📰 Analysis | India faces a year of tough trade negotiations
After RCEP walkout, government to focus on renegotiating FTAs and bilateral deals in 2020
•After walking out of negotiations on the 16-nation Regional Comprehensive Economic Partnership (RCEP) free trade agreement, the government said it would renegotiate its existing Free Trade Agreements (FTA) and redouble its efforts to conclude other trade negotiations. The task is likely to swamp both the Commerce and Industries Ministry (CIM) and the Ministry of External Affairs (MEA) negotiators in 2020.
•To begin with, the RCEP walkout isn’t cast in stone yet, as the other 15 countries including 10 ASEAN members (Indonesia, Thailand, Singapore, the Philippines, Malaysia, Vietnam, Brunei, Cambodia, Myanmar and Laos) and their FTA partners China, Japan, Australia, New Zealand and South Korea, will complete legal reviews by June and are only expected to sign the deal in November 2020.
•In the interim, many countries, most notably, Japan, Australia and even China, have said they would be keen to work with India to convince the government to rejoin RCEP. The issue was due to come up when Japanese PM Shinzo and his Australian counterpart Scott Morrison — both of whom have had to cancel visits to India in the past month — reschedule their trips and meet Prime Minister Narendra Modi.
EU-India summit
•While the RCEP is being wrapped up, India’s long-pending negotiations with Australia for a Comprehensive Economic Cooperation Agreement (CECA), as well as Commerce Minister Piyush Goyal’s plans to reopen existing FTAs with ASEAN, Japan and South Korea will have to take a backseat.
•The next big trade focus for the government will be during the EU-India summit expected in March, when Mr. Modi is expected to travel to Brussels, to meet the new European Commission President Ursula Von Der Leyen, and discuss restarting EU-India Bilateral Trade and Investment Agreement (BTIA) talks. However, this is easier said than done, given that the talks that began in 2007 and stalled in 2013 over tariff issues, have not been resumed despite several efforts.
•A possible new trade deal, with the U.K., will become a possibility when Britain concludes the Brexit process this year, and talks might start when Mr. Modi travels to Glasgow for COP26 in November and meets Prime Minister Boris Johnson.
Bridging gap with U.S.
•Finally, the CIM and MEA will focus on closing talks with U.S. Trade Representatives. In 2019, President Trump rescinded India’s GSP special status for exporters, which has led to more bitterness over the issue. Mr. Modi and Mr. Trump discussed the trade issues on two occasions when they met in 2019, but negotiators have been unable to forge any kind of deal, despite visits by Mr. Goyal to the U.S.
•In the New Year, both sides hope that a package of smaller agreements can be announced soon, but a free trade agreement could be several years away, as it hasn’t even been discussed officially yet.
Dedicated team
•Given all the challenges, the government is actively considering a sharper and leaner trade negotiating team that merges the best strengths of CIM officials and MEA diplomats, on the lines of countries with a consolidated Department of Foreign Affairs and Trade (DFAT). The team will have to contend with the shift in the global economic climate in the face of slowdowns worldwide, the dilution of the WTO’s arbitration powers and the impact of the U.S.-China trade war.
•There is also a perceived increase in anti-immigrant sentiments, and India will not be able to drive as hard a bargain as it would like on services exports, in exchange for allowing more market access to goods imports.
•With the world being carved up into regional trading blocs like EU, NAFTA (for North America), MERCOSUR (South America), GCC (Gulf Countries) and RCEP (South-East Asia), and India’s only regional Bloc, for SAARC nations (SAFTA) stalled, the odds of concluding more bilateral trading agreements will be that much harder in 2020.
📰 Safeguarding the idea of India
The nation’s current social and political predicament poses an existential challenge
•Ominous clouds have gathered over India, casting shadows of divisiveness and hate, threatening to undermine civil society and halt or even reverse economic progress. There is today a risk of going over a precipice beyond which there may not be a turning point.
