Regional Comprehensive Economic Partnership (RCEP)

Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] The China factor in India’s RCEP moveop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : RCEP - India - China


Context

India finally rejected the RCEP trade deal. 

India’s stand

    • In his speech at the RCEP summit, PM argued that India has been proactively, constructively and meaningfully engaged in the RCEP negotiations since inception.
    • The draft RCEP agreement did not fully reflect the basic spirit and the agreed guiding principles of RCEP and did not address satisfactorily India’s outstanding issues and concerns.

RCEP

    • Apart from the 10 member states of the ASEAN, the deal was to include the bloc’s six free trade partners — China, India, South Korea, Japan, New Zealand, and Australia.
    • The RCEP negotiations were launched in 2012 and, this year, there was a big push to get it finalised. 
    • After India’s rejection, the remaining 15 members decided to go ahead and underlined their intent to sign a trade deal sometime next year.

Indian demands

    • Base year – Shifting the base year for tariff cuts from 2014 to 2019.
    • Import surge – avoiding a sudden surge in imports from China by including a large number of items in an auto-trigger mechanism.
    • Rules of origin – stricter rules of origin to prevent dumping from China
    • Services – a better deal in services. 

Indian concerns

    • Trade deficits – India runs large trade deficits with at least 11 of the 15 RCEP members. China alone accounts for $53 billion of India’s $105 billion trade deficit with these. 
    • Domestic industry – China’s need for greater access to the Indian market to sustain its manufacturing industries will hurt the Indian industry and farmers due to a surge in Chinese imports.
    • FTA experience – India’s experience with FTAs has been underwhelming. Niti Aayog suggested that FTA utilisation is in the 5%-25% range. 
    • Domestic oppositionDomestically, the RCEP generated considerable opposition with major stakeholders coming out against it – farmers, dairy industry or the corporate sector. 

RCEP – India

    • It comprises half of the world population and accounts for nearly 40% of the global commerce and 35% of the GDP. RCEP would have become the world’s largest FTA after finalisation, with India being the third-biggest economy in it. 
    • Without India, the RCEP does not look as attractive as it had seemed during negotiations. 
    • Divided ASEAN – ASEAN has been keen on a diversified portfolio so that member states can deal with major powers and maintain their strategic autonomy. ASEAN member states have tried to keep the U.S. engaged in the region. 
    • Act East policy has been well received. With China’s rise in the region, ASEAN member states have been keen on Indian involvement in the region. 
    • Indo-Pacific – India’s entire Indo-Pacific strategy might be open to question if steps are not taken to restore India’s profile in the region. 
    • Rejected China’s dominance – India signalled that, despite the costs, China’s rise has to be tackled both politically and economically.

China in the region

    • Escalating Sino-U.S. trade tensions – China was particularly keen to see a successful conclusion of the RCEP summit and had been vigorously pushing for that. 
    • Increased domination – Both geopolitically and geo-economically, China is set to dominate the Indo-Pacific. 
    • Counter to Chinese – Japan is now suggesting that it would work towards a deal that includes India. 

Way ahead for India

    • Economic isolation is not an option for India.
    • Bilateral pacts – There are reports that India will move towards bilateral trade pacts. 
    • Need domestic reforms – India will have to prepare itself more fully to take advantage of such pacts. Domestic reforms will be the need of the hour.
Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] Lost opportunityop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : RCEP - why India should have stayed?


Context

India has chosen to hold back from joining the Regional Comprehensive Economic Partnership (RCEP) trade agreement.

Opposition to RCEP

    • Domestic opposition to joining the RCEP is rooted in 
      • fear of the influx of cheap Chinese products
      • non-tariff barriers which tend to restrict market access
      • cheaper dairy products from New Zealand that would worsen the trade deficit and dent the domestic industry.
    • State of the economy – deeper than expected slowdown in the economy may have tilted the balance in favor of not joining.

Concerns with the decision

  • Short term – The loss to the economy far exceeds the short-term perceived benefits of staying out of the pact. 
  • Protectionism – This action signals a shift towards a protectionist stance
  • Sector-wise approach lacking – Indian side should have made greater effort to convince other countries for carve-outs for certain sectors, and for allowing a gradual phasing out of tariffs to ease domestic fears. 
  • No focus on reforms – India should have used this opportunity to push through contentious but necessary reforms that would boost competitiveness. 
  • Policy dilemma – On the one hand, India wants to become a manufacturing hub. Staying out of the RCEP reduces opportunities for trading with these countries, which account for roughly a third of global trade. 
  • Missed supply chains – Manufacturing today requires greater integration with global supply chains. 
  • Chinese slowdown advantage – Signing the agreement would have signaled an embrace of freer trade. It could have aided in the shift of companies out of China to India. 
  • Strategic loss – With this, India has also ceded space to China to have a greater say in the region.

Conclusion

The failure to persuade on long-run benefits and bowing to the pressure of various interest groups shows that parliamentary strength alone is not sufficient to push through contentious but necessary reform.

Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] No pact for Indiaop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : RCEP - India


Context

After seven years, RCEP negotiations, started in 2012, have concluded in Bangkok. 

Indian stand

  • India still has some unresolved issues, and this has resulted in it holding back its decision to join the RCEP. 
  • India has decided to maintain a consistent stand throughout the negotiations. It has decided to keep its self-interest at the forefront.

