China is taking action to deepen economic engagement with Southeast Asia. India, despite Prime Minister Modi’s Act East rhetoric, is not.
In the second volume of his memoirs in 2000, Lee Kuan Yew wrote: “India is a nation of unfulfilled greatness. Its potential has lain fallow, under used.” Twenty years later, the same still can be said about ASEAN’s feelings towards India and its engagement with Southeast Asia – ‘the next big opportunity’ that has, time and again, refused to materialise.
With much pomp and platitudes about ASEAN-India strategic partnership, Prime Minister Narendra Modi welcomed all ASEAN leaders to New Delhi for a commemorative summit in January 2018. Hopes were high that Modi’s Act East policy would now be matched with actions. Leveraging the occasion, ASEAN leaders tried to persuade India to take a more forward-leaning approach in the long, dragged-out Regional Comprehensive Economic Partnership (RCEP) trade negotiations. In the summit’s Delhi Declaration, ASEAN and India committed to “intensify efforts in 2018 toward the swift conclusion of a modern, comprehensive, high quality, and mutually beneficial Regional Comprehensive Economic Partnership (RCEP).”
For ASEAN, RCEP’s importance goes well beyond trade figures. As noted by Singapore’s Prime Minister Lee Hsien Loong: “When you make a trade agreement like this, it is very seldom only about economics or trade. There is always another aspect to it – of bilateral cooperation, of friendship, of strategic calculation.”
ASEAN member states have a strong strategic rationale for swiftly concluding RCEP – it would bolster the tottering multilateral trading system, embed India in their future economic fortunes, diversify their sources of growth, and reduce dependency on China. RCEP also would give credence to ASEAN’s aspirations for “an Indo-Pacific of dialogue and cooperation instead of rivalry” and “of development and prosperity for all”.
Yet, for all the nudging and cajoling by ASEAN and other RCEP parties especially Japan and Australia, India unceremoniously walked out of RCEP negotiations – a decision made even more hurtful by its delivery. At the East Asia Summit in November 2019, Mr Modi said: “Neither the Talisman of Gandhiji nor my own conscience permits me to join RCEP.” Modi indeed used the occasion to gain domestic political points rather than to seek understanding from his RCEP counterparts. Instead of acting eastward, he withdrew inward.
To paraphrase Singapore’s former Prime Minister Goh Chok Tong, the China wing of the Southeast Asian jumbo jet is soaring while the India wing has hardly taken off.
Since, ASEAN and the other RCEP participating countries have spent as much effort seeking India’s commitment to eventually rejoin as finalising RCEP. New Delhi’s response has been cold, and the COVID-19 pandemic has made India’s rejoining even more unlikely. In May this year, a policy adviser to India’s Ministry of External Affairs suggested that the Covid-19 experience of India’s dependence on vital imports from China has “reinforced and revalidated the decision to stay out of RCEP”. The concern over a RCEP-induced surge of imports from China strongly motivated India’s RCEP exit.
However, New Delhi applies its defensive, protectionist approach to international trade as enthusiastically to ASEAN. For the first time, at the ASEAN-India economic ministers meeting this August, both sides failed to issue a joint media statement due to disagreements over the scope of the scheduled ASEAN-India Trade in Goods Agreement (AITIGA) review. India proposed that the review focus on AITIGA implementation to address its trade deficit with ASEAN, whereas ASEAN wants the review to enhance trade liberalisation and facilitation.
AITIGA’s tariff liberalisation coverage of 76 per cent is the lowest among all ASEAN-plus FTAs, compared to 94.6 per cent with Australia-New Zealand, 92.1 per cent with China, 89.8 per cent with Japan, and 90.4 per cent with South Korea. Meanwhile, AITIGA’s rules of origin (ROO) provisions are the most restrictive, combining both the 35 per cent appraised value method and the tariff shift. As a result, AITIGA has done little to boost ASEAN-India trade which increased marginally from US$68 billion (2.68 per cent of ASEAN’s total trade) in 2014 to US$77 billion in 2019 (2.74 per cent).
During the same period, China’s share of ASEAN’s total trade increased from 14.46 per cent to 18.04 per cent. To paraphrase Singapore’s former Prime Minister Goh Chok Tong, the China wing of the Southeast Asian jumbo jet is soaring while the India wing has hardly taken off.
China’s economic influence in Southeast Asia is not simply a natural function of its geographical proximity and the gravitational pull of its size. China has invested in a long-term strategy to bind the region’s economic future to its own. China recently offered concessions in the Upgrade Protocol to the ASEAN-China FTA, which entered into force in August 2019. These concessions, especially in ROO, trade facilitation and services liberalisation, should boost ASEAN businesses’ access to the Chinese market. These are exactly the kind of amendments that India would resist in any AITIGA review.
ASEAN has a binding strategic interest to deepen economic integration with India and keep New Delhi engaged and invested in the region. But the Modi government’s Act East policy, stymied by New Delhi’s prevailing domestic political agenda and protectionist instincts, has thus far been more about acting than real action. For all the talk about “shared values and common destiny” with ASEAN, India’s tryst with such a destiny remains a far-off aspiration.