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Mega regional trade deals are in vogue in an otherwise fragile global economy. In an environment of falling aggregate demand, these trade deals are seen as a means to insulate economies from market uncertainties.

Three important mega regional’s are currently under negotiation: the Regional Comprehensive Economic Partnership of Asia and the Pacific (RCEP), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP).

It is expected that these agreements, once concluded and implemented, will set the stage for a new generation of global trade and investment rules.

In this article we will explain What is RCEP ,what will be its significance for India and what are the point of contention among countries in RCEP.

  • What is RCEP?
  • Key Features of RCEP
  • Comparison of RCEP with other regional Agreements
  • Significance of RCEP for India
  • Challenges in Final negotiation of RCEP
  • Challenges and concerns for India from Joining RCEP
  • Recent point of contention in RCEP negotiation

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What is RCEP?

  • Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the six states with which include India, China, Australia, Japan, South Korea and New zealand.
  • In total, the grouping of 16 nations includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade.
  • If negotiated successfully, RCEP would create the world’s largest trading bloc and have major implications for Asian countries and the world economy.

Key features of the RCEP

The RCEP seeks to achieve a modern and comprehensive trade agreement among members. The core of the negotiating agenda would cover trade in goods and services, investment, economic and technical cooperation and dispute settlement. The partnership would be a powerful vehicle to support the spread of global production networks and reduce the inefficiencies of multiple Asian trade agreements that exist presently.

At the launch of negotiations in 2012, the leaders of each relevant country endorsed the “Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership.”

The key points of this document are as follows:

(A) Scope of negotiations

  • RCEP will cover trade in goods, trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issues.
  • As expected, ASEAN will be in the “driver’s seat” of this multilateral trade arrangement (though the idea was initially given by Japan), and has been repeatedly endorsed by India.
  • The joint statement issued at the end of the first round of negotiations also reiterated “ASEAN Centrality” in the emerging regional economic architecture.

(B) Commitment levels

The RCEP will have broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs, while recognizing the individual and diverse circumstances of the participating countries.

(C) Negotiations for trade in goods

Negotiations should aim to achieve the high level of tariff liberalization, through building upon the existing liberalization levels between participating countries.

(D) Negotiations for trade in services

The RCEP will be comprehensive, of high-quality and consistent with WTO rules and all service sectors will be subject to negotiations.

(E) Negotiations for investment

Negotiations will cover the 4 pillars of promotion, protection, facilitation and liberalization.

(F) Participating countries

Participants will be ASEAN members and FTA Partners. After the completion of the negotiations, countries other than the 16 states may join.

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Significance of RCEP for India

  • India is not a party to two important regional economic blocs: The Asia-Pacific Economic Cooperation and the Trans-Pacific Partnership. New Delhi fears the TPP, although years away from reality, could mean losing some textile and drugs exports to countries like Vietnam, which has embraced both the TPP and the RCEP.
    • TPP is set to change the landscape of global trade. For India, it is most likely to affect sectors like leather goods, plastics, chemicals, textiles and clothing.
    • The RCEP would enable India to strengthen its trade ties with Australia, China, Japan and South Korea, and should reduce the potential negative impacts of TPP and TTIP on the Indian economy.
  • The RCEP agreement would complement India’s existing free trade agreements with the Association of SouthEast Asian Nations and some of its member countries, as it would deals with Japan and South Korea.
  • It would be the world’s largest trading bloc covering a broad spectrum of issues such as trade in goods, services, investment, competition, intellectual property rights, and other areas of economic and technical cooperation.
  • From India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its act east policy.
  • RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory. The RCEP is expected to harmonize trade-related rules, investment and competition regimes of India with those of other countries of the group. Through domestic policy reforms on these areas, this harmonization of rules and regulations would help Indian companies plug into regional and global value chains and would unlock the true potential of the Indian economy. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
  • India enjoys a comparative advantage in areas such as information and communication technology, IT-enabled services, professional services, healthcare, and education services. In addition to facilitating foreign direct investment, the RCEP will create opportunities for Indian companies to access new markets. This is because the structure of manufacturing in many of these countries is becoming more and more sophisticated, resulting in a “servicification” of manufacturing.

Challenges in Final negotiation of RCEP

Finalizing the RCEP will not be a cakewalk for India and other countries involved in the negotiations as there are a range of issues that could act as spoilers.

  • Huge economic disparities among the negotiating countries are likely to pose a challenge
  • An inevitable source of trust deficit between China and the rest which has the potential to constrain regional economic cooperation is China’s aggressive postures on territorial disputes with Japan and India and with ASEAN member countries on the South China Sea disputes.This can pose as a hurdle in final negotiation of RCEP
  • The existing 5 ASEAN+1 and 23 ratified bilateral FTAs, varying greatly in their terms, pose a significant hurdle to RCEP negotiations.
  • The lack of commonality across FTAs and varying internal policies of countries would prove to be a difficult task to harmonize and consolidate under RCEP.

