A prudent withdrawal

This is the season for withdrawals. President Trump has formally begun the proceedings for USA's withdraw from the global climate pact — the Paris Agreement.

India has withdrawn from the Regional Comprehensive Economic Partnership (RCEP), a club of sixteen countries including the ASEAN members plus China, Japan, South Korea, Australia, New Zealand and India. In terms of market power, it would have been the largest, having within its fold some of the biggest economies.

India's withdrawal was announced succinctly by the prime minister when he stated that when pitched against the interest of "all Indians", the agreement does not give a "positive answer". That is, he was articulating the fear that signing the agreement would have opened the flood gates of imports competing with those made within the country by ordinary Indians.

Who are these ordinary Indians? They could be the dairy farmers producing milk, butter and other derivatives pitted against the cheaper butter from New Zealand or meat from that country. It could have brought in cheaper apples from China or Japan and hurt the apple growers of Kashmir and Himachal Pradesh.

The fundamental problem with the RCEP agreement as it has been worked out is that it does not accommodate some of India's fears and consequent redressal measures suggested by India. One major redressal measure suggested was the automatic trigger of tariffs in case of an unusual surge in imports of some items.

The second fundamental issue which would have prompted India's withdrawal was an apparent rejection of its demand for a more free regime for services trade. This included the demand for easier movements of professional and service providers — which has been described as "movement of natural persons". India has some perceived edge in services exports and in its own interest, India would ask for better ground rules for unrestricted services trade.

The third overwhelming factor seems to be the use of non-tariff barriers. Use of non-tariff barriers is not unknown and all players make use of it, particularly because already under the WTO regime, tariffs have been progressively lowered and all that is left to shut out inconvenient imports was to put in place difficult-to-track non-tariff barriers.

These have been used most deftly in the past, and continues to be used as well, by the developed countries. Take, for instance, US imposition of a New York Harbour Maintenance Cess on all imports entering the country through the New York Harbour. Europe has its own package of such measures which create considerable hardships for exporters, including requiring of packaging, containers, disposals of packaging materials used and so on so forth. France, for example, heavily subsidises farm products, which drive imports uncompetitive, on the ground that these are given to maintain the French countryside.

However, no country can better China on this game. China has widely practised nominated ports for nominated products, under which for example, electric fans could be imported only through some remote port and if any consignment reaches some other port it has to go back. China also requires very quaint and difficult to follow labelling on the products in Chinese characters. These are only some of the most obvious ones, the more ingenious Chinese NTBs are bizarre.

In case of Japan, it is difficult to even comprehend these. Medicine exporters to Japan bite their fingers in desperation. No medical experts and doctors can attend a patient in Japan unless he has an advanced language degree in Japanese. What of service exports to that country. Once again, intricate labelling requirements on medicines, chemicals, pharmaceuticals make potential exporters run away.

It would have been an uphill task for the trade negotiators to get these things straightened. They would have found it impossible and left them in crooked shapes. In the end, not having got the reassuring changes, India has found it best to beat a retreat.

But then, trade records also do not give enough confidence. Figures indicate that India is running large deficits in their trade with most of the RCEP countries even as it is. A further freer trade with the same bunch of countries, in which tariffs would have come down hurtling, could have resulted in a balance of payments crisis in no time.

Ever since we started trade with China joining in WTO, India is running a huge trade deficit. Excepting some iron ore and other raw materials to that country, our trade with China has increasingly meant that almost all electrical goods are being imported from China and sold by Indian companies under their own brand name.

Look for an electric kettle, a fan, a sea iron to even Diwali lights and images of resin gods and goddesses, all are coming from China. The official trade is only a part of the overall flow of goods from that country. Periodically, some article or other faces such a surge in imports that a few Indian units are forced to bring down shutters. At one point in time, I recall, Indian dry cell battery makers had to shut down as Chinese imports flooded the Indian market. RCEP is lukewarm to address India's concerns about sudden surges and automatic tariffs. No wonder that the PM thought it prudent to not sign on the dotted line.

The fact of the matter is that we have miserably failed in manufacturing. Our costs still remain high. Doing business in India, despite all the so-called improvements, continues to be a formidable challenge.

It will still be a better strategy to rather remain a little disengaged from the world and build up own strengths before getting into free trade arrangements. China was a closed economy when it quit its basic muscle before bursting on the world scene.

In the current state of the economy, when the domestic demand is running low, opening up the market to easier imports would be tantamount to handing over the country's vestigial demand to outside producers. It is better to be circumspect in difficult situations.

Views expressed are strictly personal