RSTV-RCEP---Challenges-&-Way-Forward-IASToppers
Video Summary

[RSTV India’s World] RCEP – Challenges & Way Forward

As the international trading system grows increasingly strained under the escalating US–China trade dispute and the paralysis of WTO reform, many have eagerly called for the conclusion of the Regional Comprehensive Economic Partnership (RCEP) by the end of 2019.
By IT's Video Summary Team
October 02, 2019

Contents

  • Introduction
  • IT’s Input
    • Regional comprehensive Partnership Agreement (RCEP)
  • India’s apprehension on RCEP
  • Suggestions
  • Way Forward

[RSTV India’s World]  RCEP – Challenges & Way Forward

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Introduction

  • Recently, 7th Regional Comprehensive Economic Partnership (RCEP) ministerial meeting was held at Bangkok, Thailand in which member countries reviewed RCEP negotiations.
  • The joint statement issued after the meeting said the 16 negotiating partners agreed that they should not lose the long-term vision of deepening and expanding the value chains in the RCEP.
  • However, the ongoing global uncertainties have added to the urgency to conclude the mega free trade agreement between these nations.
  • The grouping underscored issues raised by India by stating that certain developments in the global trade environment might affect the negotiating countries’ individual positions.

IT’s Input

Regional comprehensive Partnership Agreement (RCEP)

  • The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA).
  • It is proposed between:
    • the ten-member countries of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and
    • the six countries 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.
  • It is among the proposed three mega FTAs in the world so far. The other two is:
    • The TPP (Trans Pacific Partnership, led by the US) and
    • The TTIP (Trans-Atlantic Trade and Investment Partnership between the US and the EU).
  • RCEP is viewed as an alternative to the TPP trade agreement, which includes the United States but excludes China
  • The RCEP negotiation includes:
    • Trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs) and other issues.
  • RCEP, if implemented, will be the world’s largest economic bloc, covering nearly half of the global economy.

India’s apprehension on RCEP 

Importance given to products rather than to services

  • Emphasis of RCEP is on trade in goods, epically in manufacturing. While on the other hand, India’s economy is based on service sector. Hence, India is contending that services should be treated like commodities in RCEP trade.

Cheap goods from China

  • Most of the RCEP countries has liberal rules of origin (RoO). RoO lays down the minimum value addition required by a particular country on an imported product for it to qualify as an item originating from there. Due to liberal rules, counties such as china provide low quality products.
  • So, even if India manages to keep tariffs on certain items being imported from China higher than that for other RCEP members, with low value addition requirement Chinese items can be dumped into India at lower duties via other RCEP countries. Hence, India asked for strict RoO in RCEP as a safety wall to domestic producers against cheap Chinese goods.
  • Moreover, in the wake of US-China trade war, there is might possibility of increased flow of goods from China.

Investment Flaws

  • As per India, the investor state dispute settlement (ISDS) of RCEP should first use the remedies available in the country, before an investor can take country for a dispute at international forum.

Immediate zeroing of the tariff

  • The greatest fear amongst various sectors is that tariffs on about 28 % of items will have to be brought down to zero immediately and more than 35% of the goods in phases when the pact is implemented. Hence, Indian entrepreneurs will hardly have time to adjust to the new challenges that the competition would generate.
  • Moreover, India is under pressure to agree to eliminate import tariffs on more than 90 per cent of traded goods for the 10-member ASEAN, Japan and South Korea. For China, Australia and New Zealand, with which India does not have bilateral free trade agreements, the demand is that India should eliminate duties on about 80-86 per cent of goods.

High Deficit

  • India has over $105 billion deficit with 15 countries if RCEP. Out of this deficit, about $54 billion is with China.
  • While the India-ASEAN Trade in Goods Agreement was enforced from 2010, India’s goods trade deficit with ASEAN widened from $4.9 billion in 2010-11 to $9.6 billion in 2016-17.

Stringent IP

  • India argues to remove the Stringent intellectual property (IP) agreement out of the RCEP agreement.
  • Countries like Japan and South Korea are pushing for Intellectual Property Rights (IPR) Policy which will make Indian pharmaceuticals much costlier and hit consumers around Asia.

No import of Dairy products

  • The National Dairy Development Board (NDDB) has recommended the government to keep the dairy sector out of the purview of negotiations under RCEP as cheap import of dairy products will adversely affect the livelihood of Indian farmers.
  • In this context, New Zealand is pushing for dairy imports in RCEP as it has capacity to produce milk 6 times higher than its consumption.

Suggestions

India should,

  • Explain RCEP that it is not only India which is obstructing the signing of RCEP. It should send out missions to RCEP countries explaining to their industries and other constituencies India’s viewpoint that India is not only obstacle in signing of RCEP agreement.
  • Show the importance of the export of its generic medicines to RCEP countries in order to act against stringent IPR pharmaceutical rules.
  • Emphasis on free flow of services and professional among RCEP countries.
  • Show their niche sectors to ASEAN countries in which it can benefit them such as pharmaceutical sector of India.
  • Highlight other issues such as environmental impact, labour requirement, corruption in governance etc.

Way Forward

  • There is no option for India except to join RCEP as in the age of globalization, if India does not join RCEP, India’s economy will join global trade in another way over the period of time.
  • Earlier, India wasn’t even considered the part of Asia-Pacific. However, after India have deeply put faith in Look East, Act East and Far East policies, it is being considered a major player in Asia. Hence, India should not let go this advantage by not joining RCEP.
  • The signing of the RCEP pact is likely in 2020. Ignoring India will not be easy for RCEP countries as India is the third largest economy in the Asia. Hence, the signing of RCEP pact could be delayed. In fact, RCEP pact signing is delaying since 2016.
  • It should be noted that any FTA, which might create dislocation for certain period, ultimately provides economic incentives to a country. However, it is not yet clear that whether Indian industries are ready to invest money in the various FTAs.
  • Out of the 25 article of RCEP, 13 article are still open for discussion. Hence, RCEP countries which have vowed to close talks on the RCEP pact by November 2019 have to catalyze the agreement process. However, during this upcoming RCEP summit, India should not compromise on dairy sector as it affects 60 million Indian households.

 

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