Regional Comprehensive Economic Partnership (RCEP)
Premature membership of RCEP would not serve Indian interests
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
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.
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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
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 –
- The 10 members of ASEAN
- Additional members of ASEAN +3 = China, Japan, South Korea
- 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.
Mega regional trade deals are in vogue in an otherwise fragile global economy. In an environment of falling aggregate demand, these trade deals are seen as a means to insulate economies from market uncertainties.
Three important mega regional’s are currently under negotiation: the Regional Comprehensive Economic Partnership of Asia and the Pacific (RCEP), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP).
It is expected that these agreements, once concluded and implemented, will set the stage for a new generation of global trade and investment rules.
In this article we will explain What is RCEP ,what will be its significance for India and what are the point of contention among countries in RCEP.
- What is RCEP?
- Key Features of RCEP
- Comparison of RCEP with other regional Agreements
- Significance of RCEP for India
- Challenges in Final negotiation of RCEP
- Challenges and concerns for India from Joining RCEP
- Recent point of contention in RCEP negotiation
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What is RCEP?
- Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the six states with which include India, China, Australia, Japan, South Korea and New zealand.
- In total, the grouping of 16 nations includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade.
- If negotiated successfully, RCEP would create the world’s largest trading bloc and have major implications for Asian countries and the world economy.
Key features of the RCEP
The RCEP seeks to achieve a modern and comprehensive trade agreement among members. The core of the negotiating agenda would cover trade in goods and services, investment, economic and technical cooperation and dispute settlement. The partnership would be a powerful vehicle to support the spread of global production networks and reduce the inefficiencies of multiple Asian trade agreements that exist presently.
At the launch of negotiations in 2012, the leaders of each relevant country endorsed the “Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership.”
The key points of this document are as follows:
(A) Scope of negotiations
- RCEP will cover trade in goods, trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issues.
- As expected, ASEAN will be in the “driver’s seat” of this multilateral trade arrangement (though the idea was initially given by Japan), and has been repeatedly endorsed by India.
- The joint statement issued at the end of the first round of negotiations also reiterated “ASEAN Centrality” in the emerging regional economic architecture.
(B) Commitment levels
The RCEP will have broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs, while recognizing the individual and diverse circumstances of the participating countries.
(C) Negotiations for trade in goods
Negotiations should aim to achieve the high level of tariff liberalization, through building upon the existing liberalization levels between participating countries.
(D) Negotiations for trade in services
The RCEP will be comprehensive, of high-quality and consistent with WTO rules and all service sectors will be subject to negotiations.
(E) Negotiations for investment
Negotiations will cover the 4 pillars of promotion, protection, facilitation and liberalization.
(F) Participating countries
Participants will be ASEAN members and FTA Partners. After the completion of the negotiations, countries other than the 16 states may join.
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Significance of RCEP for India
- India is not a party to two important regional economic blocs: The Asia-Pacific Economic Cooperation and the Trans-Pacific Partnership. New Delhi fears the TPP, although years away from reality, could mean losing some textile and drugs exports to countries like Vietnam, which has embraced both the TPP and the RCEP.
- TPP is set to change the landscape of global trade. For India, it is most likely to affect sectors like leather goods, plastics, chemicals, textiles and clothing.
- The RCEP would enable India to strengthen its trade ties with Australia, China, Japan and South Korea, and should reduce the potential negative impacts of TPP and TTIP on the Indian economy.
- The RCEP agreement would complement India’s existing free trade agreements with the Association of SouthEast Asian Nations and some of its member countries, as it would deals with Japan and South Korea.
- It would be the world’s largest trading bloc covering a broad spectrum of issues such as trade in goods, services, investment, competition, intellectual property rights, and other areas of economic and technical cooperation.
- From India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its act east policy.
- RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory. The RCEP is expected to harmonize trade-related rules, investment and competition regimes of India with those of other countries of the group. Through domestic policy reforms on these areas, this harmonization of rules and regulations would help Indian companies plug into regional and global value chains and would unlock the true potential of the Indian economy. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
- India enjoys a comparative advantage in areas such as information and communication technology, IT-enabled services, professional services, healthcare, and education services. In addition to facilitating foreign direct investment, the RCEP will create opportunities for Indian companies to access new markets. This is because the structure of manufacturing in many of these countries is becoming more and more sophisticated, resulting in a “servicification” of manufacturing.
Challenges in Final negotiation of RCEP
Finalizing the RCEP will not be a cakewalk for India and other countries involved in the negotiations as there are a range of issues that could act as spoilers.
- Huge economic disparities among the negotiating countries are likely to pose a challenge
- An inevitable source of trust deficit between China and the rest which has the potential to constrain regional economic cooperation is China’s aggressive postures on territorial disputes with Japan and India and with ASEAN member countries on the South China Sea disputes.This can pose as a hurdle in final negotiation of RCEP
- The existing 5 ASEAN+1 and 23 ratified bilateral FTAs, varying greatly in their terms, pose a significant hurdle to RCEP negotiations.
- The lack of commonality across FTAs and varying internal policies of countries would prove to be a difficult task to harmonize and consolidate under RCEP.
Challenges and concerns for India from Joining RCEP
For New Delhi, following challenges lie ahead.
- First, tariff barriers, which have been a matter of discontent in bilateral FTAs, particularly in the case of the ASEAN-India FTA, will be central to the negotiations in the upcoming rounds of RCEP negotiations.
- Non-trade issues such as environment and labor are likely to be prickly as well and need greater attention. Many Countries in RCEP want a stricter norms and standards on environment and labor issues while India’s interest lie in liberal environment and labor norms as this makes Indian industry competitive. India therefore should bat for liberal environment and labor norms while negotiating in RCEP.
- India must take steps to strengthen its Medium, Small and Micro Enterprises (MSME) sector, equipping it not only to survive the free flow of trade, but also to become a set of more competitive players. Higher investments in R&D and achieving international standards in terms of delivery are needed.
- An internal commerce ministry estimate that signing the 16-country Regional Comprehensive Economic Partnership (RCEP) trade agreement will result in a revenue loss of as much as 1.6% of GDP
- Finally, a major difficulty for India will be negotiating terms with China. India has to be firm and calculative in terms of taking tough policy decisions, while working tirelessly on capacity building of its domestic industries.
Recent point of contention in RCEP negotiation
- Recently in the 12thround of RCEP talks The members of the Regional Comprehensive Economic Partnership (RCEP) have, in a sort of ultimatum, asked India to either to consent to eliminate tariffs on most products quickly or leave the talks on the proposed Free Trade Agreement (FTA) that is being negotiated by RCEP itself.
- The members of RCEP are irked by what they think as India’s obstructionist, defensive and half-hearted approach” that is “delaying” the result of the talks
- Some member countries, particularly 10- members ASEAN bloc, want India to take a long-term approach and consent to eliminate deities (except in agriculture and industrial goods) on a higher threshold within a decade to help India get the benefit of the opportunities arising out of Global Value Chain.
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