– By Mauli Tiwari
– School of Military Affairs, Strategy and Logistics, RRU, Gujarat
The Regional Comprehensive Economic Partnership (RCEP) is a comprehensive free trade agreement being negotiated between the ten ASEAN member states and ASEAN’s free trade agreement (FTA) partners namely Australia, China, India, Japan, Korea and New Zealand. It was formed in the 2012. RCEP aims at (1) reducing tariff elimination of at least 92% on traded goods, (2) 65% of services sector will be full open, (3) simplified customs procedures, (4) environment, labor not part of the pact, (5) enhancement of online consumer, paper less trading areas.
Before June 13, 2013, the RCEP processwas being conducted under the ASEAN andFTA partners – Senior Economic Officials Meeting (SEOM) which has now been replaced with the RCEP trade negotiation committee (RCEP TNC) as the apex negotiating body.A day after the Regional Comprehensive Economic Partnership Agreement (signed on November 15,2020) was signed by 15 countries without India, External Affairs Minister S Jaishankar said that, “the impact of past pacts has been deindustrialization and the consequences of future ones would lock India into Global commitments many of them to India’s advantage”. He also said that those who stress on openness and efficiency do not present the full picture and that this was equally “a world of non-tariff to subsidies and state capitalism”.
RCEP was formed for free trade but PM Narendra Modi decided not to join RCEP, one should alsoconsider that India’s decision not to join RCEP was a situational decision. Many analysts hold the view that the present trade deficit with 11 RCEP member countries was a major concern for India not joining the agreement, which amounts to almost US$105 million. Another main concern was that RCEP will allow a flood of imported goods in the nation, therefore harming the local economy.
In 2018-19, India registered a huge trade deficit with 11 Regional Comprehensive Economic Partners including China, South Korea and Australia out of the grouping of 16 nations that are negotiating this mega trade pact since November 2012. The trade gap with Brunei, Japans and Malaysia has also increased to US$ 0.5 billion, US$ 7 billion and US$ 3.8 billion, respectively in the last facial (2018).
India’s trade deficit withAustralia, China, Indonesia, Korean, New Zealand, Korean, Thailand and New Zealand is similar. Interestingly, India’s trade surplus with Singapore ($ 2.7 billons) in 2017-18 has turned into deficit of US$ 5.3 billion in 2018-19, one of the major issuesis with respect to FTAs that India faces is the increase in trade deficit that have resulted post signing the FTA.
The logic used to justify India not to joining RCEP reminds us of the 1970s and 1980s, as also discussed by Sunjoy Joshi chairman of Observer Research Foundation. We should introspect why after nearly three decades of reforms we still find Indian economy to be underdeveloped and Indian agriculture, industry and market are not mature enough to compete in free market. India’s lack of confidence to compete in the global market is a sign of our weakness. The RCEP was poised as a befitting response to multilateralism. India’s trade deficit at US$69 billion with China and US$22 billion with ASEAN in 2019 made the country wary of expanding trade. Clearly, Indian manufacturing sector and exports have not done very well, and one wonders if India’s policy environment and business-investment culture can be held responsible for this.
Main hiccups:
India was seeking fulfillment of four pre-conditions prior to joining RCEP(1) keep diary, auto and certain textiles out of the pacts, (2) option to stop imports or race duties in case of sudden flooding of markets, (3) strict “origin of product” norms to curve and abuse of FTA (4) change in base tariff from 2014 to 2019. During negotiations,several issues were ironed out towards as preparing the mutual ground for trade and market access, however the concern around protecting the interest of India’s domestic procedures couldn’t be side lined. Market access issues, India feared that its domestic producers could be hard hit if the country was flooded with cheap Chinese goods, and thus textile, diary and agriculture were flagged as three vulnerable industries.
Even with an optimistic assumption of low tariff cuts in sensitive sectors such as agriculture anddairy products and other MSME’s sectors, it could still affect India’s import more than exports.Thus, Indian policy makers decided to stay out of RCEP.
China-US rivalry:
In 2012, Beijing pushed RCEP to counter another FTA called the trans–pacific partnership (TPP). The US-led TPP excluded China. However, in 2016 US President Donald Trump withdrew his country from the TPP and ever since, the RCEP has become a major tool for China to counter the US efforts to prevent trade with Beijing.
The rising trade deficit poses a serious issue for India as it implies a burden of payments that need to be made in foreign currency and reserves, failing which can lead to a balance of payment (BOP) crisis. India needs to look into reducing its deficit with various trade partners. As for now India’s export basket is on the lower stages of manufacturing. India must move up the value chain to ensure that tariff reductions have their impact for which they were intervened. In 2020, India was invited to join RCEP as an observer, but India refused. It must weigh economic gains and reassess its decision.
Assessment:
In my opinion, RPEC is an opportunity which must not be missed. The concerns are valid but they may be addressed. The current situation gives opportunities to review its existing FTAs and identify sector specific regions for investments. India must participate in global value chain and trade structure and play a leadership role in setting up rules that would define trade relations between nations. As India is preparing to renegotiate its FTAs with Japan and ASEAN, it should examine the reasons for its trade deficit and explore the measures that need to be taken to gain from future deals, rather than artificially insulating its economy from global and regional competition by staying out of trade blocs.
References
- “The Big Picture RCEP: India’s Stand”, Rajya Sabha TV debate, URL: https://youtu.be/H3w3pcmOrPo
- “Why India Refused to Join the World’s Biggest Trading Bloc”, Foreign Policy, URL: https://foreignpolicy.com/2020/11/23/why-india-refused-to-join-rcep-worlds-biggest-trading-bloc/
- “A Step Too Far: Why India Opted Out of RCEP”, Global Asia, URL: https://www.globalasia.org/v14no4/feature/a-step-too-far-why-india-opted-out-of-rcep_rajaram-panda
- “RCEP: Time to Act East, but India Missing in Action”, ORF Delhi, URL: https://www.youtube.com/watch?v=yXDBk8sqL3A
- “RCEP: Time to Act East, but India Missing in Action”, ORF Delhi, URL: https://www.youtube.com/watch?v=yXDBk8sqL3A
- “RCEP: Time to Act East, but India Missing in Action”, ORF Delhi, URL: https://www.youtube.com/watch?v=yXDBk8sqL3A
- “RCEP: India’s stance unchanged even as 15 others invite it as observer, keep door open”, Economic Times, URL:https://economictimes.indiatimes.com/news/economy/foreign-trade/rcep-indias-stance-unchanged-even-as-15-others-invite-it-as-observer-keep-door-open/articleshow/79236605.cms
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