ON INDIA'S TURNING BACK FROM RCEP - PJ JAMES
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10 December 2020

Regional Comprehensive Economic Participation (RCEP), world’s largest Free Trade Agreement (FTA) ever,comprising 10 ASEAN countries and other 5 big players, namely, China, Japan, Australia, South Korea and New Zealand formally came into existence Bangkok on November 15, 2020.  It accounts for about one-third of world population, 30 percent of global GDP and 28 percent of world trade among them. The scope of further strengthening of regional value chains among RCEP members is comparatively large since 44 percent of their total trade is already intra-RCEP.

 Till its disengagement from RCEP negotiations by the dawn of 2020 mainly on account of China factor,amidst widespread protests across India from farmers, lakhs of medium, small and petty producers and millions of informal workers, the Indian government was having an active role in RCEP negotiations and since his ascendance in 2014, Modi has his personal attention in the past 6 years of long drawn out intense bi-partisan talks with ASEAN, the precursor of RCEP. In fact, India’s signing of the final agreement was almost certain even during the 2019India visit of Chinese president Xi leading a 90-member delegation including Chinese foreign minister. Though the content of Modi-Xi talk was almost covered up and doled out to media as “informal talks”, external affairs ministry had characterised the interaction between two heads of states as “productive”, “pleasant conversation over a long dinner”, etc. Obviously, being the biggest economic power  (on PPP basis)but still second to US in military prowess, and as the leading partner in RCEP, the fact that China would be the biggest gainer from this FTA was already recognised. Therefore, Xi’s arrival at Mamalapuram, near Chennai at that time was also interpreted as a tactical move to pressurise his Indian counterpart to bow to Chinese diktats, in continuation of the success on the part of US led Western imperialist bloc in using the Kashmir issue as a tool for blackmailing the Indian regime to pry open more avenues of plunder in India.

Modi was actively participating in the 6 years of long drawn out intense bi-partisan talks with in the grouping composed of 10 ASEAN, the precursor of RCEP. However, in the context of the advent of the COVID-19 pandemic and consequent Sinophobic propaganda by US and the eruption of Sino-Indian border dispute in March, the Modi regime took a somersault and retracted from all further discussions pertaining to RCEP.

Of course, regional FTAs (such as ASEAN, NAFTA, MERCOSUR, EFTA, half-baked and aborted SAFTA, etc.) are to be evaluated as complimentary to neoliberal globalisation. Both WTO and the Bretton Woods institutions, the pillars of imperialist plunder today are propagating regional trade agreements among countries as effective tools towards global integration of distinct economies into bigger markets for capital flows as well as trade in consumer items with tariff and non-tariff barriers. According to WTO provisions regional trade agreements are “gateway” to internationalisation or globalisation of market and investment. RCEP encompassing South and East Asian countries is also in accordance with this neoliberal dictum.  Generally, on account of closeness and proximity, RCEP-like FTAs will lead to full market access within the free trade area as far as members are concerned, and consequently will be more threatening, than even WTO, to those members who are lack comparative cost advantage.

Now Modi’s retraction from RCEP has given rise to many arguments for and against it. The main argument by those who criticise Modi regime for not joining RCEP is in terms of the usual logic always upheld by “free traders”. According to the standard liberal economic theory, free trade among countries increases the economic size of the free trade area as a whole, as it allows goods and services to be produced more efficiently and at the least cost. Free trade encourages productivity as production will move to those locations where natural resources, infrastructure, or skills and expertise are best suited to production. Greater competition and less red tape within the FTA will make goods and services available consumers at lower prices and ultimately, will result in increased GDP growth for the members of the FTA. So neoliberal experts and free trade theorists always argue in favour of a free trade area.

However, experience has been on the contrary. Traditional agriculture and informal/unorganised industries which cannot withstand competition from cheap products within the FTA will collapse altogether leading to unemployment and pauperisation of the broad masses of population. Cut throat competition will lead to a massive deindustrialisation wiping out the domestic industrial base in economically backward members of the FTA. It will prohibit governments in backward economies to protect domestic agriculture or industries with adequate price support programs. For instance, take the case of the 25 provisions finally adopted by the RCEP. These terms were in fact dictated by the two leading members, viz., China and Japan, of the union. The immediate effect of RCEP on India, which today faces the biggest-ever economic collapse on record, would be an immediate transformation of India as dumping ground for the almost all agricultural and industrial products from China and Japan which enjoy a clear-cut technological superiority over India. 

In fact, as part of India’s erstwhile agreement with the ASEAN, cheap agricultural products have already been entering India with devastating impact on its farm sector. Now the RCEP which is an expanded version of ASEAN, on account of their higher productivity and comparative cost advantage will enable China and Japan also to dump their cheap industrial and agricultural goods in India.  

Meanwhile, a section of the Indian ruling classes and their economic experts have interpreted Modi’s disengagement from RCEP as a historic blunder, as it has lost a golden opportunity of economic integration especially with the less developed ASEAN countries. According to them, the economic disadvantage arising from Chinese and Japanese goods flooding Indian market would have more than compensated by India’s growing market access to developing economies of the 10 ASEAN members of RCEP. They also argue that RCEP will result in enhanced technology transfer and inflows of FDI into India. According to them, turning away from RCEP, a grouping which is also in conformity with Article 24 of WTO, is autarchic, protectionist and isolationist and will make India uncompetitive and inefficient, thereby making India unable to reap the fruits of economic integration among countries.