Importance of RCEP

  • After the global financial crisis in 2008, many mature economies are struggling to regain ground lost. Emerging economies are in focus for growth opportunities. 
  • The international trade focus has clearly shifted from the West towards developing economies in Asia and other regions. 
  • The developing markets’ share of global trade has doubled from 16% in 1991 to 32% in 2011 – which is an average increase of 0.8% a year. Since 2008, the rise has been almost twice as fast, at 1.5% a year. 
  • This significant increase in South-South trade is turning established trade patterns and practices on their head. 

India – RCEP concerns

  • India has been vigorously pushing for South-South trade through policies like “Look East” unveiled in recent times.
  • India ran a merchandise trade deficit with 11 out of the 15 other members of RCEP in 2018-19, totaling $107.28 billion. 
  • In 2018-19, 34% of India’s imports were from this region, while only 21% of India’s exports went to this region. 

China

  • China is the biggest trade partner amongst these countries and the major concerns that India had throughout the negotiations were with regard to China.
  • Cheaper goods – There is a fear that the imports of cheaper electronic and engineering goods from China could increase further with RCEP. This could have a negative impact on the manufacturing sector. 
  • Therefore, Indian negotiators have taken steps to ensure that domestic manufacturing is effectively protected from unfair competition.

Electronics

  • The move towards 2014 as the base year for tariff reduction, an automatic trigger mechanism to curb sudden surges in imports and the decision on which products it doesn’t want to offer the same tariff concessions to all countries, need to be sorted out. 
  • India’s electronics and mobile industry are moving towards self-sufficiency, and a move towards 2014 rates could mean a huge step backward.

Ratchet agreement 

  • Another area of concern for India is our unfulfilled want for exemptions from the Ratchet obligations. 
  • As per the Ratchet mechanism, if a country signs a trade agreement with another country where it relaxes tariffs and quotas on merchandise exports and imports, it cannot go back on them and bring in measures that are more restrictive. 
  • India wants a clear exemption from the Ratchet obligations, so that it can bring restrictive measures to protect the interests of exporters and importers, if needed.

Local industries

  • Many farmers and milk cooperatives have raised their concern on RCEP. 
  • In India, several small and marginal farmers are dependent on milk for their daily expenses as income from crops is seasonal. 
  • If India signs the RCEP, without exemptions for dairy and its products, it would allow the dairy industry of Australia and New Zealand to unfairly target its huge market. 
  • New Zealand exports 93.4% of its milk powder, 94.5% of its butter and 83.6% of its cheese produce. However, the government has given its assurance that it would protect the interests of homegrown milk cooperatives through adequate safeguards.

India’s stand – on FTAs and Service trade

  • FTAs – So far, India has proceeded with extreme caution. Just entering into agreements and focusing on tariff reduction has not helped the country as it has seen in the mixed experience of its FTAs. 
  • The merchandise trade data shows that over the years, the merchandise trade deficit has widened with the ASEAN countries.
  • India’s main requirement is that of a balanced outlook which is a win-win for all. 
  • Service trade – India is running a services trade surplus with the world. 
  • Therefore, it is trying to push for a strong agreement on the services trade, including a deal on easier movement of skilled manpower. 
  • Even the IMF has said that services trade could be a substantial engine of growth for India and other south Asian economies. 
  • As per ILO data, around 58% of India’s workforce is medium-skilled and 16% is high skilled, and to protect their interest is of paramount importance.
  • Trade – India commands around 1.7% share of the world’s total goods exports ranking 20th as per the WTO 2018 data. 

Way ahead

  • For achieving a 5% share in world exports, India must build its manufacturing capabilities. 
  • How India manoeuvres the geo-political space will determine how successful it is in becoming an export behemoth.
Regional Comprehensive Economic Partnership (RCEP)

India drops out of RCEPIOCR

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : Implications of India's drop-out from RCEP



  • India decided to drop out of the RCEP agreement, citing its negative effects on “farmers, MSMEs and dairy sector”.

What is the RCEP?

  • The Regional Comprehensive Economic Partnership (RCEP) is a trade deal that was being negotiated between 16 countries.
  • They include the 10 ASEAN members and the six countries with which the bloc has free trade agreements (FTAs) — India, Australia, China, Korea, Japan, and New Zealand.
  • The purpose of the deal is to create an “integrated market” spanning all 16 countries.
  • This means that it would be easier for the products and services of each of these countries to be available across the entire region.

What makes RCEP special?

  • The RCEP is billed to be the “largest” regional trading agreement as the countries involved account for almost half of the world’s population, contribute over a quarter of world exports, and make up around 30% of the global GDP.
  • Negotiations to chart out the details of this deal have been on since 2013, and all participating countries had earlier aimed to finalise it by November 2019.

Outstanding issues where India contradicts

Chinese imports

  • Key issues that have prevented India from coming on board include “inadequate” protection against surges in imports.
  • This is a major concern for India, as its industry has voiced fears that cheaper products from China would “flood” the market.
  • India had been seeking an auto-trigger mechanism that would allow it to raise tariffs on products in instances where imports cross a certain threshold.
  • India has also not received any credible assurances on its demand for more market access, and its concerns over non-tariff barriers.

