The Pulse | Diplomacy | Economy | South Asia

Rejecting RCEP: India’s Great Geoeconomic Misstep

Rejecting the Regional Comprehensive Economic Partnership is a colossal mistake for New Delhi.

Abhijnan Rej
Rejecting RCEP: India’s Great Geoeconomic Misstep
Credit: Twitter/ Narendra Modi

India’s decision on Monday to stay away from the Regional Economic Comprehensive Partnership (RCEP) was in many ways unsurprising, given the stiff opposition that emerged against the deal over the past few months. In an extremely polarized political atmosphere, it is a rarity that endangered Indian communists as well as the enfeebled mainstream center-left find something to agree on with the Hindu far-right – which was precisely the case when it came to their opposition to the mega trade agreement.

As China, ASEAN members, as well as others, including treaty allies of the United States such as Japan, Australia, and New Zealand, find common cause in freer trade despite growing geopolitical dissonance, India’s last-minute decision to not join RCEP is likely to have significant geopolitical ramifications.

Contrary to popular use, “geoeconomics” does not mean international economics or issues around the international political economy. Instead, it is in the stricter sense of using practices of trade, investment, and finance as instruments of statecraft that not signing RCEP will one day be reckoned as the moment when India lost the geoeconomic plot.

To see how this is indeed the case, let’s start with what else was going on in India while the country – and the world – remained riveted with the latest round of India-Pakistan tensions, which started in February and took a dramatic turn with the effective nullification of an Indian constitutional provision that granted significant autonomy to the now-erstwhile state of Jammu and Kashmir.

After Prime Minister Narendra Modi’s re-election in April, there was a significant expectation among many diplomats in Delhi – or trepidation, depending on the embassy in question – over the summer that China and India were ready to consolidate the so-called (and what by now has become plain, temporary) “reset” between the two countries following the first informal Xi-Modi summit in Wuhan in April 2018.

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The diplomatic upswing started with the visit of Xi protégé and Guangdong party boss Li Xi to Delhi in May; diplomats from countries normally not predisposed to viewing Chinese intentions benignly also raised the possibility of Beijing making significant investments in India soon. (One ASEAN diplomat described this to me as Xi possibly visiting India “bearing gifts” during the second round of informal summitry with Modi, in October.) Indian sources speculated the October summit could also lead to potential progress in resolving the vexing India-China boundary dispute. From Beijing, the biggest overture to Modi came in form of China removing its “technical” objections to including Pakistani terrorist Masood Azhar in the United Nations Security Council 1267 committee sanctions list in May – a goal that had consumed the Indian prime minister for much of his first term when it came to dealing with China.

And in other ways, signals from the Indian side gave an impression that Delhi was reluctant to cross Beijing amid this optimistic atmosphere. At the peak of the Vanguard crisis in the South China Sea, Vietnam desperately sought for India to take a firm and vocal stance in its favor – and therefore by implication, against China – which wasn’t forthcoming. (Delhi’s enthusiasm about getting embroiled in the South China Sea has remained lukewarm at best in recent years, for a variety of reasons.)

While it is true that India continued to hedge its bets as it always has – through (an extremely benign) passage exercise with the U.S., Japan and Philippines, and another iteration of the quad meeting, in Bangkok, both in May –  by end of July the Wuhan spirit began to look less and less like an apparition.

Then came August 9, when – with the addition of one new law – the Indian state of Jammu and Kashmir was divided into two union territories, Ladakh being one of them. India and China both claim the Aksai Chin region in that province. After the 1962 war between the two, the Chinese claim line there far exceeds that region. On top of it, China also holds the northernmost part of the new union territory, which it acquired from Pakistan in 1963.

Beijing reacted predictably.

Along with extremely strong official reactions to India’s move, it provided massive diplomatic cover to Pakistan’s outreach to the UN Security Council. Matters were also not helped by the fact that India had – and one can only hope that this was not inadvertent – carried out a massive military exercise along the disputed eastern sector of the India-China border while Xi was visiting Modi.

With all this going on in the background, as one can expect the summit flopped. One post-mortem of the forced Xi-Modi camaraderie at the seaside Mamallapuram by an Indian analyst between two senior positions in the Modi government argued that the real test of the impact of the summit would be whether India and China could converge on trade enough to make India’s joining RCEP a certainty. And now that we know how that eventuality unfolded, it brings us to the real fallout from India’s decision to stay.

First, by making bilateral trade issues with China a determining touchstone against which India would judge the merits of the multilateral RCEP, it effectively seems to signal everybody else (precisely, 14 other Asian states) that they were junior partners in the play. (By way of justifying India’s decision to stay out of RCEP, one Indian government source linked it to India’s way of showing “strategic clarity” on China.)

This stands to become especially grating for ASEAN, which sees India as doing too little, if ever. Compound this with India’s middling position on regional disputes, its crippled delivery capacity when it comes to completing committed projects (such as India-Myanmar-Thailand trilateral connectivity), and very public dissatisfaction with the existing ASEAN-India Free Trade Agreement and suddenly the prospects of Modi’s Act East Policy look bleak. Meanwhile, security partners like Australia and Japan will be left wondering about India’s long-term commitment developing networked across-the-board relations in the region that could help modulate Chinese behavior.

Second, when it comes to China, not signing RCEP does not in any way help improve India’s existing trade problems with that country, including questions about seeking access to providing services or reducing the trade deficit. If anything, now India would have to negotiate these issues on a strictly bilateral basis with China, the context being a relationship that has seen far too many ups-and-downs over the past couple of years. Indirectly, India’s decision also enforces the perception in an ASEAN split over China that it is Beijing and not Delhi that plays well when it comes to trade.

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Most importantly, the past few months have shown an India almost continuously preoccupied with its continental troubles, namely Kashmir and therefore Pakistan. By staying out of a trade agreement among maritime states, India unwittingly is yet against portraying itself as a besieged land power, rhetorical commitment to an undefined Indo-Pacific aside.