Now let us examine these arguments in relation to concrete facts. Free trade arrangements are not new for India. Except China, India already has some form of bilateral free trade agreements with all constituents of RCEP such as ASEAN, Japan and South Korea, while discussions for free trade deals with New Zealand and Australia are in the final stage. While all such trade agreements have led to surge in India’s imports from these countries, there has been no perceptible growth in Indian exports to them, leading to a steady growth intrade deficit with them. Over the past years organisations of both farmers and medium and small scale industries as well as petty producers have been strongly opposing India aligning with ASEAN; but the Modi regime was not even willing to hear their genuine concerns. And, if India becomes a constituent of RCEP, then in view of the existing trend, its outcome will be a further intensification of this negative trend and further worsening of the country’s historic economic collapse.  Obviously, it will be due to the superior position of China in RCEP. For instance, in spite of India having no free trade agreement with China, the latter has been India’s biggest trading partner. From a meagre $1.8 billion worth of trade in 2000, the trade volume between the two rose to almost $90 billion in 2018. In this, since India’s exports to China are worth only $14 billion, the deficit in India’s trade balance with China was $76 billion.  According to preliminary estimates, in the event of India becoming a member of RCEP which shall inevitably be led by China, the former will be duty-bound to eliminate tariffs on around 80 percent of the imported Chinese goods either fully or partially, resulting in unforeseen consequences for the economy. That is, India’s adverse trade balance and harmful impact on its agricultural and industrial production arising from its erstwhile pact with ASEAN (for instance, India’s trade deficit with ASEAN was $24 billion in 2018, in spite of Modi regime’s aggressive export-push approach under the cover of self-reliant postures such as ‘Make in India’ and the latest ‘Atmanirbhar’) are bound to accentuate further in the event of India joining RCEP.

Obviously, the real reason behind Modi regime’s abrupt turning away from RCEP at the last moment, is geopolitical and not economic. On account of its extreme servility to imperialist capital and in the course of fulfilling the commitments to neoliberal market obligations, the Modi government has shown little consideration to the sustenance of millions of domestic produce or their genuine sentiments. In accordance with that, till last year, Modi was systematically propping up India’s close trade integration with China in continuation of what he did during his long tenure as chief minister of Gujarat. And in spite of the much trumpeted ‘Make in India’, it was under Modi that Indian market became flooded with cheap Chinese goods.  For, during the first four years of Modi rule, bilateral trade between China and India rose by around 25 percent from almost $65 billion in mid-2014 to $ 90 billion in mid-2018, with trade balance highly unfavourable to India, as already noted. As a matter of fact, Modi’s participation in RCEP talks in which China has the key role till the end of 2019 was inseparable from India’s growing bilateral trade with China. Therefore, any reversal in this adverse trend in India’s trade with China would at least have a cushioning effect on India’s trade deficit and on the domestic economy. To that extent, India’s move away from RCEP is to be welcomed.

 On the other hand, Modi’s sudden disengagement from the mega trade deal RCEP was not motivated by any economic consideration, and not at all based on the obvious economic logic behind it, but is purely dictated by geopolitical factors. For, unable to economically compete with China which already had acquired the technological capability to challenge the US, the latter, with its protectionist approach under Trump and with whom India has a strategic military cooperation, was compelling Modi regime to withdraw from the RCEP from the very beginning. Together with this sharpening inter-imperialist contradiction between US and China, it was the eruption of the border dispute with China that compelled Modi to have a U-turn on RCEP along with the imposition of many rounds of tariff and non-tariff barriers and other import controls on many Chinese products. Now this is done under the cover of ‘Atmanirbhar” in the place of the worn out ‘Make in India’ which had already ended up as ‘made in China’.

However, turning away from the China-led RCEP,in tune with RSS’ time-tested, historical allegiance to US imperialism, along with strengthening India’s position as a strategic junior partner of US in latter’s geo-political contradictions with China and by signing many military-to-military partnerships with Washington, Modi is laying red carpet for US finance capital’s biggest-ever plunder of India by resorting to a series of  ‘investor-friendly’ measures such as aggressive liberalisation of labour, tax and environmental laws  along with many digital deregulations as required by US MNCs. Now the outcome is like that of ‘jumping from the frying pan to the burning fire’, as involvement in a US-led military and economic arrangement is more vicious in degree compared with the RCEP grouping, which too led by another imperialist power.

Today, when world market is dwindling and negative growth trends are a ubiquitous phenomenon, India with its continental size and with a population of 137 crore richly endowed with immense natural and human resources, there is vast scope for pursuing an independent, self-reliant and self-expanding path of development pursuing friendly relations with other countries and peoples. What requires is an immediate overhauling of the existing foreign market-oriented neoliberal, pro-corporate model and the adoption of a pro-people, pro-nature, domestic-market oriented development strategy ensuring livelihood and sustenance of the vast majority of working and oppressed masses.

The Communist movement in India has a history of almost a century after the salvos of October Revolution in Russia brought Marxism-Leninism to the people of India who were engaged in the national liberation struggle against the British colonialists. It is a complex and chequered history.