Limits of free trade

As globalization gains momentum, the leading economies are trying to go beyond bilateral and other con­ventional economic diplomacy arrangements. But in a ‘Region­al Cooperation Framework’, a large economy invariably gets disproportionate benefits from sentimental groupings of unequal participants. Let us evaluate this in the context of India’s refusal to join the much-touted Free Trade Agreement (FTA) experiment: the Regional Comprehensive Eco­nomic Partnership (RCEP). The proposed RCEP comprised the 10 ASEAN countries plus Australia, China, India Japan, New Zealand, and South Korea.

The RCEP, a China-dominat­ed association, got a lukewarm response from India, which acted in its ‘enlightened self-interest’. Narendra Modi summed up it eloquently: “Whenever I try and gauge India’s interest in light of her joining RCEP, I do not get an answer in the affirmative; neither Gandhiji’s policy of self-reliance nor my wisdom allows me to join RCEP.” He made the statement based on realistic considerations, among them a silent confession that India’s economy is passing through a rough patch.

Noticeably, India’s GDP growth has slowed for five consecutive quarters. It is believed that the Indian economy was severely hit by the demonetization and Goods and Services Tax (GST). The core manufacturing and real estate sectors have lost their way and the situation is pre­carious. India’s case for joining the RCEP was weakened as it offered nothing tangible to revive the Indian economy.

Also, the RCEP conflicts with the interests of existing region­al and sub-regional associa­tions, such as the South Asian Association for Regional Coop­eration (SAARC), the South Asian Sub-regional Economic Cooperation (SASEC), the Ban­gladesh, Bhutan, India and Nepal (BBIN), and the Bay of Ben­gal Initiative for Multi-sectoral and Technical and Economic Cooperation (BIMSTEC).

India’s official position of not joining the RCEP was calculated. Delivering the recent Ramnath Goenka Memorial Lecture in New Delhi, India’s External Affairs Min­ister S Jaishankar said, “And it was that no agreement at this time was better than a bad agreement. It is also important to recognize what the RCEP decision is not. It is not stepping back from the ‘Act East Policy’, which in any case is deeply rooted in distant and con­temporary history.”

He defended the Indian gov­ernment: “Our cooperation spans so many domains that this one decision does not real­ly undermine the basics. Even in trade, India already has Free Trade Agreements (FTAs) with 12 of the 15 RCEP partners. Nor is there really a connection with our Indo-Pacific approach, as that goes well beyond the RCEP membership.” What the minister said was that India already had a ‘grand strategy’. The RCEP was not only about trade for India, it was also related to India’s strategic interests.

With India on the cusp of a decision on joining the RCEP, neighbors especially Nepal also watched closely. Nepal, which has been grappling with high trade deficit and low manufactur­ing base, would not have gained much with India’s entry into the RCEP, and with the possibility of dumping cheap goods from mem­ber countries.

As Nepal is passing through a developmental condition where the modes, locales and scale of productions have to keep up with mass aspirations, it should aim for “Make in Nepal-Make for Nepal” strategy. Only this can lead to inclusive and sustainable growth. Moreover, Nepali policy­makers must think of unchecked outbound migration which is causing enormous losses.

India’s tryst with FTAs like the Indo-ASEAN FTA, the Indo-Ko­rea FTA and the Indo-Japan FTA has been disappointing. Notwith­standing the initial excitement, in practical terms, the FTAs have proved faulty. The cases with oth­er countries have not been much better. The fault lines can be spotted with the ‘late-stage cap­italism’ that necessitates devel­oping countries go ahead with the public policy of developed and saturated economies. One common case with the regional associations is that there is little scope for ‘level playing field’, as for the ‘protectionist measures’, they have nothing to offer except ‘double-standards’.

To maintain parity, an exper­iment like RCEP must offer fair competition to other mem­ber-countries that are not as capa­ble as China in their ability to pro­tect their economy. To make the RCEP or any new formation work for the ‘Asian Century’, its strate­gic and economic fundamentals have to be first ascertained. What matters is the fairness in intent and working for shared goal. With the RCEP, that is missing.

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The author is a New Delhi-based public policy professional and col­umnist and can be reached at sum­[email protected]