•As the new decade dawned, the two of us decided to get together to write not on problems of economic theory or some immediate policy challenge, as we did in the past, but on the nation’s social and political predicament, which poses an existential challenge. We have known each other for decades, and grown up in an India that was imperfect but seemed to possess an ideal of togetherness that created hope. We come from different backgrounds. One of us (as the reader may have guessed) is Bengali, one Punjabi; one of us is Hindu, one Sikh. What is common between us is a concern for human well-being and a belief in the fundamental importance of empathy, tolerance and compassion; the need to treat all human beings as equal; and to reach out to anybody in need — irrespective of religion, gender, and caste. We believe that judgments concerning what is morally good or fair must not depend on who is making the judgment or his or her religion or race. These are principles emphasised in the writings of John Rawls and go back to the Enlightenment philosophers. These are also principles that can be found in the writings of philosophers and religious thinkers on the Indian subcontinent. These are the moorings of the very idea of India.
India’s composite culture
•This is the time to remember the spirit of Guru Nanak, which led Guru Arjan to write, “No one is my enemy, no one is a stranger, I am connected with all,” and Guru Gobind Singh to insist, “Recognise all of humanity as one.” This is the time to remember Rabindranath Tagore’s resonant verse: “Come Aryans, come non-Aryans, Hindus and Mussalmans/ Come today, Englishmen, come Christians/ Come Brahmin, cleansing your mind/ Join hands with all.”
•It is the sharp erosion in these basic moral tenets in India that concerns us. India has had a turbulent history since its independence on that momentous midnight of August 1947. There have been dark times and events that we should all be ashamed of. Following the end of the Second World War, many new nations were born as peoples and lands shook off their colonial shackles and declared independence. These nations began with idealism, embracing democracy and equality, but military coups and religious captures felled the ideals of one nation after another. But India stood out as a beacon of hope, committed to democracy, freedom of speech and secularism. From the mid-1990s, it also began to see rapid economic growth.
•There are still many challenges to contend with. There is poverty and discrimination, there is corruption and a growing environmental challenge, and there is pollution that, if left unchecked, will damage the cognitive powers of future generations. We have to attend to these urgently. The steady progress of the economy since the mid-1990s was raising hope that we would take on these challenges head on. The divisiveness being advocated has, however, caused a setback. This is affecting trust and cooperation in the nation. For example, the use of the state machinery in Uttar Pradesh to seek “revenge,” and to promote the ring-fencing of people and silencing of voices is ethically unacceptable and doing great damage to India’s standing globally.
Trust improves economy
•What is not always appreciated, but for which there is a lot of evidence, is that societal trust and a sense of belonging improves economic outcomes, including growth. Economists Yann Algan and Pierre Cahuc have used rigorous statistical analysis to show that higher levels of trust can cause national income to increase dramatically: Africa, with Sweden’s trust levels, would achieve six times its present per capita income. A recent study, published in Harvard Business Review, shows that if workers feel appreciated and have a sense of belonging to their company, they have a 56% higher job performance, there is a 50% drop in turnover risk, and a 75% reduction in sick days. “For a 10,000-person company, this would result in annual savings of more than $52M”. One has to extrapolate this to a nation to get a sense of how economically important this sense of belonging is.
•Even before the turmoil of 2019, India’s economy was already reeling, with industry, agriculture and exports all growing much slower than a decade earlier. But now, beyond the basic moral principles at stake, we argue that the promotion of hate and divisiveness is also hurting India’s economy. We are at risk of a major downward spiral.
A call to reject partisanship
•We must make this a moment to pause and ask ourselves what we as individuals must do. We write this to appeal not just to the young students, scientists and Hindus, Sikhs, Christians and Muslims who are already out there protesting against the doctrine of exclusion, but also to those who are preaching violence. We urge them to look into their own hearts, and drop their cudgels. We suggest to the police and functionaries of the state that to make people listen to and respect them, they must not just wield the baton, but also be bearers of ethical standards.
•We take hope from the fact that so many students on our campuses understand this. We take hope from the fact that so many leading thinkers and scientists, unaffiliated to any political party, have begun to speak up. We take hope from the Sikhs who have refused to discriminate against other religious groups, from the Hindus who have stood with the Muslims and Christians to defend all minorities, to uphold India’s commitment to democracy and secularism.
•We are not suggesting that if we stand together and pull back from the brink of the precipice, all our challenges will disappear. India is a lower-middle income economy, with a great deal of injustice, unfairness and suffering that will not vanish in haste. Yet, if we resolve to reject the partisanship that is being preached and then strive to take on the many challenges, there can be hope, the hope of pulling back from the brink and building a society and an economy that will be exemplary for not just its own people but for the world.
