RSTV: India’s World- RCEP – Challenges & Way Forward
Introduction:
The 7th Regional Comprehensive Economic Partnership ministerial meeting of the 10 members of ASEAN countries and their six FTA partners, including India took place. The ongoing global uncertainties have added to the urgency to conclude the mega free trade agreement between these nations. The joint statement issued after the meeting, which reviewed the RCEP negotiations on September 8 in Bangkok, Thailand. The 16 negotiating partners agreed that they should not lose the long-term vision of deepening and expanding the value chains in the RCEP. The grouping underscored issues raised by India by stating that certain developments in the global trade environment might affect the negotiating countries’ individual positions. “The ministers underscored the RCEP will provide the much-needed stability and certainty to the market, which will in, turn boost trade and investment in the region. To this end, ministers reaffirmed their collective resolve to bring negotiations to a conclusion by the year-end.
RCEP:
- RCEP is proposed 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 ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand).
- RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
- Aim: RCEP aims to boost goods trade by eliminating most tariff and non-tariff barriers — a move that is expected to provide the region’s consumers greater choice of quality products at affordable rates. It also seeks to liberalise investment norms and do away with services trade restrictions.
Significance of RCEP:
- RCEP is the world’s largest economic bloc, covering nearly half of the global economy.
- RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region.
- RCEP’s share of the global economy could account for half of the estimated $0.5 quadrillion global GDP (PPP) by 2050.
- The grouping envisages regional economic integration, leading to the creation of the largest regional trading bloc in the world.
- RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation.
- Analysts suggest that there are enormous export gains that could accrue to India from RCEP under varying scenarios. This assumes even greater importance since our focus has been on products with favourable terms of trade for India.
- 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). These RVCs necessitate freer movement of professionals across countries in the region.
- This is especially crucial in a scenario when the vector of India’s demographic dividend is concomitant to the vector of the “aging” population in most RCEP countries.
Present Scenario:
- Negotiations on the Regional Comprehensive Economic Partnership (RCEP), among 16 Asian and Pacific Ocean countries, have entered a decisive phase. And it would like to see a “substantive agreement” on the trade deal by the end of this year.
- 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, with the option to join it at a later date.
- India is among the countries that will have to take a call at this point considering the seriousness of the situation.
- Our dilemma still remains.
Why India should not miss RCEP?
- We always stood for multilateral rule based international trade.
- If India is out of the RCEP, it would make its exports price uncompetitive with other RCEP members’ exportsin each RCEP market, and the ensuing export-losses contributing to foreign exchange shortages and the subsequent extent of depreciation of the rupee can only be left to imagination.
- We should not be seen as walking out.
- 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.
- There are more compelling trade and economic reasons for RCEP to become India-led in future, than otherwise.
- India would get greater market access in other countries not only in terms of goods, but in services and investments also.
Present form the RCEP agreement is not good for India:
- Our competitiveness in manufacturing is gone to get probably worsen, if we remove the protection which we today provide to Indian made goods it will lead to hard sort.
- Fear largely because we have trade deficit with both China and ASEAN.
- India’s experience with the previously concluded FTA hasn’t been good.
- The current account deficit (CAD) touched 8 per cent of GDP, and the agreement in the present state of negotiations would mean forgoing a substantial part of the revenues.
- Greater access to Chinese goods may have impact on the Indian manufacturing sector. India has got massive trade deficit with China. In fiscal year 2017-18, the trade deficit with China was $63 billion.
- Under these circumstances, India proposed differential market access strategy for China.
- Exports from ASEAN into India have grown far quicker than Indian exports to the bloc, which they attribute to the fact that India is a “services economy.”
- There are demands by other RCEP countries for lowering customs duties on a number of products and greater access to the market than India has been willing to provide.
- Apart from China, India is also losing out to financial and technological hub of Singapore, agriculture and dairy majors Australia and New Zealand, plantations of South East Asian countries, and pharmaceutical trade with China and the US.
- With e-commerce as part of the discussion, the Indian resistance at WTO of not letting the discussion on digital trade will weaken.
- The free movement of investments will benefit investors in the US, Singapore, Japan and China, but very few Indians will be taking advantage of this.
- New Delhi is also worried that the RCEP will open backdoor negotiations and may lead to the country losing out on TRIPS agreements. This may result in giving way to global majors in agriculture seed and pharmaceutical manufacturing.
Way Forward:
- All trade is based on comparative advance and we have it in services sector which we need to look properly.
- Indian policymakers need to be mindful of domestic industry’s concerns before getting into a deal with respect to the RCEP.
- We need to focus on improving the competitiveness of the Indian economy.
- India must play its due role to get its due place in the regional economic configurations.
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