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Cooperation 2.0: India and APEC are getting closer

, July 24, 2014, 0 Comments

Apec & India getting closer-MarketExpres.inIndia is not a member of the APEC notwithstanding its long history of cultural and commercial exchanges with several APEC members. While this might seem odd, the absence is not difficult to explain.

India was hardly a blip on the region’s radar when the ‘flying geese’ began fanning their wings after the 2nd World War, drawing struggling economies with colonial pasts into a well-knitted architecture of explosive export growth combining cheap labour, embodied technology and disciplined organization practices. India’s inward-looking defensive trade policy, coupled with commitment to non-alignment and ideological discomfort with laissez faire and open trade policies, ensured its distance from the APEC remained far and unbridgeable.

The costs of India and APEC staying apart have been high for the former. India could not develop sustained economic partnerships with the Asia-Pacific during its period of takeoff from the 1960s. As a result, Indian industries and producers have limited presence in the dense supply chains and production networks dotting the region and covering an exhaustive range of manufactures and services.

The last couple of decades, however, have been different with India beginning to integrate closer with the APEC economies. This has happened with India gradually moving away from its earlier insular external economic policies to a more liberal, outward-oriented vision. Falling tariffs, easier investment rules and friendlier visa practices have facilitated greater movement of goods, services, capital, technology and people between India and APEC economies.

India’s annual average GDP growth of 8.5 per cent for five years in the last decade before the outbreak of the global financial crisis saw its commerce with the region increasing sharply. The robust increase was the result of a fast-growing Indian economy trading vigorously with regional partners and the latter heartily responding to synergies with an economically vibrant India.

The direction of India’s trade underlines the importance of Asia-Pacific economies in its external economic engagement. Eight APEC economies – China, USA, Hong Kong, Indonesia, Singapore, Korea, Japan and Malaysia – figure among India’s top twenty trade partners and account for a third of its global merchandise trade.

While the US and Japan have traditionally been India’s major trade partners, the last decade has seen the emergence of China as the country’s largest trade partner. At the same time, trade with the Southeast Asian members of APEC such as Singapore, Malaysia, Indonesia and Thailand has also increased rapidly. The economic interface has moved beyond trade to investment with Singapore, USA and Japan being among the largest sources of inward FDI for India and Korean, Malaysian and Chinese investments also becoming increasingly conspicuous in the country.

The last decade was notable for India’s ‘FTA rush’ as it accelerated efforts to negotiate bilateral trade agreements with several countries. These efforts were most visible in Southeast and Northeast Asia. A FTA in goods with ASEAN has been followed by an agreement in services, which is to be signed soon.

India has bilateral comprehensive economic cooperation agreements (CECAs) covering trade in goods and services with Singapore and Malaysia and a preferential trade agreement (PTA) with Thailand. It also has comprehensive economic partnership agreements (CEPAs) with Japan and Korea. Beyond the Asian members of the APEC, India has PTAs with Chile and Peru. It is currently negotiating bilateral agreements with three other major APEC economies – Canada, Australia and Indonesia. The CEPA with Canada is at an advanced stage with negotiations pinning down a draft agreement.

Several rounds of negotiations have taken place between India and Australia. Discussions with Indonesia are yet to advance substantially beyond the feasibility study stage.

India’s engagement with the Asia-Pacific should increase manifold through the RCEP. An exhaustive FTA being negotiated by the ASEAN and the six countries with which it has bilateral FTAs (i.e. Australia, China, India, Japan, Korea and New Zealand), all RCEP members are from APEC, except Cambodia, Laos, Myanmar and India. While India has formal FTAs with the ASEAN, Japan and Korea, the RCEP will secure additional benefits for India.

It will provide India preferential access into major APEC member markets such as Australia, China and New Zealand with whom it is yet to have FTAs. The RCEP will also enable India to contribute and participate in the growth of a modern trade governance architecture covering a substantial part of the Asia-Pacific.

Constructive involvement in rule-making at the RCEP should reduce India’s distance from the ‘gold standard 21st century’ trade framework of the TPP, which has several members common with the RCEP (i.e. Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam). The common club is expected to expand with Korea, Thailand and China likely to join the TPP in future. Increase in common members should produce issue-based convergences among the TPP and RCEP templates. For India, the RCEP provides the best opportunity for adapting to new, modern trade rules as a stepping-stone for moving on to the more ambitious TPP.

India’s request for becoming a formal member of the APEC made in 2007 is yet to be accepted. The APEC is expected to take on new members with the moratorium on membership having expired in 2010. India is not the only country keen on joining the APEC with several others from South Asia, Northeast Asia and South America also aspiring to do so. Deciding on new members would be difficult and the lack of movement on part of the APEC is understandable.

The Chinese President Xi Jinping’s invitation to India’s new Prime Minister Narendra Modi to the forthcoming APEC meeting in November 2014 in China is a further signal of India’s growing strategic proximity to the APEC. Indeed, fast-growing economic linkages and memberships in major regional and global forums such as the East Asian Summit (EAS) and the G20 make India a strong candidate for the APEC.

India would also be reasonably confident of having the strategic backing of several major APEC members in support of its entry. But since its entry would influence the balance of power within the grouping, existing members would be forced to ponder hard over the potential implications.

Strategic implications apart, one of the major hurdles impeding India’s entry in the APEC is its sullied reputation of being a hesitant, if not reluctant globalizer with a strong penchant for drumming up overtly ‘defensive’ trade agendas. Several APEC members complain about the frustrating experience of negotiating with India due to its stubborn views on granting market access.

It is important for India to note that the APEC continues to be guided by the principle of voluntary liberalization. India’s trade negotiating posture is largely antithetical to this principle. For decades, APEC members have been used to open economic regimes allowing unhindered flows of goods and services.

The TPP would be shifting the APEC to a more open and exhaustive trade architecture characterized by not only WTO plus and extra issues (e.g. investment, labour, environment), but also more minimal spaces for sovereign states in external trade governance. India continues to be uncomfortable with such templates. APEC members are only too aware of the discomfort and are skeptical about India’s commitment to external trade liberalisation. The skepticism has been responsible for giving rise to misgivings over India being a ‘misfit’ at the APEC.

India needs to be proactive in correcting these adverse perceptions. Diplomatic efforts to enter the APEC must be backed by strong commitment to trade liberalisation. Making its participation in ongoing trade negotiations broad-based and constructive with adequate clarity and decisive positions on new generation trade issues would send the right signals to the region.

At the same time, the more skeptical among the APEC would benefit from a clearer understanding of the domestic complexities dominating India, particularly the psychological disinclination of its domestic industries and businesses to reconcile to open economic frameworks given the long history of protective policies. India can help matters by institutionalizing frameworks at the second track level for facilitating better understanding of the benefits of regional economic integration to its domestic constituencies and consider joining institutions related to the formal process such as the PECC.

Both India and APEC would benefit from a perspective that views each other as entities with different histories and backgrounds but common positive intentions. Over the years, India and the APEC have been coming closer thorough both markets and institutions. Formal association of the world’s 10th largest economy with a market of around US$2 trillion and the world’s most robust economic grouping can only create mutually win-win outcomes.