Column: Striking the right trade deal

Written by Amitendu Palit | Updated: Jun 17 2014, 06:15am hrs
Trade is one of the five Ts the Modi government banks on for resurrecting Brand India. The forthcoming national trade policy should reflect the governments priorities in this regard. The priorities should also show up in the ongoing trade negotiations, one of the most important of which is the Regional Comprehensive Economic Partnership (RCEP).

The RCEP is the largest trade deal that India is negotiating with countries of the Asia-Pacific. With more than 3 billion people, a third of the world trade, and an aggregate market of more than $20 trillion, the RCEP is a mega deal involving the 10 ASEAN economies and Australia, China, India, Japan, Korea and New Zealand. The negotiations have finished four rounds and would be entering their fifth round in Singapore during June 23-27. The negotiations are expected to conclude by the end of 2015.

India has bilateral FTAs with several of the RCEP members, including the ASEAN bloc, Japan and Korea. Within the ASEAN, India has agreements with Singapore, Malaysia and Thailand. None of these existing agreements, however, de-prioritise the RCEP in any way. The simple reason being RCEP, in totality, presents a much larger market than any of the bilateral deals that India has. It includes Australia, New Zealand and, of course, Chinathree major markets in the APEC that India would gain preferential access once the deal concludes.

It is not only market access that matters. The RCEP is significant for India in a couple of other respects. First, the framework is a stepping-stone for India to get a deeper and firmer entry in the economic architecture of the Asia-Pacific. This is the first opportunity that India has to contribute meaningfully to the evolution of new trade and business rules in the Asia-Pacific. The significance of this for Indian producers and businesses eyeing greater presence in the regional supply chains can hardly be overstated.

Second, through the RCEP, India can effectively mount a campaign for becoming a member of the APEC group of economies. Indias retrograde foreign policies and lesser attention towards the Asia-Pacific ensured that it never became a key strategic player in the region. Its presence in the East Asia Summit (EAS) has been largely peripheral. But now it has a chance to redeem.

The RCEP has seven members that are also negotiating the Trans-Pacific Partnership (TPP). These include Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam. Koreas impending entry in the TPP would increase the number of common members to eight. The TPP, led by the US, is probably the most ambitious modern trade deal being negotiated across the world. Once concluded, it would radically change the trade governance framework in the Asia-Pacific. It is likely to expand over time into a trade deal covering the entire Asia-Pacific. All major economies in the region, including China, are either in the TPP, or preparing themselves for joining it in the medium term.

Over time, the possibility of the RCEP getting structurally closer to the TPP on various issues is distinct. Both agreements might end up having almost similar memberships working towards a trade deal for the Asia-Pacific. If India plays ball, then it can be a key player in the process. This will ensure that it does not suffer from the repercussion of the isolationist policy that it followed in the 1960s and 1970s by maintaining distance from the Asia-Pacific countries and losing the chance of becoming a part of Northeast and Southeast Asias export-led growth story. A proactive role at the RCEP would also raise Indias stock among the members and help in cultivating goodwill for its formal entry in the APEC.

There are several issues in the RCEP negotiations that might be challenging for India. Foremost among these is the scope of the negotiations. While not as ambitious as the TPP, the RCEP is discussing several unorthodox trade policy issues. These include intellectual property, competition policy, investment and trade in services. On most of these issues, India is likely to encounter demands from the other members for removing existing market access barriers. In many instances, doing so would require changing domestic policies. This is typical of modern trade negotiations.

Border measures like tariffs are no longer the key to determining market access. It is essentially behind the border measures in form of domestic policies that have become the key in trade negotiations as these determine the extent by which foreign producers can (or cannot) get access in member country markets.

Indias negotiations at the RCEP have to shake off the ultra-defensive posture characterising them in various other trade talks. Domestic sensitivities should not hold the countrys growth prospects to ransom by making it defensive on granting market access.

The extent by which countries can gain from trade negotiations is largely a result of the successful trade-offs they can strike. While India is not expected to give up its defensive postures in all areas of negotiations, it must balance these by developing offensive interests demanding greater market access in areas of its own comparative advantage. And these should be much more than the traditional focus on movement of Indian professionals and IT.

The key to clinching the benefits at the RCEP is to focus negotiations on the advantages that Indian producers can exploit in the regional value chains. Basing negotiations on the structures and advantages of the value chains with emphasis on quality standards, customs procedures and rules of origin are important. Apart from securing long-term economic benefits, it would also convey to other members Indias willingness to negotiate constructively, and not being a stumbling block an impression that has unfortunately come to characterise Indias trade posture.

The author is Head (Partnership & Programme) and Senior Research Fellow in the Institute of South Asian Studies in the National University of Singapore. Views are personal