India, China & The Future Of RCEP

China has strongly criticised neighbouring India for not opening its borders to cheap Chinese goods.
Beijing’s criticism has failed to surprise the Indian policymakers, who know that New Delhi’s move hurt the Asian giant’s free trade ambitions. The Indian policymakers and foreign policy experts are well aware of the fact that if India supports a China-backed trade deal, then it will ultimately help Beijing cement its dominance in Asia.
China wants India – the third-largest Asian economy – to take part in the free-trade zone because India’s participation will carry a different economic heft and allow Beijing to set the trade rules for the entire region without any opposition.
Although it is not clear whether Chinese President Xi Jinping raised the issue during his recent meeting with American President Donald Trump at Palm Beach in Florida club, Beijing has been trying hard to convince India to open its borders since the US withdrew from the Trans Pacific Partnership (TPP) with 11 other countries. The move hinted that Washington would try to steer trade in Asia. In that case, China may lose its chance to dominate Asian trade, especially after Prime Minister Narendra Modi’s refusal to open India’s borders.
Vice President (for Studies) at the Carnegie Endowment for International Peace and former Adviser (Trade) to Taiwan Douglas Paal said: “India is reasons one, two and three why the deal might not get done. There’s a strongly-held belief that this will bring in unwanted competition.”
Currently, 10 member countries of the Association of Southeast Asian Nations (ASEAN) and six other nations – Australia, China, India, Japan, South Korea and New Zealand – negotiate the China-backed Regional Comprehensive Economic Partnership (RCEP). If RCEP gets the approval from 16 countries, then it could cover 46% of the world’s population and 24% of global GDP. Then, it would be possible for China to sideline America, which is not a signatory.
However, the actual scenario is different. Paal explained that India, despite taking part in the trade talks, is not interested in opening its market to Chinese products. As the volume of the South Asian country’s trade deficit with China is USD 52 billion, Prime Minister Modi has no plans to lower the import costs and to compete with ones made in India.
Rick Rossow, the Wadhwani Chair in US-India Policy Studies at the Centre for Strategic and International Studies, has expressed the same view, saying: “The Modi government is not necessarily pro-trade. The Indian premier is still very uncomfortable with really deep trade integration.”
Prime Minister Modi is against opening India’s borders to Chinese products because his priority is to encourage the Indian manufacturing sector. He launched the “Make in India” initiative in September 2014 only to expand the domestic manufacturing sector that recorded its lowest growth rate in a decade (in 2014). India’s main goal is to make its manufacturing sector more efficient and attractive for foreign investment. The PM has expressed hope that the manufacturing sector could represent 25% of Indian GDP by 2025. Currently, it accounts only 16%.
However, some experts still believe that the RCEP can be agreed to in some forms. Derek Scissors, senior Resident Scholar at the American Enterprise Institute, stressed: “RCEP is a diplomatic exercise. It’s gotten more attention since TPP died, but diplomatically it’s important to agree to something by the end of the year.” He predicted that India would never accept the RCEP because the deal lacks the protections for labour, human rights and the environment. Scissors advised China to make some changes in the RCEP draft in order to convince India.
For his part, China expert at the German Marshall Fund Andrew Small said: “It’s a low grade deal as it is. Whatever results form this is not going to be a free trade agreement that we would have seen with TPP. For India to agree, there would have to be even a lower bar than there is right now.”

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