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India Contemplates On Joining The World’s Biggest Trade Pact After The WTO

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India which had earlier withdrawn from Regional Comprehensive Economic Partnership (RCEP) trade talks is now mulling to rejoin the negotiations after it received a fresh proposal from the RCEP members, according to reports.

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RCEP is a mega free trade agreement among 10 ASEAN members apart from India, China, Japan, Australia, South Korea and New Zealand and if inked would be become the biggest trade pact after the World Trade Organisation (WTO).

The fresh letter sent by RCEP members following a meeting of the RCEP Trade Negotiations Committee on April 20-24 may indicate accommodation of some of India’s key conditions and finalization of the free trade talks by 2020-end.

An official privy to the matter confirmed that India’s Commerce Ministry and the Ministry of External Affairs were deliberating on the path of action after the country received a formal letter from the RCEP asking it to rejoin the negotiations.

The RCEP could become one of the biggest free-trade blocks in the world if India joins, accounting for 39 per cent of global GDP, 30 per cent of global trade and 45 per cent of the total population.
Pros and cons of RCEP.

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India has a trade deficit with 11 out of the 15 RCEP countries and economic experts believe that New Delhi pulled out of the agreement because RCEP might have further widened India’s adverse trade balance.

As per the latest data provided by DGCIS, India has a trade deficit of USD 53.57 billion with China, which is half of the total USD 105 billion trade deficit with the rest of the RCEP countries.

The trade deficit was widened after China joined the World Trade Organization (WTO) in 2001 and Indian Government believes a new wave of liberalization under RCEP would further reduce tariff lines across a higher number of products, which in turn would worsen this large trade deficit.

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Also, after India signed a Comprehensive Economic Partnership Agreement (CEPA) with Japan in 2011, which called for lowering of tariffs on almost all of the goods traded between the two countries, the imports from Japan increased at a faster pace than exports from India.

A similar trade deal with South Korea in 2010, which called for a reduction on taxes on the goods traded between the two countries, resulted in widening India’s trade deficit. India, which was the sixteenth member of the RCEP, quit talks in November 2019, following a failure to reach consensus on the degree of market access to be granted by New Delhi and on the elimination of duties on the total number of traded products.

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The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP,” Prime Minister Narendra Modi had then stated in his address at the RCEP summit in Bangkok, according to a tweet by official broadcaster Prasar Bharati.

“It also does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP Agreement.” “When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer,” Modi had said. “Therefore, neither the talisman of Gandhiji nor my own conscience permits me to join RCEP.”

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Africa emerges as a new battle ground for India and China for trade, commerce war

India sees this initiative as an effort by China to flex its economic muscle and extend the reach of its influence. “However, India’s engagement with Africa is not limited to trade and commerce.

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Post the border clashes, India and China are striving to create a robust influence in Africa through humanitarian aid and investments. However, with the countries adopting different outreach strategies, analysts suggest that competition between India and China is unnecessary as there is room for both to make their presence felt. 

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According to Maria Siow, a China-based journalist and analyst, India’s renewed focus on Africa is a result of China’s growing footprint on the continent, not just in terms of trade and commerce, but also Beijing’s rising maritime interests.

China’s Belt and Road Initiative aims at connecting Asia with Africa and Europe through land and maritime routes which would enable regional integration and growth in trade and commerce.

Recently, Chinese Foreign Ministry spokesperson Zhao Lijian said during a press conference that a total of 44 African countries and the African Union Commission have signed cooperation documents with China on the Belt and Road initiative.

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“It is a vote of confidence in China-Africa cooperation from our African brothers,” he added.

India sees this initiative as an effort by China to flex its economic muscle and extend the reach of its influence. “However, India’s engagement with Africa is not limited to trade and commerce.

The Indian diaspora, for instance, has been a major force in several African nations’ pursuit of prosperity and political participation,” said Swaran Singh, a professor at the Jawaharlal Nehru University’s School of International Studies.

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India and China stand far apart in terms of the size of their economies. India’s US$2.7 trillion versus China’s US$14 trillion which acts as a roadblock for New Delhi to make further inroads in African nations.

