India rules out joining world’s largest trade deal, accuses China of ‘very opaque’ trade practices

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September 23, 2024
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A Chinese national flag, left, and an Indian national flag are arranged for a photograph.

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India’s commerce minister rejected the idea of joining the Regional Comprehensive Economic Partnership, the world’s largest trade deal, maintaining that it is not in the country’s interest to be part of a free trade agreement with China.

“India is not going to join the RCEP because neither did it reflect the guiding principles on which ASEAN was started, nor is it in the nation’s interest to do a free trade agreement with China,” India’s Minister of Commerce and Industry Piyush Goyal told CNBC’s Tanvir Gill in an interview.

The RCEP deal was signed in 2020 by 15 Asia-Pacific countries — which makes up out 30% of global GDP — and came into force in January 2022. The countries are the 10 members of the Association of Southeast Asian Nations, and five of their largest trading partners, China, South Korea, Japan, Australia and New Zealand.

Negotiations for the RCEP started in 2013 and initially included India, which some members viewed as a counterbalance to China. However, in 2019, India chose not to join RCEP, citing unresolved “core interest” issues. Back then, India did not expand on what some of those core unresolved interests were.

Goyal noted that at that time, India already had a free trade agreement with ASEAN, Japan and Korea, as well as a bilateral trade with New Zealand worth $300 million.

“It was not in our farmers’ interest, RCEP did not reflect the aspirations of our small and micro medium industries and sector, and in some form, was nothing but a free trade agreement with China,” he said.

“When you see from the lens sitting outside the country, you don’t realize how difficult it is to compete against a non-transparent economy,” the minister continued, in reference to China.

“Certainly nobody back home would like to have an FTA with [a] non-transparent economy, very opaque in its economic practices, where both trading systems, political systems, the economy — the way it is managed — is completely different from what the democratic world wants.”

Goyal also accused China of using the World Trade Organization’s policies to its advantage, flooding various economies with goods at low prices which often do not meet quality standards.

From solar panels to cars to steel, China has recently been churning out more goods in an economy that has been slow to absorb, resulting in a surge of cheap exports to foreign markets.

Semiconductor ambitions

The minister also made a strong case for India to become a Taiwan “plus one” semiconductor country.

“China Plus One” is a phrase used to describe a supply chain strategy that sees companies diversifying manufacturing and sourcing, by continuing operations in the mainland while also expanding into other countries. This approach aims to reduce risks linked to complete reliance on a single country’s market or supply chain.

Spinning off that idea, Goyal thinks India can become an alternative place in the region for companies that want to diversify outside of Taiwan for semiconductors.

“We are encouraging [the] semiconductor industry in a big way. We started building up the ecosystem, which is essential before we can see more and more foundries coming into the country for the actual chip making,” Goyal said.

“We expect the demand for semiconductor products to be about $100 billion by 2030, and will grow exponentially thereafter,” he said, adding that interest in India’s semiconductor industry is expanding “by leaps and bounds.”

India aims to establish itself as a major chips hub similar to the U.S., Taiwan, and South Korea, actively seeking foreign companies to set up their operations in the country.

Earlier this year, Prime Minister Narendra Modi inaugurated three semiconductor plants, bringing the total count of plants under development in India to four. One of those plants is a joint venture between Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corp. The plant, which is set up in Dholera, Gujarat state, is expected to deliver its first batch of semiconductors by late 2025 or early 2026.

Asked if India can be Taiwan’s “plus one” in the semiconductor space, Goyal said that his country’s size, democracy and rule of law means it is a “safe habor.”

“It provides an alternative where you will always have a youthful population in life, huge demand, and you will have the rule of law to back it. I think that’s a very compulsive case,” he said.

The world recognizes that excessive concentration in any one region is fraught with serious risks, Goyal added.

India’s chip strategy has two main components: attracting foreign companies to establish operations and invest in the country, as well as forming partnerships with other major semiconductor nations, such as the U.S. In 2021, the government approved a $10 billion incentive program for the sector, which is also available to foreign companies.

As of 2024, Taiwan, the world’s chipmaking powerhouse, is expected to hold around 44% of global market share, followed by China with 28% and South Korea with 12%, according to a report. The U.S. and Japan account for 6% and 2%, respectively.

The authors of the report, Taiwan consultancy Trendforce, said Taiwan’s global capacity share in advanced manufacturing processes is expected to decrease to 40% by 2027, while South Korea’s could see a 2% decline. In the same time period, China’s is expected to increase by 3% to 31%.