Rules of origin criteria

  • Its concerns on a “possible circumvention” of rules of origin — the criteria used to determine the national source of a product — were also not addressed.
  • Current provisions in the deal reportedly do not prevent countries from routing, through other countries, products on which India would maintain higher tariffs.
  • This is anticipated to allow countries like China to pump in more products.

Trade deficit

  • Despite India already having separate, bilateral FTAs with most RCEP nations, it has recorded trade deficits with these countries.
  • China India has an over $50 billion trade deficit is one of the major reasons for New Delhi not joining in at this stage.
  • During negotiations, it was also not able to get a favourable outcome on its demands on the base year that would be used to reduce the tariffs on the products that would be traded as part of the pact.

Protecting domestic industries

  • Throughout the RCEP negotiations, several sections of the Indian industry have raised concerns over India signing the deal.
  • They have argued that some domestic sectors may take a hit due to cheaper alternatives from other participant countries.
  • For instance, the dairy industry was expected to face stiff competition from Australia and New Zealand.
  • Similarly, steel and textiles sectors have also demanded protection.

Way ahead

  • As all other RCEP nations have agreed to sign the treaty on the terms negotiated, they will likely try to persuade India to agree to the same.
  • It remains to be seen whether those efforts ultimately lead.
  • All RCEP Participating Countries will work together to resolve these outstanding issues in a mutually satisfactory way.
  • India’s final decision will depend on the satisfactory resolution of these issues.
Regional Comprehensive Economic Partnership (RCEP)

Explained: RCEP trade negotiationsExplained

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : India's reservations on the RCEP deal


  • Negotiations on the final agreement under the Regional Comprehensive Economic Partnership (RCEP) are becoming increasingly urgent as the deadline approaches.
  • The final ministerial meeting prior to that concluded recently, but with no final agreement in place.
  • The Leaders Summit, in which PM Modi is taking part, will to be held on November 4 in Bangkok, Thailand.
  • But there are several sticking points that remain preventing a harmonious agreement from taking shape.

What is RCEP?

  • Once finalised, the RCEP trade grouping will be one of the world’s biggest free trade pacts as it includes the 10 ASEAN members, as well as India, China, Australia, New Zealand, Japan and South Korea.
  • These 16 nations account for a little less than half of the world’s population and about a third of the world’s GDP.
  • Trade between the 16 countries also makes up a little more than a quarter of global trade.
  • Talks on finalising RCEP began all the way back in 2012, but have not yet been concluded. The uncertainty in global trade is slowing down talks further.

Potential benefits

  • Once the deal is concluded, it will likely bring stability to trade relations in an area where such ties have historically been unpredictable.
  • The deal — in essence a free trade agreement between the signatories — would open up markets of each of the partner countries to the others.
  • On the face of it, this is a favourable outcome for all involved, but there are some niggling issues, especially between India and China, that are throwing a spanner in the works.

Disadvantages

  • There is a fear that, at a time when the U.S. and China are embroiled in a trade war, a trade grouping with China at the helm would mean that the other countries, including India, would be forced to take its side against the U.S.
  • This is a complicated issue since India has been going to great lengths to further bolster trade with the U.S.
  • In fact, the two countries are currently in talks on a bilateral trade deal, which could be put at risk if India is seen to be overtly siding with China.

India’s issues with RCEP

China Factor

  • The main problem Indian industry has with the RCEP trade deal is that it would give China near-unfettered access to India markets.
  • Cheap imports from China have already been seen to be impacting India’s domestic industry, with the Indian government having taken a number of steps to curb such imports.
  • According to reports from the various RCEP negotiations that have taken place, India would, under the agreement, reduce duties on 80% of items imported from China.
  • While this is a smaller percentage of items as compared to what India is prepared to do for other countries, the figure has nevertheless spooked Indian industry, especially the agriculture and dairy sectors.
  • Under the agreement, India would have to cut duties on 86% of imports from Australia and New Zealand, and 90% for products from ASEAN, Japan and South Korea.

Investment issues

  • India’s problems with RCEP are not restricted to China.
  • There are several other aspects to the RCEP agreement which include investments and e-commerce that are of major concern as well.
  • India has agreed to the investment chapter of the RCEP agreement, which would mean that the government can no longer mandate that a company investing in India must also transfer technology to its Indian partners.
  • The investment chapter also says that a signatory government cannot set a cap on the amount of royalties an Indian company can pay to its foreign parent or partner.
  • These aspects have also raised concerns since technology sharing was a major way in which Indian companies were being able to compete globally.

Way forward

  • However, time is running out. China has already said that the grouping should go ahead without the nay-sayers, with a clause allowing them to join later.
  • This suggestion was echoed by Malaysia as well, but was ultimately rejected.
  • It does not seem a good idea for India to be out of the agreement from its inception, only to join it later.
  • This would mean it would have missed out on the chance to frame the discussions and the precedents from the beginning and would have to accept them later.
  • India should make clear its stance and stick to it.
Regional Comprehensive Economic Partnership (RCEP)

[op-ed of the day] The art of deploying diplomacy to advance our trade interestsop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : India's concerns with RCEP


Context

  • The external affairs minister recently said that trade interests, and not diplomacy, will decide India’s participation in the Regional Comprehensive Economic Partnership (RCEP) agreement.
  • While it is obvious that any trade agreement must be decided on its merits, smart diplomacy can aid in advancing our overall trade and strategic interests.