According to United Nations trade data, 39 African countries imported more than US$71 billion worth of goods from China in 2017 and only US$21 billion from India.

“African governments are therefore aware that in spite of their rapprochement with India, China remains the most important – and at the government level, the most trusted – development and investment partner on the continent,” said Lin Minwang, the deputy director of Fudan University’s Institute for South Asian Studies.

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Nevertheless, India has not made huge loans to African countries and thus avoided being a major part of the serious debt problems facing by many African countries today.

However, it is expected that India’s investment in Africa will become more valuable especially in Africa’s health care and pharmaceutical sectors. Sizeable investments have already been made in oil and gas, mining, banking, pharma, textiles and other sectors in African countries under the strategic initiative, “Focus Africa” by the Government of India launched in 2002.

Zhang Yongpeng, a senior research fellow at the Chinese Academy of Social Sciences’ Institute of West Asian and African Studies noted that even though India posed a challenge to China’s strategy in Africa, for instance in bidding for commercial projects, the economic threats were not daunting for now.

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African nations are unwilling to choose between China and India because of the accruing benefits and investments from both nations. Also, the African governments are avoiding being dragged in conflicts, especially during the ongoing trade and diplomatic tensions between the US and China and the border tensions between India and China.

“India tends to have largely positive perceptions as a fellow Global South democracy. China can sometimes be more controversial, for example, due to the recent ill-treatment of Africans in Guangzhou,” stated Cobus van Staden, a researcher at the South African Institute of International Affairs.

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India refuses to review RCEP decision over China’s border hostility – Reports

Last year, India backed out of the RCEP agreement citing its negative effects on “farmers, MSMEs and dairy sector”. “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP.

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India is firm on the decision to not become a member of the RCEP (Regional Comprehensive Economic Partnership). The Modi government is reportedly “not reviewing” its decision on RCEP due to the presence of China as a member.

According to the sources, India has decided it won’t join any trade agreement including RCEP where China is a member as matters have turned worse for India, especially after the border stand-off with China.

Last year, India backed out of the RCEP agreement citing its negative effects on “farmers, MSMEs and dairy sector”. “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP.

It also does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP Agreement,” PM Modi had stated at RCEP summit in Bangkok. The summit included China, Japan, Australia, New Zealand, South Korea, and the 10-nation ASEAN grouping.

“There is no question to join the pact now that the prime minister has given a clarion call to a self-reliant or ‘atmanirbhar’ (self-reliant) India,” said an official who refused to be identified. The comments came after Thailand said all member countries have decided to sign the trade pact by the end of 2020 without India, and the deal may come into force by the middle of next year.

According to Chinese state mouthpiece, Global Times (GT), this is a method of venting of irrational emotions after a recent deadly border conflict in the Galwan Valley.

“India’s years of hesitation toward the RCEP are essentially due to the country’s weak manufacturing sector,” it said. “After the deadly border conflict in June, India’s diplomacy has entered an irrational state of anger.

It is expanding its emotional approach to many other aspects of relations. Using border tensions with China as an excuse for its latest RCEP rejection is just another example. If India continues this irrational approach, it would not only harm regional interests but would not benefit India’s own long-term interests,” it added.

It further criticised the Indian media for calling RCEP as “Chinese-dominated” and “Chinese-backed” trade deal.

Despite China’s belligerence, no other country has shown any hesitation for signing the RCEP agreement. “For countries such as Australia, South Korea, Japan and New Zealand it will be difficult to have inner coherence between geopolitics and trade,” said Rajiv Bhatia, a veteran diplomat.

Vietnam, which is now the ASEAN chair has said that it will continue to urge India to join the RCEP “whenever it feels comfortable”.

Amid soaring tensions in the South China Sea when the Chinese ship attacked and sank a Vietnamese boat near the Paracel Islands, it is still going to go ahead with the RCEP deal. Similarly, Australia, which has blamed China for the origins of Covid-19 and its growing military aggression, also seems clear about joining the RCEP.

