India rejects China-backed Asian trade deal as others move ahead
Narendra Modi faced rising opposition to the deal from within his conservative Hindu base of small traders and the main opposition party
India's Prime Minister Narendra Modi said on Monday that he could not compromise the interests of farmers and workers at home by joining a China-led regional trade pact after it failed to address Delhi's concerns over market access.
The Regional Comprehensive Economic Partnership (RCEP) is backed by China and also brings in the 10-member Association of Southeast Asian Nations (ASEAN), Japan, South Korea, Australia and New Zealand.
Modi faced rising opposition to the deal from within his conservative Hindu base of small traders, as well as the main opposition party, who said it would potentially throw open India's giant market to a flood of cheap Chinese imports.
"When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer," Modi said in a speech at the RCEP summit, according to a government note.
The 15 other countries said in a statement on Monday they had agreed on terms on Monday for what could be the world's biggest trade pact.
India has been worried that the agreement, which requires the gradual elimination of tariffs, would open up the country's domestic markets to a flood of cheap Chinese goods and agricultural produce from Australia and New Zealand that would harm local producers.
Indian trade negotiators and business groups backing the deal said Indian industry would have joined global supply chains for high-end goods such as electronics and engineering.
That, and greater access to overseas markets, would have helped offset an economic slowdown at home, they argued.
"The long term interest of industry in India is to get well integrated in global value chains and beneficial trade agreements could play important roles in realizing this interest," said Vikram Kirloskar, president of the Confederation of Indian Industry, a top business group, in a statement.
India's economic growth has fallen to a six-year low and exports have taken a hit due to the trade war between the United States and China, alongside protectionist measures taken by other countries.
PM Modi said there were no assurances for India on market access and non-trade barriers in the RCEP pact.
India's most thorny market access issue has been with its second-biggest trading partner China, with whom India had a $53 billion trade deficit in 2018/19.
India had been pushing to build safeguards into the pact to prevent a sudden surge in imports, but inadequate protection was among the key issues that persuaded New Delhi not to sign the pact, government sources said.
India-China Rivalry
India has been worried that the agreement, which requires the gradual elimination of tariffs, would open its markets to a flood of cheap Chinese goods and agricultural produce from Australia and New Zealand that would harm local producers.
Longstanding rivals China and India, who fought a border war in 1962, also clashed verbally in recent days over India's decision to formally revoke the constitutional autonomy of the disputed Muslim majority state of Kashmir.
Even without India, the countries in the RCEP bloc account for nearly a third of global gross domestic product, but its departure means they have less than a third of the world's population instead of around half.
"While I'm pleased that the 15 were able to conclude, it is a pity India proved unable to rise to the occasion. It was a massive missed opportunity," said Deborah Elms of the Asian Trade Centre in Singapore.
"In the meantime, this is excellent news for trade and Asia," she said, noting that there was still time for India to sign.
Chinese Vice Foreign Minister Le Yucheng said: "Whenever India is ready they are welcome to come on board."
An advantage for the other countries of having relative heavyweight India in the trade pact would have been less domination by China, particularly at a time they see the United States as a less reliable trade and security partner.
US President Donald Trump's administration sent a lower level delegation this year than it has previously to the back-to-back East Asian Summit and US-ASEAN Summit.
Because of the downgrade in the US delegation, officials from only three of the 10 regional countries joined the usual US-ASEAN meeting.
US Commerce Secretary Wilbur Ross told a business meeting on the sidelines of the summit that the Trump administration was "extremely engaged and fully committed" to the region.
White House national security adviser Robert O'Brien brought an invitation to a summit from Trump himself and pleased some Southeast Asian leaders by criticising Chinese actions in the disputed South China Sea.
But diplomats and analysts said the message from Washington was clear.
"Doubts have been raised in a more serious way about the Trump administration engaging and this may also play into the hands of other superpowers in pushing their own agendas," said Panitan Wattanayagorn, a former Thai national security adviser.