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Leaving RCEP was a short-sighted decision, says former Foreign Secretary Shyam Saran

Former Foreign Secretary Shyam Saran. File   | Photo Credit: R. V. Moorthy

The Regional Comprehensive Economic Partnership (RCEP), a trade bloc of 15 countries including the 10 ASEAN members, China, Japan, South Korea, Australia and New Zealand, was signed on November 15 without India, which was part of the long-running negotiations until it withdrew last year. While the agreement leaves the door open for India to join, that appears unlikely for now.

On Monday, External Affairs Minister S. Jaishankar criticised past trade agreements for “deindustrialising” some sectors and not being advantageous to India. In an interview with The Hindu, former Foreign Secretary Shyam Saran says the decision to opt out was “short-sighted” and will have broader strategic implications for India’s interests in the region. Edited excerpts:

The RCEP agreement has left the door open for India to join. Does that prospect seem likely to you?

Well, it is reassuring to see there continues to be a strong sense among RCEP members that it is only India that can provide a degree of a countervailing kind of presence in the arrangement. This is not just a trading arrangement — it has a strategic dimension as well. Keeping the door open for India from that point of view makes eminent sense, especially for countries like Japan and Singapore. It is a positive point that the door is not closed. Having said that, my view has not changed. To my mind, it has been a short-sighted decision not to go along with RCEP. Whatever concerns there may have been, it may have been better to address those within the tent than outside.

 

The second point is we are effectively now on the margins of the regional economy as well as the global economy. Most of global trade now is organised through large trading arrangements, and if you are not part of it, whatever dynamism we can leverage from these trading arrangements, increasing your market share, become all that more problematic. We have been focusing our attention entirely on imports and the Indian market getting flooded by cheaper imports, but we are not looking at the export side of things. What this means is you will be at a disadvantage in accessing markets in a dynamic region if you are on the outside. This also applies to investment. If India is part of RCEP and you are putting production units in India, you get access to a much larger market. Yes we have a very large market, but others may appear to be more attractive alternatives. So even looking primarily in trade and investment terms, there is a downside to this decision.

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There is a strategic dimension as well. I have always felt the economic pillar of any relationship is equally, if not more, important than the security pillar. We tend to focus more on security arrangements which have expanded rapidly and impressively whether with the U.S., the Quad or others. It has not been matched by a similar focus on the economic side. There is an asymmetry in terms of the network of relationships we are trying to establish.

 

It’s been suggested India doesn’t lose out because we already have FTAs with some of RCEP’s members, including ASEAN and Japan. Would you agree?

No. A bilateral arrangement does not take preference over a regional arrangement. It is also being said that one reason we didn’t join RCEP was because those same FTAs were not working for us. Now, trying to rationalise staying out by saying we have FTAs, that is contradictory.

Is it accurate, in your view, to say those FTAs didn’t work for us?

In the last Economic Survey [2019-2020], the chief economic advisor said there had been benefits brought by FTAs; saying it has entirely not been to our advantage does not seem to be completely true. There has been an expansion in trading relations with all our partners. Yes, there has been less in terms of how much we have been able to get, and in some of the work we did, we found we did not make much of an effort to try and use the FTAs to expand our market share. The intention seems to be to protect what we already have, rather than how we leverage this to increase our market share. Whether it was the FTA with Japan or Singapore, we simply did not use all the provisions. For example with Japan, there is a commitment by Japan to assist the Indian pharma industry through the regulatory and registration process, so that Indian pharma products which are competitively priced can have access to the market. That requires industry bodies to take that up and the government to have persuaded them that there is an opportunity here to access the market. This wasn’t used at all.

How much is China a factor in India staying out of RCEP?

My sense is the China factor only reinforced existing sentiments against regional trading arrangements and FTAs. China has certainly been an important factor, but the decision to not go into RCEP [last year] predates the current tensions.

What will be the broader implications for India’s ‘Act East’ strategy?

There is inconsistency of some of our recent moves, with the ‘Act East’ policy. One, not joining RCEP. Two, if you look at the latest East Asia Summit (EAS), only India and the U.S. were not represented at a summit level [India was represented by the External Affairs Minister]. Why was that? In the preceding Foreign Ministers’ meeting, our Minister of State was present, not the External Affairs Minister. And the EAS was something we pushed membership for, having not been able to get into APEC, for giving us a foothold in the region. So why should you do something like this?

What will RCEP mean for China’s regional ambitions?

For China to be part and parcel of RCEP when it is not part of the Trans-Pacific Partnership is a big thing. What it does is it formalises its economic network in this part of the world. Whatever it may have been doing bilaterally, the fact that it is a fully accepted member of this trading arrangement means that China will have to live by the rules and norms that have been agreed upon. In terms of the Belt and Road Initiative (BRI), if you are a part of it and it is a key investment channel, this will make things easier. When people are talking about re-shoring and looking at alternative supply chains, this ensures that will not have much traction. If we are looking at the TPP and a Biden administration in the U.S. perhaps coming back in some way, this becomes all the more important. You will have a symmetric situation, with China being part of one trading arrangement with the U.S. out of it, and the U.S. part of one arrangement with China out of it.

And where would that leave India?

That will leave India out in the cold. There is this assumption that the Indian market is so huge that people have to come to India on our terms. But that, to my mind, is a fairly optimistic assessment.

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Printable version | Nov 26, 2020 2:05:42 AM | https://www.thehindu.com/news/national/leaving-rcep-was-a-short-sighted-decision-says-former-foreign-secretary-shyam-saran/article33118832.ece

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