Diplomacy is crucial

  • Trade benefits may emanate not only from the deal being negotiated, but also from strengthening existing trade relations.
  • The deal provides for opening of new trade avenues, and the fostering of competitiveness among domestic producers.
  • The collateral benefits would include enhanced investment, policy certainty and regional security. For all this to happen, diplomacy is crucial.
  • In other words, when trade and diplomatic initiatives complement each other, and are not pursued in isolation.

India’s concerns with RCEP

  • India has genuine concerns with the RCEP over possible import surges from countries like China, NZ and Australia, particularly in the agricultural and dairy sectors.

Why RCEP is crucial?

The early conclusion of RCEP negotiations and its implementation offers several strategic benefits to India.

A say in rule-making

  • It will send a strong signal to the global trade community that the international trading system is alive and kicking, and India is ready to participate in the rule-making process for it.
  • Given that RCEP countries constitute more than one-third of global GDP, close to half of its population, and around 30% of its trade, not being party to it would be counterproductive to India’s interests.

Extension of own policies

  • India’s participation can be viewed as a natural extension of its Act East and Act Far East policies, for it will enhance our maritime connectivity in the Indo-Pacific region.
  • The RCEP holds enormous potential to facilitate economic growth and stability in the region, and to help make it free, open and inclusive.
  • It could also be used as a key instrument to balance Asia-Pacific and Indo-Pacific constructs for shared prosperity with security.

Intra regional collaboration

  • India can use RCEP as an anchor to launch several mini-lateral initiatives in the region, with countries like Australia and Japan, to strengthen our maritime connectivity and allow for the emergence of alternative power centres.
  • RCEP can be leveraged by India to make investments in connectivity and infrastructure development in our extended neighbourhood, such as the Sabang port in Indonesia, and Cam Ranh port in Vietnam.
  • It can also help Indian companies form joint ventures for exploring and sourcing strategic resources, such as natural gas from countries like Vietnam and Myanmar.

Clinging to our Foreign Policy

  • A mature vision has already been displayed by the PM, whose strong push in favour of the country’s Act East and Act Far East policies.
  • This has given Indian negotiators the vigour needed to quickly conclude negotiations for the RCEP.
  • National interests cannot be allowed to be hijacked by a few industries, and the government must look at the greater good for the biggest numbers.
  • It is possible to take a macro view of the medium-to-long-term future, and act accordingly to make the most of the economy’s trade potential.

Benefits outpower the concerns

  • While one needs to be cautious about any overestimation of such a negative impact, as portrayed in popular media, we should not forget that there will be gains for industries and for consumers at large.
  • In addition, the RCEP can be leveraged to help Indian industry become more competitive, participate in global value chains, and seek additional market access.

Possible reasons for India’s reluctance

  • Leveraging the benefits of RCEP would require overcoming several domestic challenges, particularly related to infrastructure and input markets.
  • For instance, at present, road transport in India costs $7 per km, while the cost is only $2.50 per km in China.
  • Similarly, economical and timely access to land, labour, capital and technology remains a challenge in our country.
  • Correcting the situation will require domestic input market reforms and heavy investment in infrastructure to enable Indian companies to participate effectively in global value chains.

Supporting the impaired economy

  • A troika of optimal competition, industrial and trade policies could help usher in such reforms and allow the Indian economy to compete with its RCEP counterparts.
  • Given that India is experiencing a structural and cyclical slowdown, the RCEP can also serve as an additional external factor for reformers to push for difficult yet important domestic reforms.

So, what can be done?

  • We can show maturity by acceding to the RCEP’s spirit of multilateralism while initiating parallel discussions with select countries on special safeguard mechanisms.
  • We could designate some tariff lines as special products and even have tariff rate quotas for some others.
  • While it has been reported that RCEP countries have decided to ease the application of investor-state dispute settlement procedures, the agreement may provide for the creation of an independent arbitrator.

Conclusion

  • Once the RCEP is in place, diplomatic efforts will be required to achieve convergence between the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) and the RCEP.
  • Over time, the RCEP may expand to include Russia and other central Asian countries.
  • All this would require smart diplomacy in favour of our trade, investment and strategic interests.
Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] Joining RCEP should be seen as an extension of Look East policyop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : RCEP and its benefits to India


Context

RCEP

  • The Regional Comprehensive Economic Partnership (RCEP) aims to bring the 10 countries of ASEAN with Australia, New Zealand, South Korea, India, China and Japan to create the world’s largest trading block.
  • If it comes into being, RCEP will constitute more than 40 per cent of the global population and almost half of world’s economy.
  • It consists of three of the six largest economies of the world, especially, the two fastest growing large economies — India and China.
  • Out of the top 16 countries with the largest GDP, six belong to the proposed RCEP.

Act of Balancing with China

  • There is a huge debate in India over joining RCEP. India’s allies in Southeast Asia, as well as Australia, want India to join it to balance China.
  • On the other hand, many in India feel that RCEP will aggravate India’s burgeoning trade deficit with China.
  • The Indian industry feels that China does not provide a level playing field for items that they could export, especially in fields like pharma, IT, films, indigenous medicines, wellness and yoga.
  • Some of these are founded on opacity that surrounds the Chinese government’s decision making.