📰 Scoring a foreign policy self-goal
The government’s political expediency over the Citizenship Act has landed India in an unenviable diplomatic spot today
•The frightening fall of a great nation has begun. Once a leading light of inclusiveness, democracy, and a major pole of stability in the comity of nations, despite occasional failings, India today is embarrassingly at the centre of attention for bad behaviour. While the present government’s decisions on Jammu and Kashmir put the spotlight on New Delhi, the recently legislated Citizenship (Amendment) Act, 2019, or CAA, 2019 pushed it over the edge. Not only has the Act deeply divided a communally sensitive country, its effect is bound to have long-term implications for India’s foreign policy. India’s global standing is ever more vulnerable today, and the chinks in India’s diplomatic armour have never been so evident.
The essence of the CAA
•But before we weigh the foreign policy implications, let us understand the CAA for what it really is. Shorn of the deliberate confusion and politically-convenient rhetoric, the CAA is neither about refugees nor about illegal immigrants, as the government would like to claim; it is about the Muslims in India. If you are an Indian Muslim with incontrovertible domicile documents, it is a message for you. If you do not have the requisite documents and you are Muslim, this is where you should be scared about your future.
•Let us be clear: If the objective is to provide refuge to the persecuted, what we need is a proper refugee law with legally sound standard operating procedures on a par with global standards, and without discrimination. If it is about illegal immigration, the assumption — when one reads the CAA and the National Register of Citizens (NRC) together — that only Muslims can be illegal immigrants is a deeply problematic one.
Regional fallout
•The present government’s zealous pursuit of the CAA citing human rights violations in the neighbourhood and illegal immigration from it is a foreign policy self-goal. Clearly, the Bharatiya Janata Party (BJP) could not have, if it were to derive domestic political utility from it, talked about illegal immigration to India without castigating Bangladesh, nor could it have pontificated about the human rights violations of non-Muslims in the region without pointing fingers at Pakistan, Bangladesh and Afghanistan. It is such political expediency that has landed the government in an unenviable diplomatic spot today.
•It would, however, be foolish of those of us who are outside the government to assume that the leadership did not foresee the negative fallout its policies and rhetoric on India’s relations with two of its best friends in the region, Bangladesh and Afghanistan, at a time when it does not have many friends in the neighbourhood.
•But that is not the point. That the BJP leadership would have, most likely, foreseen the serious loss of diplomatic capital with these countries and yet gone ahead with its anti-neighbour rhetoric given its domestic political utility is what makes it singularly worrying. Put differently: the political bosses of the Indian government decided to sacrifice the country’s crucial foreign policy interests at the altar of domestic political contingencies.
•This becomes a diplomatic double whammy given how India is already losing its traditional heft and influence in the region and at a time a China-led balance of power is emerging in the region. Once again, New Delhi is not unaware of it. On the contrary, South Block’s foreign policy mandarins are wary of the Chinese state’s sure-footed engulfment of the neighbourhood. And yet, the political bosses have preferred domestic political gains over diplomatic benefits, relegating foreign policy to the whims of electoral outcomes.
•That from a foreign policy point of view the CAA is short-sighted is obvious, and that it will adversely affect India’s regional influence and standing is an unavoidable outcome; what is shocking is that the political leadership does not seem bothered by it. That is what should worry us.
Reputational costs
•From Kashmir to the NRC to the CAA — one reckless action after another — New Delhi seems to have finally exhausted the goodwill of the international community. In December, the Office of the United Nations High Commissioner for Human Rights called the CAA “fundamentally discriminatory” — something unheard of in recent memory. Again in December, the United States, arguably India’s best friend today, urged the country to “protect the rights of its religious minorities in keeping with India’s Constitution and democratic values”. The same month too, the International Commission of Jurists (ICJ) referred to CAA as not only “highly discriminatory and arbitrary” but also contrary to New Delhi’s “obligations under international human rights laws”.
•New Delhi’s attempts to reach out to the international community, albeit selectively, while assiduously avoiding those critical of its policies, have not met with much success. When India’s External Affairs Minister pulled out of a meeting with senior members of the U.S. Congress after U.S. lawmakers refused New Delhi’s demands to exclude Congresswoman Pramila Jayapal — she has been critical of the Indian government’s policies in Kashmir — the message that went out was that India is unable to justify its own policies. Or that it does not bother with what others think of it.
