China-India Brief #144

Guest Column

India’s RCEP Conundrum

By Byron Chong    

Photo from Prime Minister's Office of India

During a panel discussion in Singapore on September 9, Indian External Affairs Minister S. Jaishankar accused China of pursuing “protectionist policies” and ‘unfairly’ restricting market access for Indian goods. This had contributed to India’s “enormous” trade deficit vis-à-vis China, which had grown to $57 billion. The minister’s latest remarks come amidst ongoing negotiations for the Regional Comprehensive Economic Partnership (RCEP) and have cast doubt over whether a deal can be reached by the November deadline.

Consisting of 16 members, RCEP includes the 10 Association of Southeast Asian Nations (ASEAN) members, as well as Australia, China, India, Japan, New Zealand and South Korea. The deal aims to cut tariffs on over 90% of goods traded, and when completed, will account for 40% of global trade and a third of the global gross domestic product (GDP). Despite being touted as a potential “game-changer” for the region, RCEP members have been unable to resolve their differences on major issues, leading to repeatedly missed deadlines. In fact, back when negotiations first began in 2012, talks were expected to conclude by 2015. With 16 members involved, each jostling to secure their own interests and priorities, a prolonged negotiation process was almost inevitable. However, among the various RCEP members, India has come to be widely regarded as the major “stumbling block” in negotiations.

India’s hesitation over RCEP has much to do with the issue of reduced tariffs. India currently has a trade deficit with 11 RCEP members and there are fears that implementing the trade deal will cause this difference to widen. Central to this issue is the presence of China within the grouping. India already imports a huge amount of goods from its giant neighbour, and there are concerns that reduced tariffs would lead to a flood of Chinese goods into the country. This would be especially significant now given that China is seeking to compensate for the export loss to the United States (US). Some, like trade economist Nilanjan Ghosh, have warned that local industries could lose market share and be ‘wiped out’ in the long run. This would also put at risk Prime Minister Modi’s ongoing ‘Make in India’ campaign to reinvigorate India’s domestic manufacturing sector. Unsurprisingly, there has been pushback against tariff cuts from various Indian sectors including electronics, metals, dairy, chemicals, and textiles. 

Moreover, Jaishankar’s statement also reveals another of New Delhi’s suspicions – that Beijing is unfairly restricting market access for Indian products. As the minister noted during an interview, “we have a very big pharma industry, we have a big IT business. They are globally successful … (but) we have very little business in China.” The US-China trade war he noted “may not be such a bad thing” if it leads to fairer market access. Thus, India’s fear is that RCEP may create a lose-lose situation for itself, opening the floodgates for Chinese goods to potentially dominate the local market, while not assuring Indian companies fair access to Chinese markets.

Another of India’s sticking points is ensuring that RCEP will allow free movement of its professionals seeking employment in other countries. This would allow the country to capitalise on its traditional strength in the service sectors, particularly information technology. Southeast Asia countries, however, have resisted the move, fearing that Indian workers would compete for jobs with locals. This should have come as no surprise to New Delhi, given the problems it faced with concluding the India-ASEAN trade agreement on services and investment. Signed back in 2014, the deal is still pending rectification by Cambodia and Indonesia and yet to be implemented. By contrast, a similar India-ASEAN trade agreement for goods signed in 2009 was swiftly implemented by 2010. 

While India has genuine concerns over RCEP, it must also seriously consider its potential benefits. Amidst rising protectionism and unilateralism in global trade, RCEP would provide a measure of security against trade headwinds. The US, once seen as India’s reliable economic and strategic partner, is increasingly the source of its problems. Both sides have found themselves at odds over trade issues, the issuance of H1B visas, and New Delhi’s close ties with Iran. In June this year, the Trump administration withdrew India’s preferential trade treatment, forcing New Delhi to retaliate with tariffs. 

RCEP could also have a positive impact on India’s trade with China. In three areas impacted by tariffs in the US-China trade war – live animals and animal products, vegetable products, and plastic and rubber – Indian exports to China jumped an astonishing 335%, 134% and 93.7% respectively in 2018-19 compared to the previous year. Such figures demonstrate the huge potential for growth in bilateral trade that could be tapped with lower duties. In fact, the Indian government has been criticised for not moving swiftly enough to capitalise on the trade war and is only belatedly beginning to woo companies in disrupted sectors like electronics, automobiles, pharmaceuticals and telecoms. Implementing RCEP would certainly increase the appeal of India as a destination for international investment.

Regardless, India’s insistence on its position has clearly frustrated many of the other members. China at one point even mooted the idea of leaving India out of negotiations as a way to break the impasse, though this was quickly rejected by the other members. Their worry must have been that RCEP would go the same way as the now defunct Trans-Pacific Partnership (TPP). In 2017, the US had withdrawn from the TPP, driven by concerns over the potential loss of American jobs. Though the remaining members eventually signed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the loss of the world’s largest economy meant that the new deal was only a pale shadow of the original TPP. Regardless of the problems it posed, the other RCEP leaders certainly did not want to risk India and its $2.6 trillion economy walking away from the agreement.