The Indian protectionism

  • There is a tendency in Indian industry to seek protection, whenever any steps towards globalization are taken.
  • The “Bombay Club” long used for protectionism, protested when liberalisation was introduced and tried to prevent imports for as long as they could.
  • However, it is an acknowledged fact that globalisation did benefit the Indian economy, it brought in newer technology and made Indian industry far more competitive.
  • RCEP does provide Indian industry a huge market to grow and expand, provided it transforms and the government frees it from bureaucratic controls that have been stifling growth.

Not to blame anyone

  • When import access was given to Chinese goods, it did not eliminate Indian industry.
  • Of course, some industries which are uneconomical, have not modernized and imbibed new technologies will fall by the way side.
  • More significantly, opening up markets and reducing tariffs will benefit consumers.
  • The automobile, telecom and even IT boom would not have been feasible without liberalisation.
  • Similarly, the recent spurt in solar power generation is directly a result of the availability of cheap imported solar films.

No Chinese fear

  • The apprehensions about China’s non-tariff barriers are not unfounded.
  • But, China’s track record shows that it has scrupulously followed multilateral arrangements.
  • By entering RCEP, India may be able to get greater market access to even China as it is vulnerable due to its ongoing trade war with the US.
  • More significantly, with China facing the demographic crunch, India could easily edge it out, if we go for economies of scale, made feasible by a large trading block like RCEP.

Visible benefits for joining

  • India’s presence in this trading block could lead to a large number of multinationals shifting their production facilities from China to India.
  • RCEP being effective would enable them to access Chinese markets, without being present there, to comply with US sanctions.
  • This could also bring in huge investments from many companies in the West.
  • With the Trans-Pacific Partnership having unraveled, it is quite feasible that a post-Trump US administration may join RCEP if it takes off.

Natural extension of own policy

  • RCEP is nothing but a natural follow up of India’s Act East policy.
  • India’s main strength lies in the services sector and it must therefore, ensure that RCEP includes unbridled access for Indian service providers as well as a liberalized visa regime for people working in these fields.
  • Similarly, protection will need to be ensured for some sensitive industries crucial for national security.
  • Some temporary protection may be required for certain sectors of agriculture, crucial for food security.

A win-win situation

  • RCEP is one sure shot way of forcing China to provide a level playing field.
  • India has the largest arable land and one of the largest pool of scientists, engineers, technicians, so there is no reason for India to be concerned.

Way forward

  • India’s welcome to RCEP is one way of controlling China and keeping it in check.
  • In a big grouping like this, China is unlikely to have its way, nor is it going to antagonize everyone.
  • India’s absences from RCEP will virtually handover this significant grouping to China, which is certainly not in India’s interest.
  • Thus RCEP is a huge opportunity which India should not miss.
Regional Comprehensive Economic Partnership (RCEP)

RCEP nations to intensify talks to conclude trade pactIOCR


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, ASEAN

Mains level: Impact of joining RCEP on Indian economy as well as foreign policy


News

  • The 7th RCEP Inter-sessional Ministerial Meeting was recently held in Cambodia.
  • Commerce ministers of RCEP countries including India and china, which are negotiating a mega trade deal, held a crucial meeting in Cambodia.

Importance of the Summit

  • After five years of intense negotiations, India at the end of the 2nd RCEP summit is now perceived as a constructive player.
  • This will ensure that there is no marginalisation of request of smaller countries.
  • There is room for policy space for developing countries in transition as it will help moderate ambitions, particularly in the goods negotiations and lead to balanced and mutually beneficial outcomes.
  • India’s flexibility helped in facilitating successful conclusion of three chapters – institutional provisions; sanitary and phyto-sanitary measures and standards, technical regulations and conformity assessment.

Outcomes of the Summit

  • The 16 members of the RCEP group, including India and China has agreed to intensify ongoing negotiations for a proposed mega trade agreement to resolve all issues and conclude the talks this year.
  • To ensure that progress is made towards meeting the target for conclusion in 2019, the Ministers agreed to intensify engagement, including by convening more inter-sessional meetings.
  • All Ministers resolved to exert utmost effort to achieve the target of concluding negotiations this year.
  • The leaders commended the Trade Negotiating Committee for the progress made to date on both market access and text-based negotiations.

Eyes on India

  • RCEP members want India to eliminate or significantly reduce customs duties on maximum number of goods it traded with them. India’s huge domestic market provides immense opportunity of exports for RCEP countries.
  • But lower level of ambitions in services and investments, a key area of interest for India, does not augur well for the agreement that seeks to be comprehensive in nature.

Back2Basics

RCEP

  • RCEP bloc includes 10 countries of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and their six free trade pact partners namely Australia, China, India, Japan, Korea and New Zealand.
  • The RCEP bloc aims to cover among the issues related to goods, services, investments, economic and technical cooperation, competition and intellectual property rights.
Regional Comprehensive Economic Partnership (RCEP)

How RCEP negotiations hinge on a single phraseIOCR


Note4Students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, TPP etc.

Mains level: How India will gain from being a part of RCEP


News

Meet for a “Substantial Conclusion”

  1. The Union Minister for Commerce & Industry is leading the delegation for the meeting for trade Ministers of RCEP member countries which is taking place in Singapore.
  2. The ministerial meeting will be followed by the 2nd RCEP Leaders Summit.