China’s advice to India is that while facing a “more powerful neighbour”, it is imperative for India to properly assess its situation and rationally reduce its rivalry toward China to develop favourable economic and diplomatic strategies, rather than “irrationally heating up nationalism and blaming China when it encounters unsatisfactory situations”.

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India can ‘no longer’ choke China at the Strait Of Malacca as Beijing finds solution

The Strait of Malacca is a strategic waterway between Indonesia and Malaysia through which the majority of Chinese imports pass. The narrow waterway also makes the perfect chokepoint from the perspective of India, and should tension between Beijing and New Delhi rise, the Malacca Strait can be blocked easily by India. 

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Could the advantage that India enjoys over China due to the Strait of Malacca be coming to an end? Does China have a way to tackle the Indian plans of chocking Beijing at the Malacca Straits – the strategic waterway, in case of a war?

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India’s position at the mouth of the Malacca Strait has created panic amongst Chinese officials as they try to find an alternative route, writes the Forbes.

The Strait of Malacca is a strategic waterway between Indonesia and Malaysia through which the majority of Chinese imports pass. The narrow waterway also makes the perfect chokepoint from the perspective of India, and should tension between Beijing and New Delhi rise, the Malacca Strait can be blocked easily by India.

India’s natural position in the Indian Ocean, with basing capabilities in the Andaman and Nicobar Islands at the mouth of the strait, would allow its navy to cut it off in the event of a crisis or war with China.

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Keeping in mind the recent flare-up between India and China, Larry Bond, renowned naval author and creator of the Harpoon war game series, says that if India wanted to block trade with China, all it has to do is its park ships at the mouth of the Malacca Strait.

The vast majority of China’s oil imports, from the Persian Gulf, Venezuela and Angola, pass by this route. Due to the strategic importance of the waterway, there is fear amongst Chinese officials that India could block the Malacca Strait in case of war.

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Experts at EurAsian Times believe that the strategic importance of the Malacca Strait and the advantage it gives to India will likely reduce over time as Beijing find alternative routes.

Bypassing the Malacca Strait

The fact India enjoys a strategic advantage over China because of the Malacca Strait has forced Beijing to explore other options and find ways around the waterway.

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One such option is Gwadar Port in Pakistan. As part of the China Pakistan Economic Corridor (CPEC), Beijing has developed the port in Gwadar so that goods unloaded there will be shipped overland to China.

On June 8 the Pakistani government approved a $7.2bn upgrade to a railway which will connect Gwadar to Kashgar, China. The port is not yet operating at capacity, but the direction seems clear.

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While Gwadar is still susceptible to an attack by the Indian Air Force (IAF), it adds political and military risks as it is in a third country’s territory. The Indian Navy could try and block this port but it would require ships to move away from the Malacca Strait.

The other option Beijing is exploring is Northern Sea Route in the Arctic which could create a ‘Polar Silk Road.’ The importance of this is underlined by China’s 2018 Arctic policy. It asserts, “Geographically, China is a “Near-Arctic State”, one of the continental States that are closest to the Arctic Circle.”

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The policy statement goes on to say, “China hopes to work with all parties to build a “Polar Silk Road” through developing the Arctic shipping routes.”

Due to accelerated global warming, ice sheets are receding, thus making it possible for ships to travel via this route. Having sent its first ship through the region in 2013, Beijing is now investing in port infrastructure in the Arctic which connects to Europe.

China is also investing in designing ice breakers, vessels that would ease navigation through the Arctic. With help from Finnish Aker Arctic, China launched its first locally built ice breaker the Xue Long 2 in 2018.

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Apart from exploring new waterways and developing strategic ports, Beijing is developing a land route directly to Europe, as part of the Belt and Road Initiative (BRI), mainly as a way to export goods.

Thousands of trains are transversing across Asia in recent times, the modern-day version of the ancient Silk Road. Land routes are one way China can reduce the criticality of Chinese sea routes.

The strategic importance of the Strait of Malacca to China will lessen over a period of time. India will still be in a position to throttle Chinese supply lines there, but it will not have the same impact that it once had.

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