How do you view the recent development on RCEP, where 15 countries have concluded negotiations on all the 20 chapters? How does India’s opting out affect the larger objectives of the RCEP?

Prof Manoj Pant: India’s opting out of RCEP was expected. The larger objective of the RCEP was meant to be China’s response (economic and political) to the Trans-Pacific Partnership (TPP), which the USA has now opted out of. However, India does not share Chinese political estrangement with US, which is reflected in the ongoing US-China trade war. It is my belief that once the trade war ends (which may be sooner than expected), China may lose interest in RCEP. At the same time, India has had political differences with China in the sub-continent and also on issues in the South China seas. Hence, there is no strategic objective for India being part of the RCEP at this point. For the RCEP countries minus India, the standard trade pattern has been exports of intermediates/inputs to China, which are then assembled for export of final product to the markets of the EU and USA. This trade is large and will continue, so that RCEP minus India merely re-states the current trade pattern in these countries.

IBT: India has not signed on the RCEP due to certain concerns like rising imports from China, protection of domestic industry and mobility for services professionals. Are these concerns addressable? If so, what is the possible roadmap for satisfactory redressal of these concerns in your opinion?

Prof Manoj Pant: It is very clear that India’s manufacturing sector has been protected from external competition, even from producers in South and South-East Asia. It is not surprising that 80% of India’s trade deficit is with ASEAN and China. This is mainly because India’s average manufacturing tariffs are high comparing to these countries and any agreement to reduce the traffic will give a greater price advantage to exporters from the RCEP countries. India’s bargaining power and advantage at the moment seems to lie in services. India is now a major player and accounts for about 3.5% of world exports of commercial services. Including a crucial chapter on services, which sets out a clear road-map for sectors and finalization of Mutual Recognition in Agreements (MRAs) would be a useful way of bringing India on board the RCEP. A start needs to be made.

IBT: Given India’s unique economic trajectory and business ecosystem, what is your view on how the RCEP would benefit India, despite these concerns?

Prof Manoj Pant: The general benefit of any RTA for India is to slowly reduce tariffs and inducing its industrial sectors to become more competitive. However, any trade agreement has gainers, losers and commodity centered agreements like RCEP do not indicate any immediate gains to Indian manufacturers.

IBT: What is the blueprint for India in global trade agreements if it indeed stays out of RCEP? Should India negotiate its trade issues bilaterally now like US?

Prof Manoj Pant: It is important for India to continue to engage in Regional Trade Arrangements (RTAS) given that the multilateral WTO route has been more or less blocked for the last two decades. RTAs also allow India to gradually open up its economy in terms of market access. On the other hand, bilateral trade agreements are extremely dangerous as they leave little scope for bargaining. One principle of RTAs is to negotiate with an important trade partner and here the US does fit the bill. However, the strength of the US economy in terms of negotiating muscle can make a US-India trade agreement extremely difficult to implement, given that the USA is unlikely to accept any of India’s concerns on service trade and, in particular, on Mode 4-related issues.

IBT: As it has moved out of RCEP, which key trade agreements should India pursue aggressively in the current context in your view for enhancing its external trade, and why?

Prof Manoj Pant: It is my view that India should be looking seriously at trade agreements with the EU, UK, countries of Africa and the Middle East. These are India’s major trade partners. I do believe that a seriously negotiated India-China bilateral would be a good stepping stone to a possible future entry of India into the RCEP.

IBT: There is a general consensus that the window is fast closing for Indian industry to boost its competitiveness if it stays out of any major trading blocs? What is your view on this and how can this be addressed?

Prof Manoj Pant: There is no doubt that the Indian manufacturing and agricultural sectors are still uncompetitive as average tariffs are still quite high compared to even other developing countries. It is important to get India into RTAs as this allows gradual adjustment to competitive forces in a multilateral fora, where extreme competition sets in from day one. The RTA prepares India for a future multilateral setting.