India holds its own

Devinder Sharma
Food & agriculture specialist

Soon after assuming office, when US President Trump withdrew from the Trans-Pacific Partnership mega-trade agreement among 12 countries, which shared a common coastline on the Pacific and made up for 40% of the global GDP, it came in for a lot of criticism. Terming it as a ‘horrible deal’, Trump was convinced that the treaty, which was meant to remove 18,000 tariffs on agricultural and manufactured goods, would steal American jobs.

Withdrawing from another mega-trade deal — Regional Comprehensive Economic Partnership (RCEP) — which covers 45% of the global population and accounts for 25% of the world’s GDP, PM Modi, in a recent statement, said: ‘When I measure the RCEP agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the talisman of Gandhiji nor my own conscience permits me to join RCEP.’ Like Trump, what perhaps weighed on the PM’s mind were the massive job losses and livelihood destruction expected on removing tariffs on 92% of the tradable goods, including manufacturing and agriculture.

At a time when economic thinking has swayed towards globalisation, a strong leader demonstrating political courage to withstand the tide is admirable. More so, at a time when such thinking creates a fear of the unknown — how much the country will miss out by not being a part of the proposed FTA (some term the phenomenon as ‘fear of missing out’) — the PM’s assertion for fairness and balance is legitimate. Such a precautionary approach becomes essential, knowing that in the past, too, India had entered into FTAs with 12 of these RCEP countries with the same illusion of finding an access into their markets, only to register a whopping trade deficit of $107.28 billion. The assumption that getting into an RCEP agreement at this stage will further widen the trade deficit and hit agriculture the most, therefore, is not unfounded.

Similarly, the overenthusiasm with which India signed Bilateral Investment Treaties (BITs) on the presumption that it will promote investments were in reality without proper homework. As the number of arbitrations increased, India terminated 58 of these BITs.

Given this backdrop, it is obvious that the fear of the unknown has been over-hyped. If the FTAs with the Asian countries were pushed in the search of penetrating important markets and participating in the value chains of East Asian economies, it didn’t work. To illustrate, India’s trade deficit with ASEAN, signed in 2010, has increased by 250%. It is obvious that the Indo-ASEAN agreement was signed without any adequate assessment, no proper scrutiny and was perhaps based more on the FOMO factor. Otherwise, there is no reason that the exposure to 10 Asian countries’ markets should fail to provide any significant trade outcomes. It is, therefore, heartening to know that the PM has now called for a review of the Indo-ASEAN trade agreement. In fact, not only Indo-ASEAN, there is also a dire need to review all bilateral and plurilateral agreements that India has so far signed.

There are lessons. When the WTO treaty came into effect, a lot of euphoria was generated. We were told that a multilateral trading system — based on one-country one-vote principle — would obliterate the need to get in cumbersome bilateral agreements. But over the years, this was proved wrong, with over 300 bilateral FTAs signed, which in principle were WTO plus treaties with stronger intellectual property rights (IPRs) and aggressive push to open up markets. Since most countries already are into bilateral agreements — with emphasis on zero tariff imports and removal of non-tariff barriers — one fails to understand how any incremental growth can be expected from regional treaties, where a majority of the members already have separate FTAs. Unless of course the new grouping includes a giant like China (with which India has a trade deficit of $53 billion) and countries like Australia and New Zealand (like in RCEP) which desperately eye a foothold in India’s dairy and farm sectors to pull out their own business from distress.

The extra precaution with which India wants to engage with RCEP trade partners is therefore justified. Although Commerce Minister Piyush Goyal lays out three conditions — strict rules of origin, updated base duty period (from 2014 to be moved to 2019), and auto-trigger mechanism — to be addressed before re-entering RCEP negotiations, India’s decision making should be guided by more detailed studies. The Ministry of Commerce should take other ministries on board. Reports that China was upset at India’s terms a few months before the treaty was being finalised raises questions over the competence of Indian negotiators. How come for seven years of RCEP negotiations, they failed to bring up these crucial issues that India is in any case fighting for in the ongoing Doha Development Round of WTO?

Even during the earlier days of WTO negotiations, the promise of a drastic reduction in farm subsidies being provided by the richest trading block — Organisation for Economic Cooperation and Development (OECD) — was projected as a ‘big bang’ for India’s farm exports. This was a mistake. Except for a jugglery in the way these subsidies were conveniently shifted among boxes — green, amber and blue (in WTO parlance) — they have remained more or less intact. The 28-member EU provides $65 billion in farm subsidies, three times of what the US gives, and any quick effort to sign an FTA with these two giants must be carefully evaluated in the light of the damage it can inflict on India’s agriculture. Considering that 600 million people are engaged in agriculture, directly or indirectly, it is important to weigh the fallout. Let’s treat Mahatma’s talisman as the preamble for any future trade negotiations.