RCEP: India must stop being a naysayer

04/01/2019    77

The RCEP recently held the 24th round of negotiations since the group first began the talks in early 2013.

The negotiations on crucial issues at the WTO have been slow and unable to keep up with the ebbs and flows of international trade and investment — shifting focus to mega-trade deals. Trade protectionism has been on the rise in the last few years, and in particular, post the 2016 US Presidential elections.

Apart from the bitter US-Chian trade war, trade conflicts are also mounting between India and US, US and European Union. But while the CPTPP (Comprehensive and Progressive Trans Pacific Partnership, the rechristened TPP) has risen from the ashes and is ready for take-off, having being ratified by six members, the ASEAN- and China-led RCEP is far from realising its aim with only five out of 18 chapters having being concluded so far.

The RCEP initiative linking ASEAN and the group’s free-trade agreement partners, Australia, China, India, Japan, South Korea and New Zealand is the largest FTA negotiation in Asia, and also the biggest FTA negotiation that India has ever participated in. If negotiated successfully, RCEP would create the world’s largest trading bloc.

The grouping accounts for about 45 per cent of world population, over a quarter of world exports, and it has a combined GDP of about $17 trillion. RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through recognition to ASEAN centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration.

RCEP aims to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90 per cent of business establishments across all RCEP participating countries.

The negotiations, so far, have achieved steady progress in the market entry permits of goods and service trade. In terms of rule-making, progress has been made in economic and technology cooperation and small enterprises, according to the department of international trade and economic affairs at the trade ministry in China.

In the 24th round of negotiations, the chapter on Dispute Settlement was concluded bringing the number of concluded chapters to five. In the earlier rounds, chapters on — Economic and Technical Cooperation; Small and Medium Enterprises; Customs Procedures and Trade Facilitation; and Government Procurement — were successfully resolved.

The unique element about the RCEP in that includes developed countries and less developed ones, which has resulted in slower progress in talks caused by a combination of technical hurdles and domestic politics, and rising protectionism in the Asia-Pacific region.

While the RCEP members are keen on quick conclusion of the deal in a show of regional solidarity by limiting its ambitions to a common schedule promising more tariff cuts, a hurried deal for safeguarding strategic insurance might be difficult to sell to domestic constituencies of many members who would be unconvinced with its economic prospects.

The grouping’s two largest democracies — India and Australia — notably, go to polls next year, and RCEP is likely to face significant challenge from political factors too. India, in particular, has been unwilling to yield ground on tariffs and greater market access sought by the other RCEP countries till India is granted equally meaningful reciprocal access elsewhere. And this is where India’s demand for greater mobility for its service professionals assumes significance.

India’s contention is significant considering that service exports — driven by the IT sector at 45 per cent, travel and transportation at 24 per cent — are not only a greater component of the Indian economy as compared to the manufacturing sector, but is critical for propelling the manufacturing sector too.

India bases its demand on AANZFTA (ASEAN-Australia-New Zealand FTA) which has transparent rules on tackling barriers to trade in services and procedures for liberalised movement of business persons engaged in trade and investment activities. Some of India’s FTAs with the region, such as the services agreement with ASEAN and the bilateral FTAs with Singapore and Malaysia, have provisions for movement of professionals. But these have not produced the mobility that India expected. Most member-countries remain circumspect on India’s demand.

For India its foreign and trade policy priorities sharply diverge. The Indian resistance can further be traced to the disappointment with outcomes of earlier FTAs with RCEP members (Singapore, Malaysia, Japan and Korea).

These FTAs were motivated by India’s geo-strategic ambitions to integrate deeper with South-East Asia and become an important strategic actor in the Asia-Pacific — which were complemented by the expectations of several South-East Asian countries for India to play a balancing role in the region vis-a-vis China.

However, Indian industry has not been favourably disposed to these FTAs which it accuses of largely increasing imports into India rather than increasing Indian exports to regional markets.

Notably, India runs a trade deficit with 10 of the 16 RCEP member-countries at a whopping $104 billion making it all the more difficult for India to open up its market to 92 pe rcent of traded goods as per demands of RCEP countries.

So far India has offered to relax tariffs on 86 per cent of traded goods to ASEAN, South Korea and Japan under the respective FTAs it has signed with them, as well as up to 74 per cent of traded goods with China, New Zealand and Australia. But this too has been rejected by the participating countries as being too little, too late.

The Indian sensitivities could be partly true, given that large cross-border businesses like automobiles have set up assembly bases in India and are extensively importing parts and components from the region. At the same time, the fears of the Indian industry could be exaggerated as studies point to limited use of most FTAs given lack of greater knowledge about them on part of businesses.

Another issue facing India is the problem in liberalising its labour-intensive agriculture sector, which will have a huge impact on its agriculture sector. Like the pharmaceutical sector, agriculture sector risks monopolisation which can negatively affect its economy. New Zealand’s exported dairy products may rule the Indian diary market which will demolish the growth of the domestic sector.

However, the counter argument is that if India wants its ‘Make in India’ to become a global success it must shed its image of being a naysayer and participate positively in the conclusion of negotiations.

It is imperative to understand that the benefits of RCEP in the long run far outweigh the costs in the short run. The RCEP can substantially increase investment in India from countries like Japan, South Korea and China.

An RCEP without India will still go ahead, but not without locking India out from Asia.

India, thus, needs to stop procrastinating and delaying the process and have a clear vision and strategy with respect to its free-trade agreements. This would benefit India’s external sector, as India’s exports have been falling for more than two years now.

To make RCEP a success, what is most required is de-emphasising the political element to make it more about economic integration and less of a political document.

Source: The Hindu Business Line