While discussions about terrorism understandably grabbed the headlines at the Association for South East Asian Nations summit meeting, the question of closer trade ties was an important subtext. On the sidelines of the summit, Asean and the People's Republic of China signed an upgraded free trade agreement (FTA) which opened up more possibilities for trade in services. Meanwhile, Prime Minister Narendra Modi made a pitch for investments in India to business leaders in the region. But, while Mr Modi's focus on inward investment is creditable, the fact remains that bilateral trade ties are not the issue of the moment. If anything, the Asean summit underlined the fact that large, regional trade blocs are the new paradigm for international trade. The meeting pledged to complete negotiations on the Regional Comprehensive Economic Partnership, or RCEP - a deal that includes member countries of Asean, China, South Korea, India, Australia and New Zealand - by the end of next year.
Unfortunately, India is ill-prepared for this new trade regime. Policy makers in Delhi continue to focus on inward investment, on bickering over tariffs, and on perceived "losses" because of already-signed FTAs. There is an excessive reliance on the idea that India's domestic market is sufficient to boost "Make in India". The recent signing of the Trans Pacific Partnership (TPP) between several major Pacific Rim economies (excluding China) reveals how outdated this thinking is. The TPP focuses on "behind-the-border" barriers to trade - such as clashing regulations. It forces various domestic regulations into greater harmony, and reduces investment risk for transnational corporations and trading companies. In other words, it is tailor-made for a global economy now dependent on geographically dispersed supply chains. India, by focusing on the attractions of its domestic market and seemingly dismissing exports as a factor - in spite of having only two per cent of world trade - is ruling itself out of the race before it has even begun. A successful "Make in India" project will require shared standards with other major economies, so that global investors see India as part of the interlinked world of production. India still refuses to accept this basic fact.
A first-mover advantage on the matter of regulations and standards already accrues to the TPP. This cannot be reversed. Still, there are some countries in the TPP - such as Vietnam - which are also transitioning to global standards and regulations. It behoves India to examine the process in such countries very closely. It should aspire to be not just part of the RCEP but also the TPP. Industry associations, too, must cease to worry about potential damages from a loss of protection against international competition, and lobby the government for a quicker transition to a better-regulated economy that can participate in global trading networks on equal terms.