Fine-tuning the negotiations

  1. As the East Asia Summit nears this week, negotiations for the RCEP (Regional Comprehensive Economic Partnership) are going down to the wire.
  2. India is expected to take the final decision negotiating its stance more deeply.
  3. In the previous round of discussions in September, the countries had reached a “substantial conclusion” before reaching a final agreement by 2019.

India’s stance

  1. This “substantial conclusion” undermines the principle of “single undertaking”, which means nothing is done until it is completely done.
  2. In addition, only five of the 18 chapters in the RCEP are actually done, leaving the rest with many debating points.
  3. Many countries want India to be part of this deal as a way of balancing China’s outsized presence.
  4. India is having a hard time battling perceptions that it is the only laggard on RCEP negotiations.
  5. From a position of being fearful of letting the RCEP become a back door for Chinese entry into India, India has evolved its position considerably believing it has a lot to gain from the agreement.

Back2Basics

Regional Comprehensive Economic Partnership

  1. The RCEP is a pact that aims to cover goods, services, investments, economic and technical cooperation, competition and intellectual property rights.
  2. The RCEP members include 10 ASEAN members – Brunei Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam and their 6 free trade agreement partners – India, China, Japan, South Korea, Australia and New Zealand.
  3. The chief negotiators had recently concluded the 24th round of meeting in Auckland, New Zealand, last month.
  4. India already has a free trade agreement with Association of Southeast Asian Nations (ASEAN), Japan and South Korea and it is negotiating similar pacts with Australia and New Zealand.
  5. India is pushing for liberalizing norms to promote services trade as the sector accounts for about 55 % of India’s GDP.
Regional Comprehensive Economic Partnership (RCEP)

ASEAN member countries of RCEP offer India concessionIOCR


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, TPP etc.

Mains level: How India will gain from being a part of RCEP


News

Encouraging India for RCEP

  1. Several Asian member countries of the proposed RCEP have offered India a significant concession on the extent to which it needs to open up its markets.
  2. India can open up 83% of its market against the earlier 92%.

Quick Recap of RCEP

  1. The RCEP is a proposed trade agreement between the 10 Association of Southeast Asian Nations (ASEAN) countries and their six free trade agreement partners, namely Australia, China, India, Japan, Korea, and New Zealand.
  2. The grouping would comprise 25% of global GDP, 30% of global trade, 26% of FDI flows, and 45% of the population.

Scope for bilateral agreements with China

  1. India is concerned about further opening its market to China and skewing the trade deficit between them further.
  2. However the RCEP allows for bilateral agreements also to be made so India can perhaps open up to China gradually and not in one go.

India’s successful negotiations so far

  1. India has achieved some success regarding some of its other concerns, such as getting the other RCEP countries to liberalize their services markets and allow for a more free movement of service sector professionals.
  2. India stands to gain a lot from joining RCEP at a time when so much trade is being diverted from China because of the ongoing trade tensions with the U.S.

Hurdled by Elections

  1. India along with Indonesia and Australia are also due to go to elections in 2019.
  2. It is unlikely that these countries would make a decision before the general elections in 2019, even though the RCEP countries have set a December 2018 internal deadline for the “substantial outcomes”.
  3. India and a few other countries want only a statement on substantial progress to be made during the summit, and for negotiations to be pushed till next year.
  4. This adds to the urgency of concluding the RCEP negotiations as it makes it harder for governments to give any concessions on tariffs and subsidies closer to polls, given political compulsions.
Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] The economics of RCEP and potential outcomes for Indiaop-ed snap


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP

Mains level: How India will gain from being a part of RCEP


Context

RCEP negotiations & what’s at stake for India

  1. The Regional Comprehensive Economic Partnership (RCEP) agreement is under negotiation and has remained a much-contested subject in recent times
  2. If India is out of the RCEP, it would make its exports price uncompetitive vis-à-vis other RCEP members’ exports in each RCEP market
  3. The ensuing export-losses contributing to foreign exchange shortages and the subsequent extent of depreciation of the rupee can only be left to imagination

RCEP a comprehensive agreement

  1. This is because it helps to tap the economic complementarities that get generated due to the interlinkages among various segments of trade
  2. These inter-linkages are particularly important when India endeavours to integrate with a region, which has been the most successful region of the world in terms of thriving regional value chains (RVCs)
  3. These RVCs necessitate freer movement of professionals across countries in the region

Reaping benefits for the demographic dividend

  1. The vector of India’s demographic dividend is concomitant to the vector of the “ageing” population in most RCEP countries
  2. This skill-matching needs to be focused in the realm of RCEP negotiations by signing an RCEP Agreement on Movement of Natural Persons Harnessing Regional Skill-Complementarities

India’s efforts in ensuring private sector exports

  1. India’s policymakers are trying to balance the objectives of efficiency-yielding calibrated import liberalization, without sacrificing on the domestic sensitivities
  2. It has to be matched with ensuring reciprocal market access for the Indian private sector’s exports in the markets of RCEP

Gains for India

  1. There are enormous export gains that could accrue to India from RCEP under varying scenarios
  2. This assumes even greater importance since our focus has been on products with favourable terms of trade for India
  3. Thus per-unit foreign exchange realization from these products will be greater than per-unit foreign exchange expenditure on imports of similar products within intra-industry trade pattern
  4. Some of the sectors that have been identified as potential sources of India’s export growth impulses under RCEP to the tune of approximately $200 billion

