Subrata Majumder
With the launching of RCEP (Regional Comprehensive Economic Partnership), China made a bold entry into India, despite India withdrawing from the trade lock. This means, India failed to foil Chinese dumping of goods. China made a backdoor entry into India through ASEAN – a close trade ally of China, which holds a lion share in intra-RCEP trade. ASEAN accounted for one third of intra-RCEP trade.
RCEP includes 15 countries – ASEAN 10 plus China, Japan, South Korea, Australia and New Zealand. It was ratified in January 2022.
India withdrew from RCEP, fearing China’s predatory entry in India’s large market and damaging domestic manufacturing.
The fallacy lies with India’s substantial imports from ASEAN with the onset of RCEP. It is believed that China dumped goods in India en route through ASEAN.
During 2020-21 to 2022-23, India’s imports from ASEAN increased by 84.6 percent. Much of these increases were due to large imports of electronic and electrical goods (HS : 84 &85). Imports of these items increased by 39.8 percent during the two years period – from US $ 12, 104.3 million in 2020-21 to 17,559.9 million in 2022-23.
Paradoxically, in the preceding two years, imports of electrical and electronic goods from ASEAN declined. During 2018-19 to 2019-20, imports declined by 0.9 percent – from US$ 14,496.8 million in 2018-19 to US$ 14,365.9 million in 2019-20.
Parallel to this trend, ASEAN imports of similar electrical and electronic goods from China spurred during the same period. They increased by 34 percent during 2020 to 2022
The sudden ascendency in India’s imports from ASEAN vis-à-vis ASEAN imports from China deciphers a dubious role played by China for its backdoor entry into India. ASEAN is yet to develop its potential for manufacture of critical components and parts for electrical and electronic goods, which India imported from ASEAN. China is the prime backbone. ASEAN manufacturers import from China, assemble them and export to India and the world.
Thus, China has become the prime backbone for ASEAN for supply chain of critical components and parts. China is the epicenter for semiconductor chips sale. Nearly 50 percent of global sales of chips is represented by China. Big foreign companies like SK Hynix, TSML, Samsung, UMC, Texas instrument, Micron technology are being manufactured in China.
Suspicion arose over the advantages accrued to China, owing to trilateral trade agreements between ASEAN and China and ASEAN and India and RCEP. China has bilateral FTA with ASEAN in 2009 and multilateral FTA with ASEAN under RCEP in 2022. On the other hand, ASEAN had bilateral FTA with India in 2010. This went in favour of China.
China used both ASEAN FTA and RCEP tariff concessions to enter ASEAN market to make it a potential platform for sneaking into Indian market through ASEAN–India FTA. No doubt, Rules of Origin (ROO) and Certificate of Origin (COO) were there for checks to avoid fraudulence. But the flouting of rules could not be overruled due to lax in custom clearance in these countries.
It is said that whenever the goods are traded between ASEAN and China under the ASEAN-China FTA, COO is surreptitiously flouted, owing to a lax in adherence to custom clearance practices in these countries.
RCEP is the biggest trade block. Intra-RCEP trade represented 50 percent of total RCEP trade with the world, or 13 percent of global trade in 2019. There is a wide heterogeneity in trade within RCEP. China, Japan and South Korea accounted for 60 percent of intra-RCEP trade and Cambodia, Brunei and Laos accounted for 1 percent, according to a UNTACT report.
China is the biggest beneficiary of RCEP in terms of market accessibility in RCEP. In 2019, it held 29.8 percent of exports in intra-RCEP trade, according to UNTACD.
ASEAN majors are on the brink of subservient to China’s influence in trade. Most of the majors, viz, Thailand, Malaysia, Indonesia and Indonesia, are facing wide trade deficit with China, after ASEAN-China FTA in 2010. The trade deficit of ASEAN with China leapfrogged ten times between 2012 to 2021.
India withdrew from RCEP at the last moment, anticipating China’s dumping in Indian markets. Indian manufacturers argued that it would damage Make in India initiative. They argued that hitherto most of the FTAs remained unsuccessful, given the fact that FTA members reaped more benefits than India. Given this, RCEP would be a big burden on domestic industry.
There are three challenges to counter China’s duping of RCEP. First, PLI scheme (Production Linked Incentive) needs to be more incentivised to attract foreign investment in critical component and part manufactures. The shift of Apple of the USA to India is a case in point. Apple vowed to make India the global hub for iPhone manufacturing. About one-third of Apple’s global iPhone production will be staked in India in the next 3-4 years, according to the New York Times. .
Second, global search for China alternatives for supply chain.
Third, enhancing free trade agreement routes to topple the burgeoning imports from China.
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