•For a government that steadfastly shied away from internationalising domestic issues, its own actions have done precisely that thereby bringing lasting damage to the country’s reputation. Now, one might ask as to why a state should worry about its reputation and whether it is not enough to use one’s material power to achieve foreign policy outcomes. For one, the BJP has traditionally been more concerned about India’s reputation, at least as a rhetorical plank, than anyone else. Second, India’s traditional foreign policy pursuit has been a careful mix of soft power and material capability with the balance often tilting in favour of soft power. Finally, reputation, among other things, is critical in aiding India’s quest for a place at the high table of international politics, such as acquiring a United Nations Security Council (UNSC) seat.
•More so, status quo powers, as opposed to revisionist ones, are far more favoured by the international order. India was the region’s quintessential status quo power that the world loved to engage and promote. This key characteristic of India may be undergoing a dramatic change, with many viewing India as a reckless power with revisionist ambitions — just as Pakistan has long been viewed.
Great power equations
•India is a major power with great power ambitions and may even be an indispensable power in some respects. However, if India decides to shape its foreign policy based purely on domestic calculations, its indispensability and system-shaping abilities will take a serious hit. A great power, among other things, is a state that is willing to live up to certain global expectations and has the ability and willingness to help with system maintenance.
•Great powers have traditionally been supportive of India’s rise in the global order and have more or less stood by India in its pursuit of power and reputation. This is bound to change thanks to the government’s domestic preoccupations. While the Trump White House may be indulgent towards New Delhi, at least for now, the patience of the Washington establishment is fast running out. If there is a Democratic government in Washington DC next year, things might get harder for New Delhi. Moscow’s unequivocal support for New Delhi is now a thing of the past, and New Delhi’s fall from grace suits Beijing more than anyone.
•When was the last time we heard a mention of rising India? When was the last time someone “seriously” argued that India should be part of the UNSC? Our sheen has come off and the world is beginning to see the ugly realities within.
•Moreover, thanks to the heavy political fire-fighting that it needs to do on a daily basis on issues such as Kashmir, the NRC, and the CAA, much of New Delhi’s diplomatic capital is spent on doing precisely that. Its focus on crucial regional and global issues seems to be waning fast. With little talk of renegotiating the Regional Comprehensive Economic Partnership, no appetite to be part of the Afghan peace process, and disinterest in the Indian Ocean’s geopolitics, among others, the regime in New Delhi resembles a provincial capital today.
📰 Spotting an opportunity in changing fundamentals
Growing rivalry between the United States and China could spell a strategic moment for India
•The “Phase One” trade deal between the United States and China gives both sides a reprieve, especially since the U.S. stayed its hand in not imposing additional tariffs worth $160-billion in mid-December. But the rift runs deep. Beyond trade, the chasm is growing. A technology war has erupted in the areas of artificial intelligence, digital space and 5G. Tensions have risen following the U.S.’s passing of the Hong Kong Human Rights and Democracy Act of 2019 and the proposed Uighur Act.
•The slowdown in the global economy is compounded by the U.S.-China trade war. As more sectors get drawn in, costs are rising and disrupting global supply chains.
Energy concerns
•Slack demand for energy and surplus production mainly by the U.S. had lowered oil prices, which was good news for India, given its huge imports. Lower energy prices may help India address its current account deficit. It can also make India’s export sector more competitive. But oil prices have surged more than 4% following the U.S. air strike killing Iranian General Qassem Soleimani, Commander of the Qods Force. An outbreak of hostilities would send oil prices soaring. Unlike India, China continues to buy Iranian crude oil and is its largest buyer. Reports suggest that China will invest $280-billion in developing Iran’s oil, gas and petrochemicals sectors and even station Chinese security personnel to guard Chinese projects. Dependence on China prevents Iran from criticising China on its policies in Xinjiang. In tensions with the U.S., Iran sees in China a sympathiser.
•India’s ramped up energy imports from the U.S. are likely to touch $10-billion in 2019-2020. Meanwhile, China’s interest in Saudi Aramco’s initial public offering and interest in weakening the dollar in the global energy market has grown. It is forging closer ties with oil producers that are in the U.S.’s cross hairs on human rights and governance issues. This facilitates its naval presence in the western Indian Ocean, including the Strait of Hormuz.
