For all the posh poise, pomp and pageantry of global diplomacy, it is finally money and muscle power that has the last word. The skirmish between India and China in the Galwan Valley may have made the country realise this only too well.
While India contemplates actions on both fronts, the crucial significance of trade deals has dawned on it now more than any other time. Even while a popular movement to boycott Chinese products and shun the dragon economically rages across the land, India will regret the lack of a credible alternative.
The reason? Many pivotal trade deals are stuck in limbo. Meanwhile, China accounts for half of India’s trade deficit—while Chinese imports into India have grown 26 per cent year-on-year, India’s exports to China grew barely 13 per cent.
Make no mistake, India has had a long history of bilateral deals and even free trade agreements (FTA) with many countries, but the only one of major significance so far is probably the one with the ‘tiger economies’ of South East Asia, including Malaysia, Singapore, Thailand and Philippines. However, India’s experience, be it with ASEAN or Japan or Korea, has been that its trade deficit has only widened. Imports from these countries (some of them Chinese products routed through those countries, much to India’s incense) had only increased post the agreements, while Indian exporters did not particularly seem to be taking up the option.
While this experience, along with Indian diplomacy’s love for stretching thin a good negotiation if it can help it, now sees any of the trade deals that India could have had as a credible counterbalance to the economic might of China still to fructify. Here’s a look at the most crucial of them:
The Regional Comprehensive Economic Partnership, commonly referred to as ‘RCEP’, is a proposed trade agreement between the ASEAN countries as well as with the powerhouse economies that are their free trade partners—China, Japan, South Korea, Australia, New Zealand and India. Together, in its best projections, this would have been a free trade zone encompassing 30 per cent of world trade and nearly half of the world’s population. However, negotiations, lumbering on since 2012, received its biggest jolt last November when India walked out. The issue? Worries that once ratified, Chinese products would overrun India’s domestic industry and businesses.
Despite the walkout, countries like Japan and Australia had always held on to the hope that India would negotiate a way back, something these countries wanted if not for anything else, but to balance the sway China has in the scheme of things. At the last two meetings, the RCEP’s trade negotiation committee had offered iterations of the deal to India, including the option of not needing to commit to open up its markets for products from other member countries (read; China). However, reports indicate that this had led to a difference of opinion in the Indian government— while the Commerce ministry was open to it, the external affairs ministry was adamantly against it. The LAC incident all but ensures that India will put any thoughts on RCEP firmly on the back burner.
Annual trade worth roughly 6.5 lakh crore rupees makes the European Union the biggest bloc partner of India. The ambition of both parties—of Europe to become the pre-eminent economic force in the world pipping big brother US and of India to become the fastest-growing emerging economy—may have parallels, but the synergy is yet to find common ground. Despite negotiating for six years, both parties suspended negotiations for a Free Trade Agreement in 2013
“We have agreed to continue working towards it,” both partners said a statement released last November after an India-EU Strategic Partnership Review.
Officially termed the Bilateral Trade and Investment Agreement (BTIA), India would now want to press hard on the accelerator now, with RCEP a no-go at least for the time being and a free trade deal with the US likely only after presidential elections there.
The EU-Vietnam free trade agreement set to be implemented in a couple of months is further bad news for India, as many items Vietnam exports to EU will get cheaper compared to those from India, as duties drop to zero. Vietnam is already the most popular destination for investment and businesses moving out of China, and the EU deal only sweetens the attractiveness of this emerging nation in the eyes of the west. That is not exactly reassuring news for India.
The US became India’s biggest trading partner earlier this year with bilateral trade worth roughly 6.7 lakh crore rupees, pipping China which was India’s biggest trade partner for years. Experts believe this trend will continue, and skyrocket as and when both countries finalise a free trade agreement.
But for that to happen, a free trade deal has to be in place. There was much talk on the FTA being signed when Trump visited India in February, but it did not happen. In 2019, the Trump administration had eliminated preferential tariffs to Indian exports under the Generalised System of Preferences (GSP). For India, it impacted trade worth 4.8 lakh crore rupees.
The recent Hydroxychloroquine overture from India and the Trump administration’s realising the use of propping up India in its greater battle with China might just see Uncle Sam restoring India’s preferential trade partner status, at least on a limited basis, if some reports are to be believed.
MORE FREE TRADE AGREEMENTS
India must now put extra energy into its slow-paced trundle as far as free trade agreements are concerned. Talks with Australia are at an advanced stage, while the COVID-19 outbreak hampered the initiation of talks with the UK. Talks with Britain, traditionally a big business partner of its erstwhile colony, were delayed as it was busy with Brexit. Now that Brexit is underway, talks, once started, could acquire momentum and soon.
New Delhi is also keen on a deal with Switzerland, Norway, Iceland and Liechtenstein, the four countries that form the European Free Trade Association, a parallel pact to whatever comes out of its long-winded negotiations with the fussy EU umbrella organisation. An ideal scenario, at least for Indian policymakers, would be all this plus a re-working of the existing FTAs with the ASEAN countries to plug the issue of the trade deficit as well as that of Chinese goods flooding India through these ‘third parties’.