The ongoing repercussions of India’s RCEP withdrawal

Anbound Malaysia

The Indian Prime Minister Narendra Modi’s decision for the country to withdraw from the Regional Comprehensive Economic Partnership (RCEP) negotiations, in November last year, has since generated intense news coverage.

Participants attend the 3rd Regional Comprehensive Economic Partnership (RCEP) Summit in Bangkok, Thailand, Nov. 4, 2019. (Xinhua/Zhu Wei)

Whether it came as a shock, surprise or was expected, the Indian Prime Minister Narendra Modi’s decision for the country to withdraw from the Regional Comprehensive Economic Partnership (RCEP) negotiations, in November last year, has since generated intense news coverage. In the wake of seven years of arduous consultations between Asean and its six economic partners, the development was bound to produce far-reaching repercussions throughout the Asian region, but the  wider ramifications of India’s RCEP withdrawal are also of equal significance and should be considered.

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First and foremost, it is clear that any free-trade agreement would inevitably fuel the rising tide of negative public sentiment within the country – and perhaps even lead to protests – in the coming years. Domestic opposition against the free-trade deal has gathered momentum in recent times with farmers from key agricultural states (Uttar Pradesh, Punjab, Telangana, Andhra Pradesh, Karnataka, Tamil Nadu and Haryana) staging numerous protests against the RCEP. Other pressing national concerns include the access and free flow of data and the potential dumping risk involving Chinese imports. But as Modi highlighted himself, no affirmative answers came from other countries’ leaders in response to his invitation to devise a trade deal that safeguards Indian domestic interests. This, in turn, points to a bigger question of whether the wider political powers within the RCEP circle had already been identified and now Modi is working towards assuaging any concern by Indian businesspeople.

Currently, the ongoing RCEP negotiations seem to be an exercise in elitism. The value of the proposed mega trade deal has yet to be sufficiently promoted and communicated to the wider population. And, given the magnitude of potential repercussions of the proposed deal, we should anticipate that the current opposition of the RCEP in several Asian countries may gather further momentum after the expected conclusion of the trade agreement later this year. Indeed, already in 2019, up to 80 civil societal organisations, trade unions, peasant organisations, indigenous rights movements and academicians from various countries gathered in Bangkok to oppose the RCEP. This was a unified protest against the partnership’s alleged lack of transparency and its tendency to favour foreign corporations in many areas such as access to medicine, labour rights and control over national resources.

Other countries, such as Indonesia, Australia and Malaysia, also saw internal protests by their own civil groups and emerging movements – aided by ease of information and the power of social-media – in a bid to stop the trade deal. Therefore the political elites of the RCEP countries may face a stronger opposition from the grassroots level than they have anticipated and a unification of these groups can pose a real threat to the overall stability of the partnership.

Second, India’s RCEP withdrawal also forces the country to answer the question of how it plans to engage Asean in the near future. Dr Tang Siew Mun, head of the Asean Studies Centre at the ISEAS-Yusof Ishak Institute, believes that New Delhi’s decision to opt-out of RCEP will be seen by Asean as a lost opportunity to consolidate its strategic engagement with the Southeast Asian region. By all means, the withdrawal is an unwanted signal from India in consideration of its stand to engage Asean via its Act East Policy. In this sense, India has to come up with a new and clearer stand on how it plans to engage Asean at a deeper level than before it opted out of the RCEP, but pledged to establish the Asean-India Free Trade Area (AIFTA) by 2018. The Modi administration has to mend its diminished credibility among Asean-member countries by addressing the dilemma of protecting its domestic economy but also aspiring to become to become Asean’s important external trade and strategic partner.

Third, India’s RCEP withdrawal delivers another blow for the Indo-Pacific concept, because, without the country, the ‘Indo’ component is non-existent. This is unless the Indo-Pacific powers plan to establish another trade bloc outside the Asean framework. There is also a question mark over whether Japan is willing to remain without India’s participation and should Tokyo indeed opt out of the trade bloc, whether Australia will quickly follow suit.

Finally, it is equally clear that China’s aim to use the RCEP as one of the regional free-trade agreements to hedge against the trade war’s repercussions with the US might not be as simple as the country hoped. The long-standing fear over the dumping of Chinese goods in India remains a real concern within the supply-chain businesses. Represented by the President of the Federation of Indian Chambers of Commerce and Industry (FICCI) Sandip Somany, domestic players from steel, plastics, copper, aluminium, machine tools, paper, automobiles, chemicals and petrochemicals continue to voice their continuing disapproval.

Furthermore, India’s industry groups also see the RCEP as a skewed trade deal that does not offer any advantage to the country’s domestic exporters (such as steel and engineering) to tap into the Chinese market. Despite RCEP’s potential for the Indian industrial players to be connected into the global value chain, it still largely failed in addressing the distrust among the country’s domestic companies in capitalising on the RCEP to enter the Chinese market. It is time for Beijing to recognise that securing free trade deals is not as straightforward as it was in the past because they are decided by the political elites of the participating countries with less concern for the domestic opposition. That’s not to mention the lingering uncertainty in the global trade system that is making such situations ever-more prevalent.

It is also time for the business world to view India’s RCEP withdrawal while considering all of the points above. By becoming aware of the potential repercussions, businesses will gain a perspective to help conduct their risk analyses in a more comprehensive way than before – crucial for their business planning and strategies in the wider Asia.

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