The possibility of this happening must have seemed very real in recent weeks. While RCEP negotiations were still going on, India initiated a review of its existing trade agreements with ASEAN, Japan and South Korea. This, coupled with the fact that it was also separately negotiating free trade agreements with Australia and New Zealand, meant that India was seeking better bilateral trade deals with practically every RCEP member except China. If these deals went through, India would be able to reasonably achieve most of its economic goals without RCEP.

Yet, New Delhi’s push for improved bilateral deals was likely a negotiating tactic to make the other RCEP members more amenable to its demands. In the clearest indication that it was prepared to sign the agreement, India recently announced a comprehensive package designed to boost the competitiveness of its exporters. In addition, New Delhi is preparing a list of products that will retain import duties for China when RCEP is implemented and has also proposed that the agreement should have an “auto trigger” mechanism that would give members the option to raise duties if there was a sudden surge in imports of particular items from a partner country. Clearly, while India seems intent on finally closing the agreement, its priority remains on protecting its domestic industries.

While the response of the other members has not been reported, it would be unlikely that they would accept (or reject) India’s demands outright. Rather, there would be a series of negotiations and counter-proposals before a deal that satisfies all parties can be finally agreed upon. While this process would undoubtedly take time, pushing back the deadline once more seems like an option no one is eager to take. After all, every passing year makes it increasingly difficult to match table negotiations with new realities as economic circumstances change and election cycles bring in fresh governments. What is important is that members take full advantage of the current momentum to finally see the deal to its long-awaited conclusion.

Byron Chong is a Research Assistant at the Centre on Asia and Globalisation (CAG). He holds a Masters in Strategic Studies from the S. Rajaratnam School of International Studies. His research interests include China-India relations and international security. 

The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.

News Reports

Bilateral relations

India to deploy latest American weapon systems for Ex-HimVijay along China border
The Economic Times, September 13

Indian Armed Forces are planning to deploy their latest American weapons systems including M777 ultra-light howitzers and Chinook heavy-lift helicopters in the war games to be carried out in Arunachal Pradesh, close to borders with China.

Tension at India-China border as troops engage in scuffle
Livemint, September 12

According to reports, the face-off began when Chinese soldiers objected to Indian troops patrolling the Pangong Tso in Ladakh. Two-third of Pangong Lake is controlled by China and the remaining by India.

China, India vow to deepen cooperation at 6th strategic economic dialogue held in India
Xinhua, September 11

The Sixth China-India Strategic Economic Dialogue and the China-India Economic Cooperation Forum were held here on Monday, with both sides exchanging views on macroeconomic policies and reaching consensus in pragmatic cooperation.

Indian Army, Air Force to carry out joint war games in Arunachal Pradesh along China border in October
India Today, September 11

Indian Army and Indian Air Force will carry out joint war games in Arunachal Pradesh along China border in October. Movement of troops have already started in this direction and more than 5,000 highly specialised troops in mountain warfare along with over 50 transport aircraft and helicopters will take part in the war drills.

China Says in Talks with India to Finalise Foreign Minister Wang's Visit for Border talks
News 18, September 4

China on Wednesday said it is in talks with India to finalise the dates for the visit of Foreign Minister Wang Yi to New Delhi for the next round of Special Representatives (SR) talks on the boundary question.

News Reports

China and India in the Region

India rejects China-Pakistan joint statement on Kashmir
Livemint, September 10

India's Ministry of External Affairs (MEA) on Tuesday rejected the reference to Jammu and Kashmir in the joint statement issued by China and Pakistan in which China has reaffirmed its support to Pakistan on the issue.

Australian government reportedly advised India to ban Huawei from 5G network
South China Morning Post, September 10

Australian government officials advised India to ban Chinese technology maker Huawei from supplying parts for a roll-out of a high-speed telecommunications network, Australian newspapers reported on Tuesday. 

India and Nepal open South Asia’s first cross-border oil pipeline
Reuters, September 10

India and Nepal officially opened South Asia’s first cross-border oil pipeline on Tuesday, a project seen as part of New Delhi’s efforts to increase its influence in the Himalayan nation where China is also making deep inroads.

Russia's Putin: need wider G7-style group, with China, India, Turkey
Reuters, September 5

Russian President Vladimir Putin said on Thursday that Russia was ready to host a meeting of the G7/G8 group of nations, and would welcome a wider format featuring Turkey, India and China.

France, Germany & UK joins India on safeguarding Freedom of Navigation in South China Sea
The Economic Times, August 30

France, UK and Germany have expressed concern over prevailing South China China Sea situation a day after India called for safeguarding Freedom of Navigation in the region where China has upped the ante by entering into Vietnam’s EEZ over a month ago.

News Reports

Trade and Economy

RCEP deal may have pushed government to announce exports package
Livemint, September 16

The impending conclusion of negotiations for the contentious Regional Comprehensive Economic Partnership (RCEP) trade deal may have forced the Indian government to announce a comprehensive package for exporters—akin to a mini foreign trade policy—to boost their competitiveness. 