Challenges and concerns for India from Joining RCEP

For New Delhi, following challenges lie ahead.

  • First, tariff barriers, which have been a matter of discontent in bilateral FTAs, particularly in the case of the ASEAN-India FTA, will be central to the negotiations in the upcoming rounds of RCEP negotiations.
  • Non-trade issues such as environment and labor are likely to be prickly as well and need greater attention. Many Countries in RCEP want a stricter norms and standards on environment and labor issues while India’s interest lie in liberal environment and labor norms as this makes Indian industry competitive. India therefore should bat for liberal environment and labor norms while negotiating in RCEP.
  • India must take steps to strengthen its Medium, Small and Micro Enterprises (MSME) sector, equipping it not only to survive the free flow of trade, but also to become a set of more competitive players. Higher investments in R&D and achieving international standards in terms of delivery are needed.
  • An internal commerce ministry estimate that signing the 16-country Regional Comprehensive Economic Partnership (RCEP) trade agreement will result in a revenue loss of as much as 1.6% of GDP
  • Finally, a major difficulty for India will be negotiating terms with China. India has to be firm and calculative in terms of taking tough policy decisions, while working tirelessly on capacity building of its domestic industries.

Recent point of contention in RCEP negotiation

  • Recently in the 12thround of RCEP talks The members of the Regional Comprehensive Economic Partnership (RCEP) have, in a sort of ultimatum, asked India to either to consent to eliminate tariffs on most products quickly or leave the talks on the proposed Free Trade Agreement (FTA) that is being negotiated by RCEP itself.
  • The members of RCEP are irked by what they think as India’s obstructionist, defensive and half-hearted approach” that is “delaying” the result of the talks
  • Some member countries, particularly 10- members ASEAN bloc, want India to take a long-term approach and consent to eliminate deities (except in agriculture and industrial goods) on a higher threshold within a decade to help India get the benefit of the opportunities arising out of Global Value Chain.

References:

Any doubts?


  1. Profile photo of tuba alam tuba alam

    ASEAN bloc wants India to eliminate deities…?
    What does that mean?
    Deities as in God’s???

    1. Profile photo of Confused Billi Confused Billi

      *duties

  2. Profile photo of Gursimran Singh Gursimran Singh

    Phillipines;, vietnam forgot china In South China??? How???? Disgusting…

  3. Profile photo of tahir fazal tahir fazal

    that is the thing required. Thanks @CD team.

  4. Profile photo of VM VM

    There is a small error in Image-1 in CD Explains. You’ve mistakenly included Sri Lanka too in the Map. Please edit if possible.

    1. Profile photo of Focus Ias Focus Ias

      Yea. good spot.

      Atleast its out of the list.

  5. Profile photo of Kavya Sri Kavya Sri

    India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its “Act East Policy.” It is expected to be an ambitious agreement bringing the five biggest economies of the region – Australia, China, India, Japan and South Korea – into a regional trading arrangement.

    1. Profile photo of Gursimran Singh Gursimran Singh

      I think china not be dere 4 intersests of other

  6. Profile photo of Vishal Unde Vishal Unde

    good sir plz continue

  7. Profile photo of Anuj Kumar Anuj Kumar

    Very useful content…. sir

RCEP: Members worried about giving more market access to Chinese goods

  1. Event: Forthcoming ministerial meeting on the Regional Comprehensive Economic Partnership (RCEP)
  2. Issue: Concerns of the members including India, over agreeing to give greater market access to Chinese goods without gaining similarly in return
  3. Sources said the meeting is likely to see an agreement on explicitly incorporating the principle of ‘Single Undertaking’
  4. The means that each aspect of the negotiation, including on goods, services and investment, “is part of a whole and indivisible package and cannot be agreed separately”
  5. This principle is important for India
  6. Reason: There are apprehensions that negotiation on opening up services is progressing at a much slower rate than talks on liberalising goods trade

What is Regional Comprehensive Economic Partnership?

RCEP, a regional economic pact, aims to cover trade in goods and services, investment, economic and technical cooperation, competition and intellectual property

  1. It’s a proposed FTA between the 10 member states of the ASEAN and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand)
  2. RCEP negotiations were formally launched in November 2012 at the ASEAN Summit
  3. It is viewed as an alternative to the TPP trade agreement, which includes the US but excludes China and India
  4. Under the RCEP, India has offered tariff elimination of 42.5% to Australia, while that country has offered zero tariff on 80% of its traded goods
  5. India’s interests lie mostly in services, the removal of technical barriers to trade
  6. The barriers are those taken under sanitary and phytosanitary measures

Let’s know about RCEP ?

From India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its “Act East Policy.”

  1. RCEP is a proposed free trade agreement (FTA) between ASEAN and the 6 states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand).
  2. RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
  3. RCEP includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade.

