India's reluctance risks diluting regional trade pact

Delhi worried about Chinese imports flooding market, and mobility of its IT services workers

NEW DELHI • India's foot dragging on a China-championed Asia trade pact has increased the risk of the deal getting diluted or delayed.

A fear of being flooded by Chinese imports and an insistence on global mobility for its information technology services workers are behind India's reluctance to move forward.

While Asia's third-largest economy may eventually sign on to the Regional Comprehensive Economic Partnership (RCEP), analysts say the end product with India on board could be so vague it has little benefit.

"I just don't see an appetite in India for trade," said Mr Richard Rossow, the Wadhwani Chair in US-India policy studies at the Centre for Strategic and International Studies in Washington. "If they can water it down to have something almost meaningless, they would sign it. But if other people hold their ground, I don't see them signing it."

With President Donald Trump withdrawing the United States from a separate 12-nation deal known as the Trans-Pacific Partnership (TPP), attention has turned to the RCEP, which involves 16 Asian nations accounting for 3.5 billion people and US$22.5 trillion (S$31.4 trillion) in gross domestic product. 

While the TPP would have a broader and deeper pact, in theory, the RCEP could boost growth, especially among the disparate economies of Asia.

NOT KEEN ON TRADE PACT

I just don't see an appetite in India for trade... If they can water it down to have something almost meaningless, they would sign it. But if other people hold their ground, I don't see them signing it.

MR RICHARD ROSSOW, the Wadhwani Chair in US-India policy studies at the Centre for Strategic and International Studies in Washington.

The next round of talks on the RCEP is scheduled to be held in the Philippines next month, after which negotiations move to India.

Commerce Minister Nirmala Sitharaman has said India is committed to the RCEP, as has the country's foreign ministry. But there is quiet grumbling over India's stance. One senior negotiator involved in the talks said tensions between China and India, which lack a bilateral free trade agreement, are a big sticking point.

There are also disputes between India and South-east Asian nations, which are reluctant to entertain migration provisions for service sector workers.

India has been hesitant to expose its domestic manufacturers to competition from China, which runs a US$52 billion surplus with India.

New Delhi also has trade deficits with RCEP members such as Japan, Indonesia, South Korea, Australia and Malaysia.

During the most recent RCEP talks in Japan, India proposed a formula where it would offer deeper tariff cuts on goods to nations other than China, with maximum concessions being given to Asean members.

However, this was opposed by other countries, according to officials in India's commerce ministry who asked not to be identified, citing the private nature of the talks.

Malaysian Prime Minister Najib Razak, while on a state visit to India, said last Saturday that he hoped to conclude the RCEP soon with India's help. Indian Prime Minister Narendra Modi, who was speaking alongside him at a briefing, did not mention the trade deal.

India has a mixed record on trade deals. It has signed agreements with Asean members but these "haven't really made much difference" to trade flows, said Dr Razeen Sally, associate professor at the National University of Singapore. 

Meanwhile, a deal with the European Union has "languished for about a decade," Dr Sally said. Bilateral talks with countries such as Canada, Australia and New Zealand are "decelerating" under Mr Modi, according to Mr Rossow, who wrote recently that "these partners have questioned India's desire to complete forward-leaning trade deals".

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 04, 2017, with the headline 'India's reluctance risks diluting regional trade pact'. Print Edition | Subscribe