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RCEP and India

India took a principled decision to stay out as it felt RCEP did not address its outstanding issues and concerns. Though RCEP has left a window open for India to join if it intends to do so, India‘s position is unlikely to change

RAJARAM PANDA | New Delhi |

The world’s largest trade agreement, the Regional Comprehensive Economic Partnership (RCEP) pact, was signed by 15 nations on 15 November during a virtual summit in Hanoi. The new trading bloc thus created would cover 210 crore people, with the member states’ combined GDP of $26.2 trillion accounting for around 30 per cent of global GDP. The finalisation of the deal comes around a year after India announced its decision not to join the grouping, mainly because the terms are skewed in China’s favour. The deal would have allowed Chinese goods to flood Indian markets, threatening domestic industries. The pact is also a milestone in China’s ambition of becoming a trade lynchpin.

The RCEP includes China, Japan, South Korea, Australia, New Zealand and the 10 members of the Association of South East Asian Nations (Asean) ~ Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and the Philippines. The 15 signatory nations expect the agreement will progressively lower tariffs across many areas in the coming years.

The pact was first proposed in 2012 and aims to lower tariffs, open up trade in services and promote investment to help emerging economies catch up with the rest of the world. While Malaysia’s Trade Minister Mohamed Azmin remarked that eight years of negotiating with blood, sweat and tears have come to fruition, Singapore Prime Minister Lee Hsien Loong hailed the signing of the RCEP as a “major milestone”. Over the past eight years, there were 46 negotiating meetings and 19 ministerial meetings to ink the pact now hailed as a major step forward for the world at a time when multilateralism is losing ground and global growth slowing.

The RCEP will come into force when six Asean countries and three non-Asean countries have ratified it. The 15-signatory nations see RCEP as showing diversity and how free and open trade and investment is in the common interest of all economies, regardless of their development stages. Realising that their prosperity and success are interlinked, the 15 nations hope that deeper integration and interdependence will ultimately lead to a safer and more prosperous world.

Though India was involved in the negotiations for the past eight years, she pulled out of talks in November 2019, worried that the elimination of tariffs would open its markets to a flood of imports that could harm local producers. Membership to the group would not be open for a while, with the exception of India which can join at its will. Should India decide to join in the future, it would have to re-apply for membership negotiation.

Given the deep economic relations of most Asean countries, these countries hope RCEP will allow many Chinese companies to invest in regional markets while they expect to enjoy access to the huge Chinese market. Asean nations also hope that RCEP will help attract investors beyond the region as the Chinese and regional markets will be seen as an “integrated market”, making exports to the rest of the world much more competitive.

After the RCEP, at least 65 per cent of the services sectors will be open to foreign participation and with increased foreign shareholding limits. It is also expected that at least 50 sub-sectors will be open for 51 per cent foreign equity across sectors such as telecommunications, financial services, computer-related services, professional services, and distribution and logistics services. Emerging trade fields including e-commerce, competition policy and intellectual property (IP) rights are also pursued under the RCEP.

Despite RCEP’s historic size, it falls short of other major trade deals in the level of market access. The deal will eliminate tariffs on 91 per cent of goods, less than the revised TPP or Japan’s economic partnership agreement with the European Union. Japan will eliminate 61 per cent of tariffs on agriculture imports from Asean nations, Australia and New Zealand 56 percent for China, and 49 per cent for South Korea, while maintaining tariffs on five product categories ~ rice, wheat, dairy products, sugar, and beef and pork ~ to protect domestic farmers. Meanwhile, the other 14 countries will cut tariffs on 92 per cent of Japanese industrial exports including automobile parts and steel products.

By opting out of the mega trade pact, did India miss the bus? The answer is a firm no. India took a principled decision to stay out as it felt RCEP did not address its outstanding issues and concerns.

Though RCEP has left a window open for India to join if it intends to do so, India’s position is unlikely to change so long as China continues to remain the elephant in the room. India feared the agreement would become a free trade deal with China through the back door and even through other countries, which is one of the reasons New Delhi is currently reviewing a number of Free Trade Agreements (FTAs) in the region.

Had India joined, it would have led to Chinese goods flooding domestic Indian markets once tariff were lowered on about 80 per cent of imports. India also feared lowering tariffs would exacerbate the trade deficits India has with 11 of the 15 RCEP signatory countries. India was also irked that the groupings were reticent on allowing the flow of Indian labour for services, on which India’s specialisation is high. There was also domestic opposition to the deal over fears that it would adversely affect Indian agricultural and dairy sectors.

Besides the geo-economic considerations, India was also wary about geo-political issues where China is displaying its vulgar military muscle disregarding the sensitivities of other nations. There is no denying the fact that RCEP will cement China’s clout in the Asia-Pacific. The interplay of geo-economics and geopolitics in this cannot be missed.

Not expectedly, Chinese state media commented that India committed a “strategic blunder” and “missed the bus”. That is absolute rubbish. India has to take a considered decision that its trade deficit with China is ballooning.

China forgets that a joint statement issued in November 2019 in Thailand at the end of RCEP negotiations had acknowledged India’s concerns. They were not addressed and China has no right to comment on what India as a sovereign nation decides.

The writer was formerly Senior Fellow, IDSA, New Delhi