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India must secure its interests in dealing with ASEAN and RCEP

Mired in a serious industrial downturn, India has done well to secure a review of its bilateral trade pact with the 10-member ASEAN, which came into force from January 2010. As the Economic Survey 2015-16 observes, the average effect of a free trade pact is to increase overall trade by 50 per cent in four years. However, some of the beneficial effects of this rise in economic activity are negated if the trade imbalance too increases sharply. As a NITI Aayog report points out, India’s trade deficit with ASEAN doubled from $5 billion in 2011 to $10 billion in 2017, whereas its overall trade rose over the same period from $50 billion to $70 billion. In the case of ASEAN, India eliminated tariffs on about 75 per cent of 12,000 tariff lines, excluding 1,300 tariff lines and keeping 1,800 in sensitive track. The NITI Aayog paper comes to the conclusion that as a result of this move, trade balance worsened in 13 out of 21 sectors, which include chemicals, plastics, minerals, leather, textiles, gems and jewellery, whereas it improved in sectors such as animal products, wood, paper, cement, vegetable fat and arms and ammunitions. The report attributes this trade imbalance to procedural issues in ASEAN countries, lax implementation of rules of origin (as a result of which Chinese goods were freely routed through third countries) and India’s exports being more responsive to income than price (or tariff) changes.

When India goes back to the table with ASEAN, it must be clear about what it needs to give and take. India has a large market to offer, and it must drive a better bargain that it has done so far in forums such as RCEP (ASEAN plus six, including China). It should push for services access, plug loopholes in rules of origin, and not give in to unreasonable demands to pare sensitive sectors.

As for RCEP talks, there has been growing unease over ever-rising imports from China. Out of a bilateral trade volume of about $95 billion, India’s trade deficit with China is $58 billion and growing. Faced with downturn issues and overcapacity as a result of US tariffs, China is more keen than ever to step up its exports into India, even as sections of Indian industry have expressed dismay over the prospect. The Centre needs to take stakeholders into confidence rather than shy away from RCEP talks one day, and later issue statements to the effect that the Chinese impact is being exaggerated. It is still possible to enter the RCEP grouping without compromising its domestic interests. It could try to convert a relationship of trade into one of investment by integrating into global value chains. Steps to draw FDI in employment-generating areas must be given priority. An exclusive focus on trade in these protectionist times might not yield much.

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