On November 15, 2020, 15 countries, except India, solidified their participation in the Reginal Comprehensive Economic Partnership (RCEP), and made it clear that India can return to the negotiating table whenever it feels comfortable. India decided to exit the discussions over ‘significant outstanding issues’ on November 4, 2019. India ‘consistently’ raised ‘fundamental issues’ and concerns regarding agriculture and dairy and giving an advantage to the country’s services sector. Consequently, India had to take this stand as the concerns could not be resolved by the deadline to commit to signing the deal. The current structure of RCEP still does not address the said issues and concerns. The RCEP deal was meant to make it easier for products and services of each of these countries to be available across this region.
The Indian Concern RCEP will facilitate China in pursuing its aggressive political and economic policies without cost and even without being isolated. For China, the RCEP is a big diplomatic success.
Another significant factor for not signing the deal is escalating tensions with China at Galwan Valley. Other issues that were unresolved during RCEP negotiations were related to the exposure that India would have to China, including India’s fears that there were ‘inadequate’ protections against surges in imports. India felt there could also be a possible circumvention of rules of origin (the criteria used to determine the national source of a product) in the absence of which some countries could dump their products by routing them through other countries that enjoyed lower tariffs.
India could not ensure countermeasures, such as an auto-trigger mechanism to raise tariffs on products when their imports crossed a certain threshold. India wanted RCEP to exclude most-favoured nation (MFN) obligations from the investment chapter, because it did not want to give the benefits, given to strategic allies, for geopolitical reasons, particularly to countries with which it has border disputes. India felt that it would be forced to hand out those benefits to all RCEP members for sensitive sectors like defence. The deal also lacked clear-cut assurance regarding issues like market access in China and non-tariff barriers on Indian companies.
Effect on India Bilateral ties of India with RCEP members would probably impact because the members would be more inclined to focus on bolstering economic ties within the bloc. RCEP presents a large market where India would have little scope. The deal is mammoth, since RCEP countries’ population accounts for over 2 billion people. If India is forced to get back into the deal by Japan or some other country, India’s decision would probably impact the Australia-India-Japan network in the Indo-Pacific, and could potentially put a spanner in the works to promote a Supply Chain Resilience Initiative among the three.
India’s stance on this issue is closely linked with learnings from unfavourable trade balances, it has with several RCEP members, including some with which it is bound through free trade agreements (FTAs). The government is of the view that the compound annual growth rate (CAGR) with partners over the last five financial years was a modest 7.1 per cent. There has been growth rate in both imports from and exports to these FTA partners, the ‘utilisation rate’ has been ‘moderate’ across sectors. The FTA countries are—Sri Lanka, Afghanistan, Thailand, Singapore, Japan, Bhutan, Nepal, Republic of Korea, and Malaysia. There are 15 RCEP countries, and with eleven of them India has trade deficits, as it has been unable to leverage its existing bilateral free trade agreements with several RCEP countries. As per trade expert, Biswajit Dhar, professor at JNU’s Centre for Economic Studies and Planning, India’s share in the imports of RCEP partner countries has either stagnated or fallen. As per former Foreign Secretary, the decision to opt out was ‘short-sighted’ and will have broader strategic implications for India.
Benefits of RCEP to India
India should consider the following points instead of opting out of RCEP.
1. India is now effectively on the margins of the regional economy as well as the global economy. Most of global trade now is organised through large trading arrangements, and if India is not part of it, whatever dynamism it can leverage from these trading arrangements, increasing its market share, thus creating more problem.
2. Even if India has FTAs with some of the RCEP countries, that would not work for India as a bilateral arrangement that does not take preference over a regional arrangement.
3. As for India’s recent moves regarding ‘Act East’ policy, there is inconsistency observed in its move for not joining RCEP and representing. East Asia Summit (EAS), by the External Affairs Minister. In the preceding Foreign Ministers’ meeting, India’s Minister of State was present, not the External Affairs Minister. The EAS was something India pushed membership for, to get a foothold in the region.
4. Staying out of RCEP will be Costly for India. There is an assumption that the Indian market is so huge that people have to come to India on its terms; in fact, it is an optimistic assessment.
Benefits of RCEP to China
China is not part of the Trans-Pacific Partnership (TPP); so, to be part and parcel of RCEP is a big thing for China. China formalises its economic network in this part of the world when people are talking about re-shoring and looking at alternative supply chains. So, not much traction. India is about have a symmetric situation, with China being part of one trading arrangement with the US out of it, and the US part of one arrangement with China out of it.
