OPINION: India’s Abandonment of RCEP Deal Reflects Flaws in its Protectionist Roots

Indian Prime Minister Narendra Modi withdrew India from RCEP talks at the 35th ASEAN Summit. (Kremlin)

The 35th ASEAN Summit closed in an unprecedented manner when Indian Prime Minister Narendra Modi removed the country from the Regional Comprehensive Economic Partnership (RCEP) negotiations on November 4.

A free trade deal of this size has long been coveted. Launched in 2012 to replace the East Asia Comprehensive Economic Partnership negotiations, RCEP is on course to become the world’s largest free trade agreement, covering one-third of global GDP and almost half of the world’s population.

Eurasia Group analysts note that RCEP has lighter regulatory requirements for services and market access in comparison to the U.S.-led Trans-Pacific Partnership (TPP), initiated in 2015 (and left by President Donald Trump in early 2017). This has led other critics to see RCEP as China’s opportunity to increase economic influence over Asian countries.

The U.S. withdrawal from the TPP and the ongoing China-U.S. trade war have accelerated negotiations, but progress has been sluggish since 2013 due to India’s concerns. India has trade deficits with other RCEP stakeholders and has the highest average applied tariff rate for most favored nations. Obliged by RCEP to get rid of over 90 percent of its existing tariffs, India wants an extension to the tariff-reduction time frame, especially toward China.

Most importantly, India is afraid of potential dumping of imported produce in its agricultural sector. Farmers have formed a strong domestic opposition, holding multiple protests leading up to the ASEAN summit.

Modi’s decision to suspend negotiations is not unreasonable given the political logic, and in terms of its readiness to open up vis-a-vis China. India will ultimately have to get rid of its tariff regime, but its present reluctance reflects the fact that its economic reform has been too slow for this opportunity-of-the-century. The suspension is not a withdrawal. However, it will put India behind in trade negotiation, a gap that China
is eager to fill.