Global Trade Outreach: Besides Signing FTAs, India Should Also Consider Joining CPTPP

The talks with New Zealand are being held even as the nitty-gritty of the much bigger pact with the European Union is being ironed out. It is also in the backdrop of the differences with the US over economic issues that have so far held up the finalisation of the long-awaited trade agreement.

In both cases, a big hurdle to finalising the deals has been India’s determination to keep access to the agriculture and dairy sectors out of the purview of the deals. Some areas, like fruits and nuts, have been opened up, but others continue to be restricted segments.

Significantly, these red lines did not prove to be a stumbling block for the India-UK FTA that was among the earliest to be concluded this year. In the case of the European Union, also, these issues may not end up being a hurdle to finalising the deal, as concessions have been made in other areas like automobiles and alcoholic beverages.

For the US, however, these red lines have been major obstacles to concluding the deal. This is in addition to India’s continued purchase of Russian oil, which prompted an extra 25% tariff to bring the total levy to 50%. 

Trade Deal Expansion

While these negotiations are still underway, New Delhi has sought to pivot to new markets. A special focus is on West Asia, which is a growing market and has a large Indian diaspora that has an appetite for goods from this country. An FTA has already been concluded with the UAE, with which bilateral trade has already touched US$100 billion, including roughly US$36 billion worth of exports.

An agreement is also being negotiated with Oman, with which bilateral trade is at US$10 billion. 

Qatar is another country in the region with which a trade deal is on the anvil. With bilateral trade at around US$14 billion annually, the goal is to increase India’s exports, which are currently far lower than the imports.

Regional Trade Groupings

Yet, all these efforts to tie up free trade pacts in a bid to diversify exports seem to have overlooked the possibility of entering into regional trade groupings. These can yield results faster and cover much larger areas. In the case of the Regional Comprehensive Economic Partnership (RCEP), India has taken the decision to opt out on the grounds that it could be faced with a flood of Chinese imports. This has been a pragmatic decision, but other regional groups should not be regarded with similar suspicion. 

Notably, the trans-Pacific group known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can be looked at as it includes 11 countries, with the exceptions of the US and China. The bloc was originally known as the "Trans-Pacific Partnership" and considered "high-priority" by the Obama administration. Donald Trump, on the other hand, decided to exit the group in 2017, during his first presidency, on the grounds that it would lead to loss of jobs and investment in the US. 

It has now been renamed and revamped, with some of the tough conditions on intellectual property rights and investment having been mellowed down. The CPTPP members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, the UK, and Singapore. So far, India has remained hesitant and has not even applied to join the bloc, though China and South Korea have both sought entry. 

Interestingly, there are even voices within the government that argue in favour of joining the group. Niti Aayog CEO B.V.R. Subrahmanyam had said in November last year that India should consider joining both the RCEP and the CPTPP. He felt that membership of these groups would benefit medium and small enterprises, while enabling this country to benefit from the China Plus One Policy being followed by many multinationals.

Benefits Of Joining The CPTPP

Representatives of multilateral financial institutions such as the Asian Infrastructure Investment Bank have also recently spoken of the “transformational benefits” of joining the CPTPP.

AIIB Chief Economist Erik Berglof, who was speaking on the sidelines of the Kautilya Economic Enclave, felt it could help India deal with deep-seated structural inefficiencies and push for greater market integration.

This is a move that could help this country iron out tariff inequalities at one stroke with members of the CPTPP. India already has favourable FTAs with some countries, including Australia and the UK, and talks are underway for bilateral deals with others. But the bloc has a much wider sweep and range. It could also provide a comfort level for investors following the China Plus One Policy. 

New Delhi, thus, needs to consider multiple options, including joining larger regional trade blocs, even as it continues to move ahead with bilateral pacts. In a sense, one can argue that the punitive tariffs imposed by the US have come as a wake-up call for both the government and exporters to recognise the need to reduce reliance on a single large market. The strategies now being adopted should have been implemented earlier. It is not too late, however, as the ongoing drive to diversify markets is bound to yield results in terms of higher export growth.