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What does India’s RCEP withdrawal tell us? – Analysis

Eurasia Review - 20 January 2020

What does India’s RCEP withdrawal tell us? – Analysis
By Anbound Malaysia

Whether it is understood as a surprise, shock or something expected, the Indian Prime Minister Modi’s announcement for the country to withdraw from the Regional Comprehensive Economic Partnership (RCEP) has reverberated heavy reporting on this matter. For sure, such development is bound to produce far-reaching repercussions throughout the Asian region, especially after 7 years of arduous negotiations between ASEAN and its six economic partners. But it is more than just the repercussions that many commentaries have been focusing heavily. The wider underlying trends behind India’s RCEP withdrawal are also equally important to begin with.

First and foremost, it is clear that any free trade agreement will inevitably confront the rising tide of public sentiments and even protests, in the following years. From India’s case, domestic opposition against the free trade deal has gathered momentum in the country with farmers from key agriculture states (Uttar Pradesh, Punjab, Telangana, Andhra Pradesh, Kanataka, Tamil Nadu and Haryana) staging numerous protests against the RCEP. Of course, there are other concerns as well, such as access and free flow of data and the potential dumping risk involving the Chinese imports. But as spelled out by Modi himself, he did not receive any affirmative answer from other countries’ leaders on his call to come up with a trade deal that safeguards Indian domestic interests. This, in turn, points to a bigger question of whether the wider political elites within the RCEP circle has recognised such problem beforehand and work toward assuaging any concern by the Indian domestic players.

As of now, the whole RCEP negotiations seemed to be an elitist exercise that has yet to be sufficiently promoted and communicated among the wider local populace of the trade deal’s value. Given the magnitude of repercussions from the mega trade deal, we should anticipate that the current opposition of the RCEP in several Asian countries may gather bigger momentum after the expected conclusion of the trade deal next year. Just last year alone, as much as 80 civil societal organizations, trade unions, peasant organizations, indigenous rights movements and academicians from different countries, have gathered in Bangkok to oppose the RCEP which has been perceived to be lacking transparency and favouring foreign corporations in many areas including access to medicine, labour rights, and control over national resources.

Other individual countries with the likes of Indonesia, Australia and Malaysia, also saw protests and emerging movements by respective civil groups that ty to stop the trade deal. By that, it is utterly simplistic and unrealistic to assume that the RCEP comes without much underlying public sentiments and protests in other participating countries, or that these protests are scattered and incapable of impacting the overall trade deal in the long-term. Given the current ease and widespread access to information as well as the social media-facilitated civil mobilizations across the globe, political elites of the RCEP countries should be consistently mindful of such risk from the grassroot level.

Second, India’s RCEP withdrawal also demands the country to answer the question of how does it plan to engage ASEAN in the near future. As highlighted by notable scholar, Tang Siew Mun, New Delhi’s decision to opt out of RCEP will be seen by ASEAN as a lost opportunity to consolidate its strategic engagement with the Southeast Asian region. By all means, the withdrawal is an unwanted signal from India in consideration of its stand to engage ASEAN via its Act East Policy. In this sense, India has to come up with a new and clearer stand on how it plans to engage ASEAN at a deeper level than before ⸺ since it opted out of the RCEP but pledged to establish the ASEAN-India Free Trade Area (AIFTA) by 2018. The Modi administration has to mend its diminished credibility among ASEAN member countries by addressing the dilemma that comes in between protection of its domestic economy and aspiration to become ASEAN’s important external trade and strategic partner.

Third, the Indo-Pacific concept is going further the downward trend in the ASEAN region. Just like Washington’s departure from the previous Trans-Pacific Partnership (TPP), India’s RCEP withdrawal delivers another blow for the Indo-Pacific concept. Without India, the ‘Indo’ component of the concept will be non-existent in the RCEP unless the Indo-Pacific powers plan to establish another trade bloc outside of the ASEAN’s framework. That also leads to the question if Japan is willing to continue the RCEP’s path without India’s participation and if Australia is mulling similar move in case Tokyo also opts out of the trade bloc. In any way, the Indo-Pacific version that is articulated by the US, Japan, Australia and India, is going further the path of irrelevance for the ASEAN bloc.

Finally, it is equally clear that China’s aim to use the RCEP as one of the regional FTAs which it can hedge against the trade war’s repercussions with the US, is not as straightforward as it thought to be. In fact, the long-standing fear for the dumping of Chinese goods in India, remained to be real among Indian supply-chain players. As revealed by the president of Federation of Indian Chamber of Commerce and Industry (FICCI), Sandip Somany, domestic players from steel, plastics, copper, aluminium, machine tools, paper, automobiles, chemicals and petro-chemicals, have virtually made their voices heard that they do not favour India joining the RCEP due to China’s dumping concern.

Furthermore, the Indian industry groups also see the RCEP as a skewed trade deal that does not give any advantage to the country’s domestic exporters (such as steel and engineering players) to tap on the Chinese market. As much as the RCEP’s potential for the Indian industrial players to be connected into the global value chain, it still largely failed in addressing the distrust among the country’s domestic companies in capitalising the RCEP to enter the Chinese market. By all means, it is time for Beijing to recognise that securing free trade deals is not as straightforward in the past in which they will be decided by the political elites of the participating countries with less concern for the domestic opposition. Not to mention the lingering uncertainty in the global trade system which is making such situation even more prevalent than before.

In all, it is time for all parties to view India’s RCEP withdrawal from the four underlying trends above. As opposed to focusing on the repercussions from such development, such perspective will help businesses to conduct their risk analyses in a more comprehensive way than before. This will certainly be crucial for their business planning and strategies in the wider Asia.

 source: Eurasia Review