Bring India into APEC

Posted in International Cooperation, News, Op-eds

Originally published in the Wall Street Journal – 8 July 2015

By Kevin Rudd and Ajay Banga

It’s time India became more integrated into the global economy.

Much has been made recently of India surpassing China as the world’s fastest-growing large economy. But India’s welcome improvement masks the reality that India needs to become fully integrated into the global economy if it is to sustain its current growth levels. Prime Minister Narendra Modi’s government must act decisively to open the Indian economy to the rapidly changing global trade system, especially in the dynamic Asia-Pacific region.

Indian membership in the Asia Pacific Economic Cooperation forum is an important first step toward India’s fuller economic integration in the region. The APEC economies represent the global supply chains that drive much of world commerce.

Integration with the APEC countries is also essential to India achieving its goal of becoming a manufacturing hub. APEC membership would help prepare India to participate in the emerging megaregional trade arrangements, such as the Trans-Pacific Partnership (TPP) and the Free Trade Area of the Asia-Pacific (FTAAP) that will define the future of global trade.

A year into his term as India’s prime minister, Mr. Modi has put the Indian economy on a more stable macroeconomic footing. Growth has quickened, inflation has fallen under 5%, foreign direct investment inflows increased by more than 25% and deficits have been reduced. This is good news.

Despite these accomplishments, business confidence in India is still well short of what is needed to expand manufacturing and create the 12 million jobs each year necessary to offer opportunity to India’s burgeoning young workforce.

The fact is that India remains outside the mainstream of global trade. A recent report by the World Trade Organization deemed India’s tariff structure to be too “complex” and pointed out that its average tariff rate actually increased over the past four years. After growing steadily since the year 2000, India’s export growth has cooled off over the past two years. As emerging trade regimes start to change patterns of international commerce, India runs the risk of being increasingly locked out of these economic flows unless it revises its approach to trade.

Many in India argue against further trade opening, pointing to India’s mounting trade deficits, especially the huge imbalance with China. This may be a political problem for Mr. Modi’s government, much as it has been for the U.S. in its long-term trade relationship with China. But this is an argument for India to reform its economy more rapidly so that it can attract more foreign direct investment and compete more effectively in global markets.

APEC membership is a low-risk, high-reward pathway for India to participate more fully in the Asia-Pacific and global trading system. APEC has a strong record of achievement in facilitating economic integration in the Asia-Pacific. The APEC region’s total trade increased more than seven-fold between 1989 and 2013. At the same time, APEC is not a negotiating body, so India need not make policy commitments in order to join other than demonstrate its willingness to be a constructive member and reduce barriers to trade over time.

APEC membership would benefit India in many ways. Its Trade Facilitation Action Plan, for instance, helped reduce the costs of doing business between member countries by 5% between 2007 and 2010. Consultations with the other members and participation in APEC’s technical workshops would also help India to build confidence among member economies and learn what steps it must take to gain membership in the present and future trade regimes such as TPP or FTAAP.

This is the right time for India to pursue inclusion in APEC. The forum has ended its moratorium on new membership. And after years of indifference, key members—the U.S., China and Russia—have in the past year officially welcomed India’s interest in APEC. Continued international confidence in Mr. Modi’s economic agenda should also bolster India’s application for membership.

APEC membership is of great interest to many other Asia-Pacific countries, and the merits of other aspirants to APEC membership should also be considered. But if APEC is to remain relevant itself, the continued exclusion of Asia’s third-largest economy is untenable. India’s growth potential and its huge market are simply too important to ignore.

India is a rising power, eager for a greater role in Asian and global affairs. Indian membership in APEC has been in the very slow lane for 20 years through a combination of indifference and inertia in Delhi, Washington and the regional capitals. The opportunity has never been greater to integrate such a vital country into the emerging economic institutions of the 21st century. APEC membership is the right step at the right time.

Mr. Rudd, a former prime minister of Australia, is president of the Asia Society Policy Institute in New York. Ajay Banga is president and CEO of Mastercard Worldwide and chairman of the U.S.-India Business Council.