The Regional Comprehensive Economic Partnership (RCEP) - Will it add to the economic growth?


The Regional Comprehensive Economic Partnership (RCEP) is a proposed mega free trade agreement between the 10 countries of the Association of Southeast Asian Nations (including Myanmar, Malaysia, Philippines, Cambodia, Indonesia, Thailand, Singapore, Vietnam, Brunei and Lao PDR) and their six FTA partners including Australia, China, India, Japan, Korea, and New Zealand. The countries in the proposed trade grouping account for 25% of global gross domestic product, 30% of global trade, 26% of foreign direct investment flows and 45% of the world’s population.

RCEP negotiations were launched in November 2012 at the Asian Summit of Cambodia and are expected to conclude on 21st November 2019 as all members of proposed RCEP have committed to conclude the trade agreement by then. Thailand has already hosted 9th RCEP ministerial level meeting in Bangkok for three days between October 10-12, 2019.

India has had bitter experience of being part of free trade agreements. FTA with Japan and South Korea have only widened India’s trade deficit with the group and has not materialized. Industry bodies in India have aired their concerns on Chinese import flooding into the country once trade deal is sealed. They fear of cheaper dumps from China resulting in wiping out local players. Therefore, they are seeking protection for domestic industry.

While pharmaceuticals and to some extent textile sectors have supported the proposed deal, the ministries of steel, mines and minerals, agriculture and chemical and various industries such as dairy, aluminum, engineering, leather and food have opposed the deal or seeking protection for domestic industries. Commitment to RCEP is going to be one of the toughest decisions the government has to take. The government has been meeting several stakeholders and academicians to make up its mind on this. But, views expressed are vertically opposite.

Those who favour the deal argue trade deficit can be compensated by capital inflow and trade-offs are involved in most of the trade negotiations. The deal in the present form may benefit manufacturing and service sector. Advocators of deal while seeking safeguards view that India could integrate with East Asia value chain wherein manufacturing is moving out of China and looking for new home.

As safeguard measure, India insists on “auto-trigger and snapback” mechanism to be implemented to protect itself from sudden surges in imports from China. India is under considerable pressure from the RCEP to eliminate tariffs on 80% of its traded products. While there are gains to be made from deeper trade engagement with its trading partners, India must secure its side of bargain. It is widely believed that India will agree on offering eliminating tariff on 80% of products imported from China, 86% of products imported from Australia and New Zealand: and 90% products from Asia including Japan and South Korea.

As per the plan, India would immediately eliminate custom duty on 28% of goods while tariffs on other imports from China would be eliminated over a period of 5, 10, 15 and 20 years. This will give India time to strengthen its domestic manufacturing. India has largely failed to develop a manufacturing sector because its factories are not competitive and are not plugged into global supply chain. India also insists on strict origin norms as in the absence of the same exports are routed through third countries. India’s trade deficit with China is $ 53.6 Bn which it believes is the result of protectionist policy being pursued by China and therefore is seeking greater access to Chinese markets.

The fact that exports from Asian economies into India have grown far quicker than India’s export to the block which India attributes to exports of services. Thus, Indian trade negotiator want Indian companies to be granted more market access for services. India has so far not been able to secure any commitment from RCEP countries in this regard.

The fact of the matter is that the gulf between India and other 15 member countries in the RCEP remains deep and it appears that it will take time for gulf to bridge up. Some members of RCEP in their zeal might consider even dumping India and move ahead given the fastidiousness of Indian trade negotiators to the trade table.

In the end, the RCEP remains the best chance to incorporate India into trading block. India’s concerns of hidden Chinese subsidies and closed markets are shared by much of the members. This is an opportunity for China to demonstrate commitment to free trade but also its willingness to make trade fairer than in the past. India too, on its part should be accommodative to member’s views.

The RCEP provides for huge and efficient marketplace and by becoming more competitive on trade front, India can realize its dream of becoming $ 5 Tn economy by 2024. India till now has held position that it does not want to be hurried in bad deal. The RCEP could prove to be a game changer for India provided its demand pertaining to services particularly in the area of work visas are met with and it is allowed to maintain certain safeguards to protect its domestic industries for intermediary period.


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