Regardless of concerns, it may have been better to address those inside the store than outside, he says.
The Regional Comprehensive Economic Association (RCEP), a trading 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 long-term negotiations. until he retired last year. While the deal leaves the door open for India to join, it seems unlikely for now.
On Monday, Foreign Minister S. Jaishankar criticized previous trade deals for “de-industrializing” 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 “myopic” and will have broader strategic implications for India’s interests in the region. Edited excerpts:
The RCEP deal has left the door open for India to join. Does that prospect seem likely? for you?
Well, it is reassuring to see that there remains a strong feeling among RCEP members that only India can provide a degree of compensatory presence in the deal. This is not just a trade agreement, it also has a strategic dimension. Keeping the door open for India from that point of view makes perfect sense, especially for countries like Japan and Singapore. It is a positive point that the door is not closed. That said, my point of view has not changed. In my opinion, it has been a shortsighted decision not to accept RCEP. Whatever the concerns, it may have been better to address the ones inside the store than outside.
The second point is that we are now effectively on the fringes of the regional economy and the world economy. Most of world trade is now organized through large trade agreements, and if you are not part of it, any dynamism that we can take advantage of these trade agreements, increasing your market share, will become more problematic. We have focused our attention entirely on imports and the Indian market flooded with cheaper imports, but we are not looking at the export side. What this means is that you will be at a disadvantage in accessing markets in a dynamic region if you are abroad. This also applies to investing. If India is part of RCEP and you are setting up production units in India, you will have access to a much larger market. Yes, we have a very large market, but others may seem more attractive alternatives. So even looking primarily in terms of trading and investing, this decision has a downside.
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There is also a strategic dimension. I have always felt that the financial pillar of any relationship is equal to, if not more, important than the security pillar. We tend to focus more on security deals that have expanded rapidly and impressively whether it’s with the US, The Quad, or others. It has not been accompanied by a similar approach economically. There is an asymmetry in the network of relationships that we are trying to establish.
It has been suggested that India is not losing out because we already have FTAs with some of the RCEP members, including ASEAN and Japan. Would you agree?
No. A bilateral arrangement does not take precedence over a regional arrangement. It’s also said that one of the reasons we didn’t join RCEP was because those same TLCs weren’t working for us. Now, trying to rationalize staying on the sidelines by saying that we have FTA is contradictory.
Is it correct, in your opinion, to say that those FTAs did not work for us?
In the last Economic Survey [2019-2020], the chief economic adviser said that the FTAs had brought benefits; to say that it has not benefited us at all does not seem to be entirely true. There has been an expansion in business relationships with all of our partners. Yes, there has been less in terms of how much we have been able to get, and in part of the work that we did, we found that we did not put much effort into trying to use FTAs to expand our market share. The intention seems to be to protect what we already have, rather than how we take advantage of this to increase our market share. Whether it’s the FTA with Japan or Singapore, we just don’t use all the provisions. For example, with Japan, Japan is committed to helping the Indian pharmaceutical industry through the regulatory and registration process so that competitively priced Indian pharmaceuticals can gain access to the market. That requires industry bodies to take that and the government persuaded them that there is an opportunity here to access the market. This was not used at all.
How much is China a factor in India being left out of RCEP?
My feeling is that the China factor only reinforced existing sentiments against regional trade agreements and FTAs. China has certainly been an important factor, but the decision not to enter RCEP [last year] it predates current stresses.
What will be the broader implications for India’s “Move East” strategy?
There is an inconsistency of some of our recent movements with the ‘Act in the East’ policy. One, don’t join RCEP. Two, if you look at the last East Asia Summit (EAS), only India and the US were not represented at the summit level. [India was represented by the External Affairs Minister]. What was that for? Our Minister of State was present at the previous meeting of Ministers of Foreign Affairs, not the Minister of Foreign Affairs. And the EAS was something for which we pushed the membership, having not been able to enter APEC, to give us a foothold in the region. So why should you do something like this?
What will RCEP mean for China’s regional ambitions?
That China is an integral part of the RCEP when it is not part of the Trans-Pacific Partnership is a great thing. What it does is formalize its economic fabric in this part of the world. Regardless of what it has been doing bilaterally, the fact that it is a fully accepted member of this trade agreement means that China will have to abide by the agreed rules and norms. In terms of the Belt and Road Initiative (BRI), if you are part of it and are a key investment channel, this will make things easier. When people talk about shoring and looking for alternative supply chains, this ensures that they won’t have much traction. If we’re looking at the TPP and a Biden administration in the US perhaps coming back in some way, this becomes even more important. It will have a symmetrical situation, with China as part of a trade agreement with the US outside of it, and the US as part of an agreement with China.
And where would that leave India?
That will leave India on the sidelines. There is an assumption that the Indian market is so big that people have to come to India on our terms. But that, in my opinion, is a pretty optimistic assessment.
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