Regional Comprehensive Economic Partnership (RCEP)

Regional Comprehensive Economic Partnership (RCEP)

Premature membership of RCEP would not serve Indian interests

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP countries

Mains level : Paper 3- India's decision to not join RCEP

The article analyses government’s decision to stay out of RCEP and factors responsible for it.

What India chose not to join RCEP

  • By joining RCEP, India would have further risked a flood of cheap Chinese imports in sectors like electronics.
  • India had tried and failed to win substantial concessions in areas like work visas for its information technology-enabled services.
  • Two of India’s proposals—an RCEP business travel card and an RCEP service supplier card—failed to find favour with a majority of the bloc’s members.

Arguments in favour of India joining the RCEP

  •  First argument made is RCEP would have provided an excellent opportunity for Indian firms to get integrated with regional value chains.
  • However, merely joining a trade bloc does not automatically result in integration with global value chains.
  • The complex nature of global production networks requires a lot of economic and trade policy reforms on the domestic front.
  • Second important argument made is that India would lose an opportunity to access RCEP’s common market.
  • But this argument too doesn’t hold much water if Indian producers are not competitive.
  • Competitiveness is driven by factors both within and beyond the control of domestic industry.
  • So it would be an over-simplification to assume that Indian industry does not have the capability or appetite to be competitive.
  • Often, global competitiveness inside factory gates gets diluted by costs borne outside those gates.

What past data suggests

  • India’s merchandise exports grew at an annual rate of more than 18% between 2000-01 and 2010-11, which was largely a pre-FTA period.
  • In this period, India activated only two FTAs—with Sri Lanka and Singapore.
  • India joined the FTAs in a big way from 2010 onwards.
  • It operationalized big trade agreements with the 10-nation Association of South East Asian Nations (ASEAN), Japan, Korea, and separately with Malaysia.
  • However, despite these deals, India could realize annual merchandise export growth of only 2.5% between 2010-11 and 2019-20.
  • This disappointing performance shows that FTAs are not conducive for exports.

Conclusion

While RCEP may theoretically offer India new opportunities for exports and integration with pan-Asian production networks, we have a lot of work to do internally before we are in a position to make the most of free-trade deals.

Regional Comprehensive Economic Partnership (RCEP)

Economic implications of India opting out of RCEP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : Economic implications for India

Even as India opted to stay out after walking out of discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.

Must read:

China-led RCEP takes off without India

Try answering this also:

Q.Signing the Regional Comprehensive Economic Partnership (RCEP) agreement would have given more substance to India’s Act East policy. Analyse.

Why did India walk out?

  • India decided to exit RCEP negotiations over “significant outstanding issues”.
  • Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector.
  • The current structure of RCEP still does not address these issues and concerns.

How far is China’s presence a factor?

(1) Escalated tensions

  • Escalated tension with China is considered to be a major reason for India’s decision.
  • Major issues that were unresolved during RCEP negotiations were related to the exposure that India would have to China.

(2) Surge in imports

  • This included India’s fears that there was “inadequate” protection against surges in imports.
  • It felt there could also be a possible circumvention of rules of origin— the criteria used to determine the national source of a product.
  • In the absence of this, other partner countries could dump their products by routing them through other countries that enjoyed lower tariffs.

(3) Inability for countermeasures

  • India was unable to ensure countermeasures like an auto-trigger mechanism to raise tariffs on products when their imports crossed a certain threshold.
  • It also wanted RCEP to exclude most-favoured-nation (MFN) obligations from the investment, especially to countries with which it has border disputes.

(4) No assurance of market access to India

  • RCEP also lacked clear assurance over market access issues in countries such as China and non-tariff barriers on Indian companies.
  • The agreement would have forced India to extend benefits given to other countries for sensitive sectors like defence to all RCEP members.

(5) Trade balances paradox

  • India’s stance on the deal also comes as a result of learnings from unfavourable trade balances that it has with several RCEP members, with some of which it even has Free Trade Agreements.
  • India has trade deficits with 11 of the 15 RCEP countries, and some experts feel that India has been unable to leverage its existing FTAs with several RCEP members to increase exports.

What can the decision cost India?

  • There are concerns that India’s decision would impact its bilateral trade ties with RCEP member nations, as they may be more inclined to focus on bolstering economic ties within the bloc.
  • The move could potentially leave India with less scope to tap the large market that RCEP presents —the size of the deal is mammoth, as the countries involved account for over 2 billion of the world’s population.
  • Given attempts by countries like Japan to get India back into the deal, there are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific.

What are India’s options now?

  • India, as an original negotiating participant of RCEP, has the option of joining the agreement without having to wait 18 months as stipulated for new members in the terms of the pact.
  • RCEP signatory states said they plan to commence negotiations with India once it submits a request of its intention to join and it may participate in meetings as an observer prior to its accession.
  • A possible alternative for India is to review its existing bilateral FTAs with some of these RCEP members as well as newer agreements with potential for Indian exports.
  • There is also a growing view that it would serve India’s interest to invest strongly in negotiating bilateral agreements with the US and the EU, both currently a work in progress.

Conclusion

  • A country can never get into FTAs merely to provide its market to the partner countries.
  • When we accommodate our partner countries, our objective is also to increase the presence of our products in the markets of partners, and India hasn’t been able to achieve the latter objective.

Regional Comprehensive Economic Partnership (RCEP)

China-led RCEP takes off without India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : RCEP and its economy

The Regional Comprehensive Economic Partnership (RCEP), a mega trade bloc comprising 15 countries led by China has come into existence.

Try answering this:

Q.Signing the Regional Comprehensive Economic Partnership (RCEP) agreement would have given more substance to India’s Act East policy. Analyse.

About RCEP

  • Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) between –
  1. The 10 members of ASEAN
  2. Additional members of ASEAN +3 = China, Japan, South Korea
  3. Members with which ASEAN countries have FTA = Australia, New Zealand
  • The group is expected to represent at least 30% of the global GDP and will emerge as the largest free trade agreement in the world.
  • It includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 per cent of world trade.

India’s reluctance

  • India’s ties with China in recent months have been disturbed by the military tension in eastern Ladakh along the LAC.
  • In the meantime, India has also held a maritime exercise with Japan, Australia, and the United States for the “Quad” that was interpreted as an anti-China move.
  • However, these moves did not influence Japanese and Australian plans regarding RCEP.

 Leverage for China

  • Despite the pandemic, the RCEP is certainly leverage for China and shows the idea of decoupling from China is not a substantive issue in a regional sense.
  • The agreement means a lot for China, as it will give it access to Japanese and South Korean markets in a big way, as the three countries have not yet agreed on their FTA.

Regional Comprehensive Economic Partnership (RCEP)

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

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 opportunity

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 India

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 RCEP

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 negotiations

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 interests

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 policy

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 pact

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.

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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