Trade War To Give New Lease Of Life To RCEP: India’s Withdrawal Doesn’t Make Sense – Analysis


Amidst media buzz with India withdrawing from RCEP ( Regional Comprehensive Economic Partnership), eyebrows are raised over the timing of withdrawal and its impact on India. It is irony that while RCEP – the largest trade block comprising of 16 nations – received a new lease of life after the global trade war heated up, India is contemplating to pull out from the block. Needless to say, RCEP went morose after missing two target dates of launching.

Interestingly, China is hurrying to conclude the RCEP after the trade war heated up. China tried to gobble up the supports of other members of RCEP , particularly ASEAN countries, to make it day at the end of 2018. India , on the other hand , continues to oppose the launching and has become an important barrier to it. India is reluctant to reduce duty on 90 percent tariff lines. It also unleashed its unhappiness over sideling the market accessibility for service trade, such as IT services and movement of skilled people, where India holds a strength. The major fear for India in reducing the tariff is import from China. India is already reeling under huge trade deficit with China.

Against this backdrop, a special committee has been set up in the country to gauge the benefits and loss of RCEP in the wake of withdrawing from RCEP.

RCEP is significant to India, both from the angles of geostrategic and geo-economy. RCEP is the biggest stakeholder in India’s global trade and economy. It accounts for 20 percent of India’s export and 35 percent of world economy. Today, Indian economy is globally integrated. It looks forward for GVC ( Global Value Chain) operation as an important tool for Make in India initiative through Act East policy. RCEP is a vibrant platform to propel up the Make in India initiative.

India’s interests in RCEP tapered when concerns were heightened over China’s assertion for aggressive exports to India with Trumps triggering trade war. India is the biggest market in RCEP. Paranoid surges for further deepening of trade deficit with China. This led to a point where India was besieged by a re-thought whether it should continue within RCEP.

Nevertheless, there is another face of the trade block which will prove propitious to be within it, even after the trade war intensifies. China fear is portended to be subdued by the trade war and it will give a leeway to India to expand its exports to China. Big scope will emerge for India’s exports of agricultural and animal husbandry products to China , which will offset the wide trade deficit between the two countries, , according to some pockets of think tanks.

USA is the main exporter of agricultural products to China. With the imposition of high tariff on USA’s agricultural products by China as a retaliatory measure, India’s market accessibility of agricultural products in China will surge. For instance, China is the biggest importer of soybean in the world and USA is the biggest export of it to China. Given the USA exports shrinking due to high tariff by China, new space will be created for India’s export to China, owing to duty reduction under RCEP. India is the fourth biggest exporter of soybean meal in the world.

A trade war will augur well for India’s exports of animal husbandry meat to China. China is the second biggest importer of chicken broiler meat in the world and USA is one of the biggest exporters of it to China. With the demand for USA chicken broiler meat receding due to high tariff, a new space will be generated for India’s exports of this item in China.

India and USA lock horns over India’s export subsidies, since they WTO non-compliant . This is because India’s per capita income has exceeded US $ 1000 per annum. Amidst the ongoing trade war, it will accrue a benefit to India by diversifying its exports to China along with export subsidies under RCEP.

The Chinese currency yuan is surging in value under US pressure. Yuan appreciated by 22-25 percent over the past three to four years. This let China loose the paradise of low cost manufacturing in the world. To this end, it will be a boon for India to attract Chinese investment in the country. India offers one of the world’s biggest market, with its sustainable growth trajectory and a large endurable young people.

China is already on the investment binge in India. It has become the driving force for the start-ups in India and a trigger for the growth of electronic manufacturing industry in India.

China can play a significant role in infrastructure investment in India. Last year, China’s Sany Heavy Industry planned an investment of US $ 9.8 billion in India , while Pacific Construction, China Fortune Land Development and Dalian Wanda planned Investments of more than US $ 5 billion each.

The cross-border e-commerce would be an eye-catching fief for joint cooperation between the two countries. India has become the fastest market in e-commerce, with about 100 million internets adding every year. According to a report by Tracxn, a start-up research company in India, a whopping US $ 5.2 billion was invested by Chinese internet companies in 2017, like Alibaba, Fosun, Baidu and Tencent. This showed a five-fold jump from US $930 million investment in India in 2016.
RCEP can be a template for India to move forward its Act Asia policy. It can be integrated into “regional production networks”, or say, GVC operation in manufacturing. With low labour cost in the country and duty preferences in RCEP, India can provide a base for value chain supply of cheap component and parts to the assembled units in the trade block. Automobile and electronic industries are the areas , where India can gain prominence with the advantage of duty preferences and low labour cost.

Given these benefits for being within RCEP, it is nonsensical to withdraw from RCEP and be isolated from large trade blocks.

Views expressed are personal

Subrata Majumder

Subrata Majumder is a former adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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