RCEP: India prepares final list of products to counter Chinese imports
Business Standard, September 14

Aware of its massive trade deficit, India is preparing a final list of products on which it may retain import tariffs for China in the proposed Regional Comprehensive Economic Partnership (RCEP) agreement, said official sources. 

India criticises Chinese trade policies, casting doubt over RCEP free trade deal
South China Morning Post, September 9

The foreign minister said ‘unfair’ market access has created a significant trade deficit between the two nations. He said New Delhi’s involvement in the world’s biggest trade deal would hinge on a mutually equitable arrangement. 

India yet to capitalize as US funds, firms flee China
Livemint, September 2

India is yet to take advantage of the ongoing flight of American capital and companies from China, analysts said, as US President Donald Trump escalated the trade war with China on Sunday with 15% tariffs on more than $125 billion of Chinese goods.

News Reports

Energy and Environment

India, China to cooperate in R&D for developing new tech for manufacturing solar cell
The Economic Times, September 10

India and China have agreed on cooperation in R&D for developing new technology for manufacturing solar cell from alternate material and improvement of efficiency of solar cells, Niti Aayog said on Monday (September 9). 

India set to ban single-use and disposable plastics
Nikkei Asian Review, September 9

India, which has some of the world's most polluted cities, is moving toward enforcing a nationwide ban on single-use and disposable plastic products, including lightweight plastic bags and coffee cups.

India eyes US oil that China’s offering amid tariffs
The Economic Times, September 6

An Indian state-owned refiner is mulling the purchase of American oil from Chinese sellers offering cargoes that would be hit by new tariffs on U.S. supplies.

Climate change: India pitches for financial support by developed nations
India Today, September 1

Union Minister for Environment, Forest and Climate Change Prakash Javadekar said India, under the leadership of Prime Minister Narendra Modi, was taking decisive steps in achieving Nationally Determined Contributions (NDCs), which is the heart of the 2015 Paris pact.

Analyses

India’s South China Sea policy has not changed. Now, as before, there’s no appetite to challenge China
South China Morning Post, September 13

By Abhijit Singh, Senior Fellow, Observer Research Foundation in New Delhi

India’s back-to-back moves to boost relations with Japan and Russia, particularly in security matters, appear to indicate it wants a bigger naval role in the contested South China Sea to counter a rising China. The reality is far different.

Communication key to China-India trust
Global Times, September 10

By Long Xingchun, Director, Center for Indian Studies at China West Normal University; and Research Fellow, Charhar Institute.

Mutual trust between China and India can not only promote cooperation between the two countries, but also avoid the dilemma of neighboring countries sandwiched between China and India, which is conducive to the harmonious development of regional international relations, and will create better conditions for China-India cooperation in global affairs.

The many myths of Kashmir and the subversive role of Pakistan
Livemint, September 9

By Brahma Chellaney, Professor of Strategic Studies, Centre for Policy Research; and Fellow, Robert Bosch Academy in Berlin

The Indian government’s recent decision to revoke Kashmir’s special semi-autonomous status has raised fears of yet another conflict with Pakistan over the disputed territory. But in order to understand the implications of the events unfolding in Kashmir—a heavily militarized geopolitical tinderbox situated at the crossroads of central Asia—it is essential to dispel the many myths and misunderstandings surrounding it.

India Is Changing The Game For China And Pakistan In Kashmir
Forbes, September 12

By Panos Mourdoukoutas, Professor and Chair of the Department of Economics, LIU Post, New York

The US-China trade war has provided Indian Prime Minister Modi with an opportunity he couldn’t refuse: to change the game in Kashmir for China and Pakistan.

Steaming back into the Indo-Pacific
The Hindu, September 5

By Zorawar Daulet Singh, Fellow, Centre for Policy Research

In substance and without ruffling Beijing’s feathers, Russia is already shaping the geopolitics of the Indo-Pacific. It has managed the rare feat of deep cooperation with rival parties in the South China Sea disputes

Books and Journals

The Geopolitics of Connectivity, Cooperation, and Hegemonic Competition: The Belt and Road Initiative

Geoforum 99 (2019): 95-101.

By Colin Flint, Professor at the Utah State University; and Zhu Cuiping, Professor and Deputy Director of the Research Institute for Indian Ocean Economies (RIIO).

China's Belt and Road Initiative (BRI) has been interpreted as a strategy of economic development using new infrastructure projects to intensify regional and global trade relations. It has also been interpreted as a means for China to increase its influence in East and Southeast Asia, with implications for geopolitical competition with the United States. Using a political economy approach that identifies territorial and economic logics of power as integrated in a single logic, we argue that the economic and political processes and goals of the BRI are inseparable. We build upon the strategic coupling and Global Production Networks literature to show that the territorial arrangements of GPNs have local, regional, and global implications. We conclude that the BRI is not either an economic or political project, but one that transforms politics at multiple scales and has the potential to be transformative and will simultaneously create possibilities for global cooperation and conflict.