Is RCEP a Hope in the Backdrop of Failed WTO summit?

India has taken an extremely ambitious target of doubling its exports to 900 Billion USD by 2020. To have a good share in world trade; India needs to work judiciously towards the successful negotiation of RCEP.

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Is RCEP a Hope in the Backdrop of Failed WTO summit
Is RCEP a Hope in the Backdrop of Failed WTO summit
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As it was expected, the WTO ministerial meeting at Buenos Aires, ended in an inconclusive note. Indian Commerce Minister Suresh Prabhu tried his best to ensure food security by countering US claim of India and China being self-proclaimed developing countries. Mr. Prabhu tried to make it explicit that India is home for 60 crore poor people and rightly deserves to ensure food security for its citizens. USA provides huge subsidy to its farmers who constitute only one percent of its whole population.

However, the Indian farmers in Agricultural and allied sectors comprising approximately fifty percent of the workforce, have to sustain themselves at a meagre income and hence a very low standard of living. As the developed countries want access to the agricultural market of the world, hence they are steadfast in their stance against  subsidies or protection for the farmers of the developing countries. It is said that Indian farmers are competent to fight US farmers but are not equipped to fight the US treasury and its agricultural subsidies. The 50 percent of the Indian workforce who constitutes the agricultural sector adds up to only 17 percent of the national income thereby being one of the main causes behind the appalling income inequality of India. We also find that one of the founding pillars of WTO, the United States of America is gradually backing out from the path of multilateralism.

The Trump Government has brought down the US led plurilateral agreement TPP as well. Subsequent to the failure of the ministerial conference in WTO, India has raised its customs duty in electronic goods including television sets and mobile phones, supposedly to promote ‘Make in India’. We can see a trend of protectionism in the trade policy of the countries; be it USA or India. The developed countries in this world are mostly service driven economy. In USA and UK service sector covers 82 percent of the share of GDP, while it covers 79 percent of the GDP of France. Even in developed countries with strong manufacturing sectors like Germany and Japan have services, cover 69 percent share of their economy ( source: CIA Factbook). India has already marked its natural competency in services. As per the WTO statistics of 2015, in Merchandise exports, India’s share in world trade is 1.62 percent with a world ranking of 19. In case of Commercial Services exports, India’s share in world trade is 3.27 percent with a world ranking of 8.

While India is committed to the Most Favored Nation (MFN) principle of WTO, it has started entering into Bilateral and Plurilateral agreements outside WTO. The Signing of the Bangkok agreement was the first initiative of India in forming regional trade agreement. South Asian Free Trade Agreement, has come into its full effect since 2006 in which India is the largest economic power. India is also part of BIMST- EC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation). India had bilateral trade agreements with Sri Lanka in 2000 and Thailand in 2004. India also negotiated a Comprehensive Economic Cooperation Agreement (CECA) with Singapore in 2005.However till date the most significant trade agreement India has entered into is with ASEAN, the Association of South East Asian Nations.

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Now ASEAN and its six Free Trade Agreement Partners are working towards a new economic block; Regional Comprehensive Economic Partnership (RCEP). In case of India’s trade with ASEAN countries, we find that India has Comparative Advantage in most of the services while it enjoys limited comparative advantage in few manufacturing sectors like Textiles, Pharmaceuticals and Chemicals. It seems apparently reasonable that India’s trade policy should focus more on Serve from India than on Make in India. Moreover with fragmented value chain, even if India gets Foreign Direct Investment (FDI) in some of the manufacturing sectors, product design and development will possibly remain in the developed countries and ultimately share of India will remain low in the entire manufacturing value chain.

Apple is the biggest example wherein the value of Apple products are mostly in design and development and it remains in its home country United States of America. Based on a study by Xing, Y., Detert, N. (2010), it was found that in 2009, US trade balance in I-phones (in million USD) was showing a deficit with China for 1901.2 million USD. When the same is decomposed, we see only a fraction is value added from China. In this context India should come out from the myth of Make in India and concentrate more on Serve from India which will help it in its objective of achieving more meaningful employment for its working population.

With WTO driven multilateralism taking a back seat and the nullification of Trans Pacific Partnership (TPP) by Trump administration; RCEP seems to be potent enough to emerge as the biggest trade block in the world. While the other negotiating countries are bargaining with India to open 90-95 percent of its manufacturing sector, India is not ready to do so beyond 65 percent. India is advocating a balanced position in RCEP negotiation. It is rightly looking for concessions in services trade and movement of professionals.

India may always open its manufacturing sector further to work towards the success of RCEP as long as it gets desired concession in services. India has taken an extremely ambitious target of doubling its exports to 900 Billion USD by 2020 in its new foreign trade policy, released in April, 2015. When looked at from the context of the present scenario, the achievement of this target seems bleak. However still, to have a good share in world trade; India needs to work judiciously towards the successful negotiation of RCEP.

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Written By: Amlan Ray is Columnist of The Policy Times and is currently heading the education business of Jain TV Group. He is designated as Dean at NBA Group of Institutions, a training hub partner of Tata Institute of Social Sciences. He is an engineering graduate and MBA from University of Calcutta, currently pursuing PhD. He has an additional Masters in Economics. Amlan has 22 years post MBA experience with A.V. Birla Group, TATA group, Planman Consulting and Adamas University. Amlan’s research interest deals with India’s Foreign Trade. He is particularly interested in India- ASEAN trade. Amlan is working with Firm Level Data to understand import content in Indian exports.