Regional Comprehensive Economic Partnership (RCEP)
This is a guest blog by Bhamini.
The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement which includes 10 ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) and the six countries with which the bloc has free trade agreements (FTAs) — India, Australia, China, Korea, Japan and New Zealand.
Its purpose is to create an integrated market which means it would be easier for the products and services of each of these countries to be available across the entire region. It is said to be the largest regional trading agreement as the countries involved account for almost half of the world’s population.
RCEP negotiations started in 2012 among the 16 member-nations, continuing for several rounds. After India’s rejection, the remaining 15 members decided to go ahead and underlined their intent to sign a trade deal sometime next year, keeping the door open for India to join at a later date.
Why India did Not Sign RCEP?
Domestic Market: The major concern for India is the fear that cheap products from China would “flood” the market and imports would increase. Almost every sector raised its concern that once the RCEP agreement was in place, China would harm the domestic market. China alone accounts for $53 billion of India’s $105 billion trade deficit. As per the liberal rules of origin under RCEP, India feels that items on which duty cuts have not been given to Beijing, may end up from China via other RCEP member countries.
Trade Deficit: NITI Aayog held that India’s trade deficit with the ASEAN, Korea and Japan has widened post-FTAs. Tariff elimination due to RCEP could worsen the trade deficit.
Dairy/Farming: It threatens farm livelihoods, autonomy over seeds and also endangers the country’s self-sufficient dairy sector. Cheaper dairy products from New Zealand would worsen the trade deficit and dent the domestic industry. As crops are seasonal a lot of farmers are dependent on dairy for their livelihood.
Steel & Textile: Indian steel & textileindustry have demanded protection against the opening up of Indian market.
Generic Drugs: The agreement is feared to end India’s supply of cheap generic drugs to the poor countries.
Concerns Not Addressed:
- India did not receive any credible assurances on its demand for more market access, and its concerns over non-tariff barriers. RCEP participants like China are known to have used non-tariff barriers in the past to prevent India from growing its exports to the country.
- India expected greater opening up of the region for our services and labour.
- India had sought to safeguard the interests of its domestic industry through measures like seeking a base year beyond 2014 for tariff reductions instead of 2014, when negotiations on RCEP began, as it has raised import duties on several products between 2014 and 2019. Using a base year as 2014 would mean a drastic drop in the import duties on these products.
Demand for Exemption from Ratchet Agreement: India wants exemption from the Ratchet obligations, so that it can protect the interests of exporters and importers, if needed. As per the Ratchet agreement, 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.
Pressure from Opposition, RSS & Others
- The All India Kisan Sangharsh Coordination Committee (AIKSCC), which represents about 10 lakh farmers, had called for an all-India protest against joining the RCEP.
- Confederation of All India Traders, which represents about seven crore traders, made several representations to the Commerce Ministry to keep steel and allied services, and dairy out of the purview of the RCEP agreement.
- Jairam Ramesh of Congress said in a press conference: “When our economy is going through a bad phase, liberalising imports, signing RCEP is a suicide. The economy is sinking and the prime minister is going to sign the RCEP. It will be a mess.
- Rashtriya Swayamsevak Sangh (RSS) affiliate Swadeshi Jagran Manch (SJM) opposed RCEP in its present form.
Benefits of being Part of RCEP
- RCEP will create opportunities for Indian companies to access new markets such as information and communication technology, healthcare, and education services.
- It would help India streamline the rules and regulations of trade, which will reduce trade costs.
- It could enhance India’s economic & strategic status.
- After the global financial crisis in 2008, many mature economies are struggling to regain ground lost. Emerging economies are in search of growth opportunities.
- It will be a reason for attracting FDI.
- It will give us the required growth and jobs.
What Not Signing Indicates?
Non-signing of the RCEP is not a victory for BJP or RSS or Congress. It is overall a loss for India. It is an admission of the fact that Indian industry is not competitive at the regional level. It shows that India has not built up upon the benefits it gained from the first stage of reforms in the1990s. The handling of the economy has been bad during UPA-2 (policy paralysis) and worse during six years of Modi misrule. There will always be pressure groups opposed to opening of the economy because they want government to protect their inefficiencies. This will be harmful for Indian consumers as well as the Indian economy in the long run.
What India Can Do in Short Term?
- India can agree to be a part of RCEP while initiating parallel discussions with selected countries on special safeguard mechanisms.
- We could allocate some tariff line as special products in order to safeguard our domestic markets.
- India should continue to maintain its position of proposed dual tariff structure in the RCEP as it will help India to protect its tariff lines which are more exposed to the possibility of being harmed by cheap Chinese imports.
Long Term Solution
RCEP is a huge opportunity which India should not miss. In the long term the solution is simple to understand but difficult to execute politically. India needs reforms of land, labour, taxes and improved infrastructure to become globally competitive. This is essential to give India the growth and employment which our vast population needs. Ram Mandir & NRC may win elections for the BJP but reforms will give Indians the needed growth & jobs. Indians have to decide whether we want reforms or remain focused on Hindu-Muslim debates.