Home >Opinion >Columns >Opinion | Tough love would not speed up progress on trade talks
Trade is perhaps modern age’s most engaging diplomatic encounter, with negotiations stretching endlessly amid multiple rounds of talks (Mint file)
Trade is perhaps modern age’s most engaging diplomatic encounter, with negotiations stretching endlessly amid multiple rounds of talks (Mint file)

Opinion | Tough love would not speed up progress on trade talks

India must resist pressures from those who want the RCEP to conclude so that it joins only on its own terms

Global trade is a many-splendoured thing. Its history spans millennia, with ancient civilizations trading goods, stories, customs and the occasional marital vow across continents. Trade is also the camouflage that allowed a joint stock company to subjugate an entire country and enrich the home country. Trade is perhaps the modern age’s most engaging diplomatic encounter, with negotiations stretching endlessly amid multiple rounds of talks. Look at the Doha Round, which was kicked off under the aegis of the World Trade Organization (WTO) in November 2001, but still remains inconclusive due to successful filibustering by rich countries.

Eventually, in this game-theoretic chessboard of non-cooperative parties and Nash equilibria, what matters is who blinks first. This has particular relevance for India.

Trade is also a double-edged sword. It particularly paints politicians into a corner: They are leery because trade creates immediate economic dislocation for their political constituencies, but they also understand its significance for economic growth. The dilemma is of balancing short-term political pain and the broader economic benefits that flow in later. Politicians live from election to election and anything long-term is an inherently unfeasible economic goal.

This predicament has become all the more acute, with many countries—especially developing countries—balancing domestic political exigencies with ambitious bilateral or plurilateral deals that go beyond the WTO framework. Many of these—such as the Trans Pacific Partnership, rechristened as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after the US crashed out—have been criticized for compromising sovereignty in favour of multinational corporations. The CPTPP has become the new gold standard for trade agreements across goods, services and investments, with rules on investment, dispute settlement systems, intellectual property rights, government procurement or a reduced role for state-owned companies.

Many other regional trade agreements are now in progress with CPTPP as the template. These include the Regional Comprehensive Economic Partnership (RCEP)—being negotiated by 16 nations, including India. The RCEP’s lofty ambitions have amplified India’s trade quandaries for two reasons: One, these goals seem misaligned with India’s current state of development; and two, uneven agreements sought by other countries through higher market access for goods—while dissembling on services, India’s strongest suit—seem to be holding up progress.

And, yet, India wants in because trade is critical for any economy. Merchandise trade is about 30% of India’s gross domestic product (GDP); add services and it’s about 40%. The RCEP is the world’s largest economic bloc and it is estimated that by 2050, RCEP member states will have a GDP close to $250 trillion, with India and China expected to contribute a significant share.

But here’s the thing. India’s free trade agreement with Asean has been a political embarrassment, with our trade deficit growing every year. In 2018-19, India’s imports from Asean grew by close to 26%, while exports to the bloc increased by only 9.5%. The other elephant in the RCEP room is China, which has a disproportionately large trade surplus with India. At a recent Singapore panel discussion, foreign minister S. Jaishankar even alluded to this misaligned trade relationship as one of the sticking points in the RCEP talks.

Services trade negotiations help highlight the RCEP’s asymmetric landscape. India has, of course, high hopes from its services trade, but has found an uneven response from other members. India has also drawn lessons from the unsuccessful Asean Free Trade Area, under which services trade talks were postponed and a stand-alone goods agreement was finalized. Also, there are examples where common members of the RCEP and Asia-Pacific Economic Cooperation have agreed to a mechanism for free movement of people and professionals under the latter agreement, but are blocking a similar initiative in the RCEP.

In the end, the quality of negotiations is what matters most. India’s record has not been particularly commendable, starting with missteps during the Uruguay Round of WTO talks. Two things are to be avoided.

Pressure from different spheres is one. In the skewed narrative coming out of countries wanting to conclude a skewed RCEP, India has been painted as obstructionist. It was thus uncharacteristic of India for commerce minister Piyush Goyal to recently lose his cool and hit out at the domestic industry, specifically at the steel and dairy industries, for ostensibly trying to “hijack" the national interest. Equanimity and balance have to be constant travel companions.

The second trap is deceptive optics. The bonhomie between Prime Minister Narendra Modi and US President Donald Trump at the recent Houston event, and the related literature, might tempt observers to believe that both nations are entering a new phase in their relationship. But reality bites sharper: A report in this newspaper highlighted how both Modi and Trump failed to sign even a limited trade agreement because US trade officials presented Indian trade negotiators with a long and intractable list of demands.

Houston or Singapore, there is no unconditional love in trade. India needs RCEP, but only on its own terms.

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