Call to remove IP clauses from trade pact

  1. Context: The Regional Comprehensive Economic Partnership (RCEP) trade talks round in Vietnam (August 15-19)
  2. News: Humanitarian aid organisation Médecins Sans Frontières (MSF) has called for the removal of intellectual property provisions (known as the TRIPS-plus provisions) from the agreement
  3. Why? The TRIPS-plus provisions like patent term extensions and data exclusivity could hinder access to affordable drugs
  4. Data exclusivity: These provisions could delay the entry of generic medicines
  5. Significance of generics: Nearly two-thirds of all the drugs MSF purchases to treat HIV, TB and malaria across the world are generic medicines from India

RCEP faces services logjam

  1. Context: India has little to gain in getting market access in goods in other countries due to its poor infrastructure and weak manufacturing base, but it thinks it has an upper hand in services negotiations
  2. The 16-member Regional Comprehensive Economic Partnership (RCEP) trade talks have hit a hurdle because other countries are not receptive to this idea
  3. India hopes to acquire market access for its growing skilled professionals and easier visa regimes in the RCEP member countries
  4. RCEP comprises ASEAN nations (10) + 6 of its FTA partners (Australia, China, India, Japan, New Zealand and South Korea)

Know more about Médecins Sans Frontières (MSF)

  1. An international humanitarian-aid non-governmental organization (NGO) and Nobel Peace Prize laureate
  2. It was founded in France in response to the Biafran War
  3. Private donors provide about 90% of the organization’s funding, while corporate donations provide the rest

Issues in RCEP negotiations- Patent Term Extensions

  1. Patent term extensions: These are given to compensate the company for delays in processing patent applications
  2. A company gets a 20-year patent monopoly on a drug from the date that the application is filed; but sometimes processing these applications takes time and the companies get only 13 years instead of 20
  3. A patent term extension will give another five-year monopoly to the innovator company, again delaying the entry of generic drugs in the market

Issues in RCEP negotiations- Data Exclusivity

  1. Two of the most worrying are the demands for ‘Data Exclusivity’ and ‘Patent Term Extensions’ — both intellectual property obligations that Least Developing Countries are exempted from till 2033
  2. Data exclusivity: A form of legal monopoly protection for a drug, over and above the patent protections & is given expressly to compensate for the investment made during clinical trials
  3. Impact: Regulators cannot approve a similar drug with similar data for the next five years, delaying the entry of generic, affordable versions
  4. For India, agreeing to data exclusivity will mean amending the Drugs & Cosmetics Act (FDA law)
  5. It would prohibit Indian Drug Regulatory Authority (DRA) from registering a more affordable version of a medicine as long as the exclusivity lasts over the clinical trial data

India warned against pitfalls in ASEAN trade agreement

  1. Context: Issue of pharma IPRs in ongoing Regional Comprehensive Economic Partnership (RCEP) negotiations
  2. Médecins Sans Frontières (MSF) has warned India that it will no more remain ‘the pharmacy of the developing world’ if the proposals in the pact are adopted
  3. MSF Access Campaign and other civil society organisations are pushing for the removal of harmful intellectual property provisions
  4. Such provisions could potentially increase drug costs by creating new monopolies and delaying the entry of affordable generics in the market

RCEP draft moots tough curbs on cheap medicines

  1. Context: A leaked chapter of the draft Regional Comprehensive Economic Partnership (RCEP)
  2. What? RCEP in its current form could reduce access to affordable medicines in many developing countries
  3. Concerns: Japan & Korea are demanding patent term extensions by 5 years from current 20 years
  4. India has consistently opposed patent extensions, restrictive rules on copyrights and other anti-consumer measures

India not obstructionist at RCEP: Commerce Ministry

  1. Indian Efforts: India was one of the first countries to have submitted its offers on Goods, Services and Investments even before the last RCEP Round in Brunei held in February 2016
  2. This in line with the RCEP Ministerial mandate
    India’s prompt offer was highly appreciated by all the RCEP member countries
  3. In fact, several other RCEP countries’ initial offers on Goods have fallen short of the agreed Basic Concept on Initial Offer (BCIO) thresholds
  4. And such countries have been urged to improve their offers to enable negotiations move forward

RCEP to India: Cut tariffs or exit FTA talks

  1. Ultimatum: India has been told to either agree to eliminate tariffs on most products quickly or leave the talks on the proposed FTA being negotiated by RCEP
  2. Why? India’s perceived obstructionist, defensive and half-hearted approach that is delaying the conclusion of the talks
  3. India’s protectionist stance: Focusing only on the export of manpower and not on liberalising trade in goods and other services, as well as investment

What is Ratchet and MFN-forward?

  1. Ratchet: It implies that future domestic policy changes undertaken autonomously by India will automatically get committed under RCEP
  2. MFN-forward: It means any future concession given to a trading partner under a bilateral treaty will automatically get extended to RCEP members as well

Questions (attempt in the comments section)

1

It is commented by many experts that RCEP could be game changer for India’s exports. Explain how.

2

The large, regional trade blocs are the new paradigm for international trade and India is ill-prepared for this new trade regime.” Discuss.

3

Should India sign the 16-country Regional Comprehensive Economic Partnership (RCEP) trade agreement? Substantiate.







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