The story so far: Negotiations on the final agreement under the Regional Comprehensive Economic Partnership (RCEP) are becoming increasingly urgent as the deadline approaches. The RCEP countries are expected to finalise, in November 2019, the agreement and the countries that would be members. The final ministerial meeting prior to that concluded recently, but with no final agreement in place. The Leaders Summit, in which Prime Minister Narendra Modi is taking part, will to be held on November 4 in Bangkok, Thailand. But there are several sticking points that remain preventing a harmonious agreement from taking shape.
What is RCEP?
Once finalised, the RCEP trade grouping will be one of the world’s biggest free trade pacts as it includes the 10 Association of South East Asian Nations (ASEAN), as well as India, China, Australia, New Zealand, Japan and South Korea. These 16 nations account for a little less than half of the world’s population and about a third of the world’s GDP. Trade between the 16 countries also makes up a little more than a quarter of global trade.
Talks on finalising RCEP began all the way back in 2012, but have not yet been concluded. The uncertainty in global trade is slowing down talks further.
What are the potential benefits and disadvantages?
Once the deal is concluded, it will likely bring stability to trade relations in an area where such ties have historically been unpredictable. The deal — in essence a free trade agreement between the signatories — would open up markets of each of the partner countries to the others. On the face of it, this is a favourable outcome for all involved, but there are some niggling issues, especially between India and China, that are throwing a spanner in the works.
In addition, there is a fear that, at a time when the U.S. and China are embroiled in a trade war, a trade grouping with China at the helm would mean that the other countries, including India, would be forced to take its side against the U.S. This is a complicated issue since India and the Prime Minister have been going to great lengths to further bolster trade with the U.S. In fact, the two countries are currently in talks on a bilateral trade deal, which could be put at risk if India is seen to be overtly siding with China.
What are India’s issues with RCEP?
The main problem Indian industry has with the RCEP trade deal is that it would give China near-unfettered access to India markets. Cheap imports from China have already been seen to be impacting India’s domestic industry, with the Indian government having taken a number of steps to curb such imports. These include imposing a safeguard duty on solar panel imports, and imposing anti-dumping measures on items such as steel. According to reports from the various RCEP negotiations that have taken place, India would, under the agreement, reduce duties on 80% of items imported from China. While this is a smaller percentage of items as compared to what India is prepared to do for other countries, the figure has nevertheless spooked Indian industry, especially the agriculture and dairy sectors.
Under the agreement, India would have to cut duties on 86% of imports from Australia and New Zealand, and 90% for products from ASEAN, Japan and South Korea.
That said, India’s problems with RCEP are not restricted to China. There are several other aspects to the RCEP agreement which include investments and e-commerce that are of major concern as well. It has already been reported that India has agreed to the investment chapter of the RCEP agreement, which would mean that the government can no longer mandate that a company investing in India must also transfer technology and know-how to its Indian partners. The investment chapter also says that a signatory government cannot set a cap on the amount of royalties an Indian company can pay to its foreign parent or partner. These aspects have also raised concerns since technology sharing was a major way in which Indian companies were being able to compete globally. Further, there is also the fear that companies might be forced to transfer huge royalty sums to foreign partners, instead of paying dividends to Indian shareholders.
The e-commerce chapter, which is still under negotiation, is quite tricky because it contains provisions that, if agreed to, would mean that India would not be able to pursue its data localisation plans. The wording of the agreement would be key.
What is the way forward?
India’s Commerce Minister Piyush Goyal has held several rounds of meetings with industry representatives and has heard their concerns in detail. These concerns have certainly played a part in India’s uncertain stance when it comes to joining the grouping. However, time is running out. China has already said that the grouping should go ahead without the nay-sayers, with a clause allowing them to join later. This suggestion was echoed by Malaysia as well, but was ultimately rejected.
It does not seem a good idea for India to be out of the agreement from its inception, only to join it later. This would mean it would have missed out on the chance to frame the discussions and the precedents from the beginning and would have to accept them later. India should make clear its stance and stick to it. If it is joining, it should say so and reassure other countries, which would possibly reduce friction during negotiations. If India is not going to join the group, experts say it should stick to the decision and not change its mind later.