On trade
•According to a State Bank of India “Ecowrap” report of July 2019, India has scarcely benefited from U.S.-China trade. Of the $35-billion dip in China’s exports to the U.S. market in the first half of 2019, about $21-billion (or 62%) was diverted to other countries. The rest, $14-billion, was made good largely by the U.S. producers. Going by a UN Conference on Trade and Development report of November 2019, additional exports from India to the U.S. market in the first half of the year due to trade diversion amounted to only $755-million. U.S. tariffs on China seem to have made some other players such as Taiwan, Mexico, Vietnam and the European Union even more competitive.
•China is facing a great shortage of pork due to an outbreak of swine flu but India’s meat exports, primarily buffalo meat, reach China indirectly through Vietnam and the Philippines, adding to costs and reducing market share. Besides, India’s pork exports are meagre. China’s ambitious thrust on artificial intelligence, robotics, autonomous vehicles and space technologies has goaded the Donald Trump administration into action. With tensions rising after the blacklisting of Huawei Technologies by the U.S., the spectre of a high-tech war looms large.
•The big three Chinese high-tech companies, Baidu, Alibaba and Tencent, together poured in $5-billion in Indian startups in 2018. India could use this opportunity to try and force China to pry open its market to India’s IT and other tech exports. The U.S.-China high-tech war threatens India’s strategic autonomy. Yet India has decided to allow all network equipment makers, including Huawei, to participate in 5G spectrum trials. The outcome is far from clear.
•As U.S.-China tensions drive supply chains out of China, India could emerge as an alternative destination with the right policies, as Vietnam has done.
•Any impact on clean energy targets in China due to U.S. technology restrictions in the nuclear field could be a setback to efforts to reduce emissions and mitigate climate change in the entire region.
•Denial regimes often spur domestic research and development and if the development of India’s own missile programme during years of U.S. sanctions is anything to go by, China may yet succeed in riding out the storm on the technology front.
•China claims that the U.S. is behind the disturbances in Hong Kong. There is no sign of the protests abating. If things turn uglier, India may have to cater to refugees of Indian origin.
Key regional issues
•The situation in the South China Sea is weighted in favour of China given its fait accompli in occupying several man-made islands. India has no role in negotiating the “Code of Conduct” with the Association of Southeast Asian Nations, though it is a participant in the “Quad” dialogue on broader issues in the Indo-Pacific. India reserves the right to sail and fly unhindered through the South China Sea in accordance with the principles of freedom of navigation and overflight.
•On connectivity, the U.S.’s position is helpful to India. Recently, the U.S. Principal Deputy Assistant Secretary, Bureau of South and Central Asian Affairs Alice G. Wells criticised the China-Pakistan Economic Corridor, which traverses Pakistan Occupied Kashmir, as eventually worsening Islamabad’s economic troubles. India is neither part of the Belt and Road Initiative (BRI) nor the Regional Comprehensive Economic Partnership. It is absent from the Indo-Pacific Business Forum created by the U.S., Japan and Australia as also from the Blue Dot network. A future challenge lies in India having to reconcile its own regional connectivity initiatives with the BRI projects that have mushroomed in the neighbourhood.
•In the ideological battlefield, China’s economic success has emboldened it such that it challenges the liberal democracy model and offers an alternative developmental model based on its own system.
•Overall, the military advances by China notwithstanding, U.S. defence spending far outstrips China’s budget. Its nuclear arsenal dwarfs that of China. With the creation of a U.S. Space Force as a separate arm under the U.S. Air Force, the U.S. will seek to increase its superiority in network-centric warfare. As China’s anxieties in the Asia-Pacific theatre grow, India may yet have to contend with a greater Chinese military presence on its periphery. The Western Theater Command created in 2016 is responsible for the border with India. It is the largest of China’s military regions, and the Tibet Military Command under it has been accorded a higher status than other provincial commands to widen its scope for combat preparedness.
•U.S.-China rivalry coincides with an upward trajectory in India-U.S. relations. This is important for equilibrium and multi-polarity in Asia, even as India and China try and build much-needed trust and cooperation.