Way Forward

  1. There are more compelling trade and economic reasons for RCEP to become India-led in future
  2. India must play its due role to get its due place in the regional economic configurations
Regional Comprehensive Economic Partnership (RCEP)

India wins key concession on services at RCEP Singapore MinisterialIOCRPrelims OnlyPriority 1


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP

Mains level: Impact of joining RCEP on Indian economy as well as foreign policy


News

Big success for India

  1. Members of the proposed RCEP trade deal have conceded to India’s demand to liberalize their services market and allow movement of skilled professionals.
  2. This may help India, which had so far been a reluctant participant, to conclude RCEP negotiations by the year-end.
  3. There has been inevitable linkage between services and goods negotiations, because RCEP is not a goods agreement alone, and services must be an integral part of the agreement.
  4. RCEP countries will open up opportunities for India’s burgeoning skilled professionals seeking gainful employment.

Space for bilateral negotiations

  1. Members also agreed that countries, which do not have trade agreements, can negotiate bilaterally to decide more ambitious tariff liberalization within a certain range.
  2. India is also likely to phase out tariffs on certain sensitive items with China beyond 20 years.
  3. This will allow India to allay concerns of domestic industries such as steel and textiles, which fear that China will start dumping goods once RCEP takes effect.

Back2Basics

Regional Comprehensive Economic Partnership (RCEP)

  1. It is a proposed free trade agreement (FTA) between ASEAN and six Asia-Pacific states.
  2. Members: ASEAN Members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six Asia-Pacific states (Australia, China, India, Japan, South Korea and New Zealand).
  3. RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
  4. The FTA is scheduled and expected to be signed in November 2018 during the ASEAN Summit and Related Summit in Singapore, after the first RCEP summit was held on 14 November 2017 in Manila, Philippines.
  5. RCEP is viewed as an alternative to the Trans-Pacific Partnership (TPP), a proposed trade agreement which includes several Asian and American nations but excludes China and India.
  6. Importance of RCEP:
  • In 2017, prospective RCEP member states accounted for a population of 3.4 billion people with a total Gross Domestic Product (GDP, PPP) of $49.5 trillion
  • It is approximately 39 percent of the world’s GDP with the combined GDPs of China and Japan making up more than half that amount.
  • RCEP is the world’s largest economic bloc, covering nearly half of the global economy.
  • RCEP’s share of the global economy could account for half of the estimated $0.5 quadrillion global GDP (PPP) by 2050.
Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] Stay with RCEPop-ed snap


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, ASEAN

Mains level: Impact of joining RCEP on Indian economy as well as foreign policy


Context

Final negotiations of RCEP

  1. The negotiations on the Regional Comprehensive Economic Partnership, among 16 Asian and Pacific Ocean countries, have entered a decisive phase
  2. Most potential member-countries of the grouping would like to see a “substantive agreement” on the trade deal by the end of this year
  3. At a meeting in Singapore countries which still have issues with the outline of the agreements reached so far may be told politely to step aside and allow a smaller group to go ahead with finalising the RCEP

Future for India

  1. India is among the countries that will have to take a call at this point
  2. India’s concerns with RCEP negotiations thus far are manifold, but some have been addressed

India’s concerns

  1. The first is the greater access Chinese goods will have to the Indian market, a problem given India’s massive trade deficit
  2. The second concern is about demands by other RCEP countries for lower customs duties on a number of products and greater access to the market than India has been willing to provide
  3. The more developed RCEP countries such as Australia and Singapore have been unwilling to accommodate India’s demands to liberalise their services regime and allow freer mobility of Indian workers

Way forward

  1. Despite these concerns, the government must take into account the deeper strategic pitfalls of either slowing down India’s RCEP engagement or walking out of the talks at this stage
  2. Doing so would cut India out of the rule-making process for the RCEP and give China further space in the regional trade and security architecture
  3. It would also be a sharp departure from India’s “Act East” slogan and its extended outreach to ASEAN
Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] Can regional trade agreements boost India’s exports?op-ed snap


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, WTO

Mains level: The problem with multilateral agreements and what India needs to do to gain most from them


Context

Demand for India to join multilateral agreements

  1. As the World Trade Organization (WTO) comes under mounting attack from the Trump-led US administration, there is a clamour in India to negotiate regional trade agreements with peer countries
  2. It is perceived that this will boost exports and insulate India’s trade from the uncertainties of the global trading system

Are multilateral agreements really beneficial for India?

  1. An analysis of trade agreements suggests that India has often failed to gain from such agreements
  2. This could explain why Indian policymakers have become cautious about pursuing new trade agreements in recent years

History of trade agreements

  1. The rise of regional trade agreements (RTAs) globally coincided with the end of the Uruguay round of WTO talks in the mid-1990s
  2. Their growth has often been explained as a result of slow progress in multilateral negotiations
  3. RTAs include both preferential trade agreements and free trade agreements (FTAs)

Criticism of RTAs

  1. RTAs face criticism for being detrimental to the spirit of multilateral free trade
  2. This is because countries that are not part of a regional agreement find themselves at a disadvantage
  3. This is especially true in an era of rising protectionism and uncertainty

Solution: Trade blocs

  1. It is possible to address such issues to some extent by creating mega-trading blocs
  2. One such bloc being negotiated is the Regional Comprehensive Economic Partnership (RCEP), consisting of China, India, Japan, south-east Asian nations, Australia and New Zealand

