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Abu Dhabi, UAETuesday 18 September 2018

India will help build the world's largest trade bloc with Asean

Asia's third-biggest economy said it would “exert efforts” so that the Regional Comprehensive Economic Partnership can be signed as planned in November

Prime Minister Narendra Modi assured ASEAN leaders that India would “exert efforts” so that the Regional Comprehensive Economic Partnership can be signed as planned in November. HARISH TYAGI/EPA
Prime Minister Narendra Modi assured ASEAN leaders that India would “exert efforts” so that the Regional Comprehensive Economic Partnership can be signed as planned in November. HARISH TYAGI/EPA

India, Asia's third-biggest economy, has promised the leaders of 10 south-east Asian nations that it will help in the creation of the world’s largest free-trade bloc by the end of this year.

Prime Minister Narendra Modi assured the leaders of the Association of Southeast Asian Nations on Friday, at the end of a two-day summit in New Delhi, that India would “exert efforts” so that the Regional Comprehensive Economic Partnership (RCEP) can be signed as planned in November.

Negotiations to create the RCEP began in November 2012, during an Asean summit in Cambodia. The proposed trade zone will include the 10 Asean countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) as well as six other nations—India, China, Japan, South Korea, Australia and New Zealand.

The RCEP has been viewed as an alternative to the Trans-Pacific Partnership, a trade agreement that had been spearheaded by the US under President Barack Obama’s administration. The TPP included some of the countries that fall into the proposed RCEP—Australia, New Zealand, Singapore, Vietnam, Brunei, Japan and Malaysia – India, China, Japan, South Korea, Australia and New Zealand.

If it comes into being, the RCEP will sprawl over a zone that is home to around 3.4 billion people. The combined GDP of the countries involved totals $22 trillion and their exports constitute nearly a quarter of global trade.

The agreement will be “modern, comprehensive, high quality and mutually beneficial” for every signatory country, the summit’s joint declaration, issued on Friday evening, said.

Preeti Saran, a spokesperson for India’s ministry of external affairs, told reporters that progress on the RCEP was “a repeated refrain” during the Asean summit. Mr Modi, who had freshly returned from the World Economic Forum in Davos, where he urged countries to take down trade barriers, “also expressed our desire to make the RCEP move forward,” Ms Saran said.

Last year, the US withdrew from the TPP, resulting in forced renegotiations among the remaining countries, to draw up and sign a new agreement.

India has so far resisted pressures to dismantle tariff barriers on several agricultural and industrial products during RCEP negotiations, claiming it needs to protect these sectors and the people working in them.

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The Asean countries collectively want a removal of customs duties on at least 90 per cent of all traded commodities; some members, such as Australia, have pressed for an even higher proportion of duties to be eliminated.

India fears that removing these barriers will permit its domestic market to be flooded by cheap goods imported from China. India’s trade deficit with China stood at roughly $51 billion in the 2016-17 fiscal year that ended in March.

“The risk for Modi is that agriculture and manufacturing are politically sensitive industries,” James Crabtree, an associate professor at the Lee Kuan Yew School of Public Policy in Singapore, told The National.

. “India is at a disadvantage compared to other RCEP nations, which have big manufacturing or agricultural export sectors. So it isn’t surprising that India is worried its own sectors will get swamped by imports.”

Lee Hsien Loong, the prime minister of Singapore and the current chairman of Asean, said India and other countries will have to surmount these considerations to avail the larger benefits the RCEP promises.

“You have to work through domestic interest, you have to work through your trade bureaucracies and your ministries and your other agencies,” Mr Lee said.

India has also pushed for the agreement to include liberalised trade in services, which will enable educated Indian professionals to work more freely in other RCEP countries. The service sector contributes nearly two-thirds of India’s GDP of $2.27tn, Suresh Prabhu, India’s commerce minister, pointed out during the Delhi summit.

This demand has received lukewarm reception, but India is not likely to abandon it, Mr Crabtree said.

“India learnt its lesson from the earlier free-trade deal with Asean, in which they did goods first and never got anything on services after that,” he said. “So now it’s holding out for services, because the last time it got a bum deal.”

But Mr Modi’s power to negotiate will be limited by the potential costs of not joining RCEP, Mr Crabtree said.

“The geopolitics of this is that Asean and China could just go ahead without India,” he said. “That’s a threat. That would be quite bad for India. So they don’t have any other option. This is the only big mega trade agreement they have in front of them at the moment.”

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