The China Agle
Signing the RCEP agreement is a serious strategic mistake by ASEAN, Japan, Australia, and New Zealand in the overall international context. Can China’s territorial encroachments and dilatory negotiations over the Code of Conduct in the South China Sea (SCS), aggressive actions against Japan in the East China Sea, its conduct in the western Pacific that has compelled Japan, Australia and others to call for freedom of navigation and air flight in the SCS and for respecting international law, be ignored or are these issues inseparable from the scope of economic ties with China? Besides, China stepped up military pressure on Taiwan, intervened in Hong Kong in violation of its treaty with Britain, blatantly wielded the economic weapon against Australia, and even imposed additional sanctions just days before the RCEP deal was signed. Australia and New Zealand are concerned with Chinese inroads into the Pacific islands.
The Wuhan pandemic is a glaring example of ill consequences of depending on a single country as regards critical supply chains. China, the world’s manufacturing hub, controls many such chains. On-shoring them, moving them closer to home, or to other countries in the region has emerged as the preferred strategy. The RCEP’s objective is also to reduce economic ties with China, not their expansion.
China is the fulcrum of RCEP and US is out, which would have implications for the Indo-Pacific concept and the Quad in terms of the depth of Australia’s and Japan’s commitment to them as initiatives to ring fence China’s disruptive ambitions. On the one hand, they seek to counter China in the maritime security domain, they get tied to it even more economically and self-limit the capacity to react to its offensive policies in the future is sheer contradictory.
Options for India
India is one of the original negotiating participants of RCEP. RCEP signatory states plan to commence negotiations with India once it submits a request of its intention to join the pact ‘in writing’. India may participate in meetings as an observer prior to its accession. However, India seems to review its existing bilateral FTAs with some of these RCEP members as well as newer agreements with other markets with potential for Indian exports. Over 20 negotiations are underway.
Currently, India is in agreements with the ASEAN bloc, South Korea and Japan. It is undergoing negotiations with members like Australia and New Zealand. Two reviews of the India-Singapore CECA have been completed; the India-Bhutan Agreement on Trade, Commerce, and Transit was renewed in 2016; and the India-Nepal Treaty of Trade was extended in 2016. Eight rounds of negotiations have been completed for the review of the India-Korea CEPA, which began in 2016. India has taken up the review of the India-Japan CEPA and India-ASEAN FTA with its trading partners. It would serve India’s interest to invest strongly in negotiating bilateral agreements with the US and the EU, both are currently in progress.
RCEP has been formally launched without Indian participation. However, India should join this largest trade bloc of the world as soon as possible. Trade gains apart, India’s participation is a prerequisite in order to have a say in writing RCEP’s rules to safeguard its interests as well as those several small countries those cannot stand up to China. Staying out of RCEP would just mean passive acceptance of the trade pact’s norms. Consequently, Indian goods and services would face tremendous trade and non-trade barriers in the entire Asia-Pacific, particularly in the face of a lack of economic openness for our competitiveness.
India does have a free trade agreement with ASEAN for goods and services. India surely needs to be more forward looking in terms of trade and openness. Notably, RCEP nations already account for about 30 per cent of the world’s economic output, which would grow substantially in the next 2–3 decades, making India’s growth suboptimal without purposefully leveraging Asia-Pacific demand.
Services are outside RCEP. Therefore, India should join RCEP and seek access in services. Keeping environmental and labour norms outside RCEP might seem smart, but that would lead to denial to easy access to Europe and the US for RCEP companies. Intellectual property (IP) norms would be useful for India in seeking transparency in IP and ‘rules of origin’ issues in RCEP.
——————Sidelight————
RCEP is a trade agreement among 15 nations—the 10-member ASEAN group, plus their free-trade partners China, Japan, South Korea, Australia and New Zealand. Described as the ‘largest’ regional trading agreement to this day, RCEP was originally negotiated between 16 countries—ASEAN members and countries with which they have free trade agreements (FTAs), such as Australia, China, Korea, Japan, New Zealand, and India.
The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region. Negotiations to chart out this deal started in 2013, and India was expected to be a signatory until its decision to opt out in November 2019.
Courtesy: The Hindu, Economics Time, Indian Express