Scope for India

  1. There might be scope for India to increase its trade with the Asia-Pacific region, given that its level of integration with the region is relatively low
  2. But India has remained ambivalent about the RCEP, with officials expressing concern that it might actually harm India

The reason behind India’s concerns

  1. India’s existing agreements with South Korea, Japan and the Association of South East Asian Nations (ASEAN) are often deemed to have benefited the partner countries at India’s expense
  2. India has not been able to sufficiently leverage these agreements to increase its presence in the markets of its partners
  3. The import-export ratio with these countries deteriorated in the years following the implementation of the trade agreements
  4. Even as partner countries have benefited, Indian exports to these regions have remained lacklustre

The actual reason for fewer gains from RTAs

  1. India’s inability to gain market share in these regions may be partly explained by its lack of competitiveness in exports
  2. India has various structural bottlenecks hurting its exports

Way Forward

  1. The focus needs to be on where India can promote its exports
  2. India needs to be careful in weighing each trade deal on its own merit
Regional Comprehensive Economic Partnership (RCEP)

India faces a stern test of its commitment to RCEPIOCRPrelims OnlyPriority 1


Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, ASEAN

Mains level: Dangers of easing tariff to India in spirit to maintain regional cooperation.


News

Context

  1. The government has set up a four-member group of ministers (GoM) headed by trade minister to advise PM on whether to continue with or withdraw from the 16-member Regional Comprehensive Economic Partnership (RCEP) negotiations.
  2. The GoM will find a way forward from the current deadlock.

India’s concerns

  1. ASEAN’s aggressive push to dismantle tariffs on about 90-92 per cent items and reduce tariffs to below 5 per cent on an additional 7 per cent of items is worrying for India.
  2. It would expose sensitive items, including farm and dairy goods, automobiles and steel products, to tariff cuts.
  3. For investment too, there are contentious areas such as liberalizing based on a negative list (wherein all items are to be included except those specifically mentioned in a list) and the inclusion of an Investor State Dispute Settlement mechanism.
  4. This could lead to India getting involved in costly legal suits filed against it by corporates.

Trade deficit

  1. There is concern across ministries that joining the accord could severely dent local manufacturing and jobs.
  2. China’s $60-billion trade surplus with India will swell even further as it floods the market with cheap goods at zero tariffs.
  3. India has a trade deficit with as many as 10 RCEP countries, including China, South Korea and Australia, among others.

Way Forward

  1. It has so far maintained that a speedy and successful conclusion of the agreement would be possible only with the inclusion of a higher level of services and investment in the India-Asean trade basket.
  2. India is not part of any major trade group and wouldn’t want to get left out of this one, especially when the future of WTO is under a cloud due to global trade wars.

Back2Basics

Regional Comprehensive Economic Partnership (RCEP)

  1. It is a proposed free trade agreement (FTA) between ASEAN and six Asia-Pacific states.
  2. Members: ASEAN Members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six Asia-Pacific states (Australia, China, India, Japan, South Korea and New Zealand).
  3. RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
  4. The FTA is scheduled and expected to be signed in November 2018 during the ASEAN Summit and Related Summit in Singapore, after the first RCEP summit was held on 14 November 2017 in Manila, Philippines.
  5. RCEP is viewed as an alternative to the Trans-Pacific Partnership (TPP), a proposed trade agreement which includes several Asian and American nations but excludes China and India.
  6. Importance of RCEP:
  • In 2017, prospective RCEP member states accounted for a population of 3.4 billion people with a total Gross Domestic Product (GDP, PPP) of $49.5 trillion
  • It is approximately 39 percent of the world’s GDP with the combined GDPs of China and Japan making up more than half that amount.
  • RCEP is the world’s largest economic bloc, covering nearly half of the global economy.
  • RCEP’s share of the global economy could account for half of the estimated $0.5 quadrillion global GDP (PPP) by 2050.
Regional Comprehensive Economic Partnership (RCEP)

India pushes for concluding balanced RCEP deal that includes services pact


Image source

Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, ASEAN

Mains level: Rising services trade and India’s position in it


Balanced RCEP agreement

  1. India has insisted on concluding a “balanced and collectively satisfactory” Regional Comprehensive Economic Partnership (RCEP) agreement
  2. India wants a services pact to be included in the agreement

Act east policy being strengthened

  1. India has invited leaders of all 10 ASEAN countries to New Delhi for a commemorative summit on 25 January to mark 25 years of dialogue partnership
  2. On 26 January, all 10 Asean leaders will be chief guests at India’s 69th Republic Day celebrations
  3. This is unprecedented as India usually invites the head of government of a single country as the Republic Day chief guest each year

Why India wants services pact in RCEP?

  1. Services are becoming a dominant driver of growth in both developed and developing countries
  2. Services contribute almost two-thirds of India’s GDP
  3. Surplus in services trade finances almost half of India’s trade deficit
  4. India is pushing for greater liberalization in services sectors for easier movement of its professionals to RCEP member countries

ASEAN-India services and investment agreement

  1. Eight out of ten countries have already ratified the Asean-India services and investment agreement
  2. It came into force in July 2015
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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)
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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
Regional Comprehensive Economic Partnership (RCEP)

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

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

source

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.

source

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:

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