Free trade is good with transparency

Free trade is good with transparency

Freer trade is in India’s interest, and especially so in the dynamic Indo-Pacific region, but trade distortions are wholly avoidable. Commerce and industry minister Suresh Prabhu has rightly been circumspect in negotiations for the Regional Comprehensive Economic Partnership (RCEP), the proposed mega trade pact amongst the 10 member countries of the ASEAN, and its six free-trade agreement partners—Australia, New Zealand, Japan, Korea, China and India. Notably, India has called for stricter rules of origin to prevent, say, Chinese goods from flooding the market.

New Delhi has stressed that the country from which a product is exported needs to carry out the maximum value addition, so as to avoid routine trade diversion. It is a fact that globally, the average threshold level on domestic content and value addition is in the range of 40-60% to meet rules of origin requirements. It is true that the potential gains from trade from RCEP can be huge. The region comprises 45% of the world’s population, with a combined GDP of about $21 trillion. But scope for trade diversion and other distortions would harm our interests and need to be nipped in the bud. Stricter rules of origin with China would not suffice; we also need similar origin norms with other neighbours and trading partners for more trade transparency.

India is seeking 20 years to offer full tariff concessions to other RCEP partners except China, with which we want a longer period for removal of duties given its trade opacity. New Delhi has also sought easier movement of professionals under the so-called Mode 4 route, and there should be much potential for gainful give and take on both counts in trade, as India picks up economic speed and there’s better social and physical infrastructure here.