Regional Comprehensive Economic Partnership (RCEP)
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India’s reservations
Why India decided not to join RCEP agreement
Nov 5, 2019: The Times of India
Key Highlights
"India's decision will greatly help Indian farmers, MSMEs and dairy sector," sources said
The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of the RCEP: PM Modi
India has been forcefully raising the issue of market access as well as protected lists of goods mainly to shield its domestic market
NEW DELHI: India on Monday announced its decision of not joining the mega Regional Comprehensive Economic Partnership (RCEP) agreement, as negotiations failed to address New Delhi's concerns, government sources said.
The RCEP comprises 10 Asean nations and six of its FTA (free trade agreement) partners - China, Japan, South Korea, India, Australia and New Zealand. The RCEP aims to facilitate the creation of the biggest free-trade region in the world as the 16-nation grouping is home to 3.6 billion people, or nearly half the world's population.
"India's stand at RCEP is a strong reflection of Prime Minister Narendra Modi's strong leadership and India's rising stature in the world. India's decision will greatly help Indian farmers, MSMEs and dairy sector," sources said.
Here were some of the key concerns raised by India:
- The RCEP failed to addressed some of the core concerns raised by India, such as the threat of circumvention of Rules of Origin due to tariff differential, inclusion of fair agreement to address the issues of trade deficits and opening of services.
- Indian negotiators had also questioned the design of the trade agreement, which will see elimination of import duties on 80-90% of goods, along with easier services and investment rules. For India, the big concern was goods trade as domestic industry fears that lower customs duty will see a flood of imports, especially from China, with which India has a massive trade deficit.
- In its negotiations, the government had also raised the issue of unavailability of MFN (Most Favoured Nation) obligations, where it would be forced to give similar benefits to RCEP countries that it gave to others.
- India had raised a red flag over the move to use 2014 as the base year for tariff reduction. While RCEP negotiators wanted to sign the deal in 2020, the new tariff regime will kick in from 2022 and will see duties go back to 2014 levels.
- In his speech at the RCEP summit, PM Modi said, "The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India's outstanding issues and concerns In such a situation, it is not possible for India to join RCEP Agreement.
- PM Modi: Our farmers, traders, professionals and industries have stakes in such decisions. Equally important are the workers and consumers, who make India a huge market and the third biggest economy in terms of purchasing power parity. When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhiji nor my own conscience permit me to join RCEP.
- Earlier, under the UPA government, India had opened 74% of its market to Asean countries but richer countries like Indonesia opened only 50% of their markets for India. It also agreed to explore an India-China FTA in 2007 and join RCEP negotiations with China in 2011-12. However, the impact of these decisions resulted in increased trade deficit with RCEP nations - from $7 billion in 2004 to $78 billion in 2014.
Revenue foregone/ to be foregone
2019-20
Sidhartha, July 29, 2019: The Times of India
From: Sidhartha, July 29, 2019: The Times of India
Revenue concessions to RCEP may touch ₹60k cr
Govt Points To Gaps In Asean Trade Pact, Fears Impact On ‘Make In India’ Initiative
New Delhi:
Hidden in the Budget documents is a number that has gone virtually unnoticed — India’s revenue foregone due to the trade agreement with Asean more than doubled to nearly Rs 26,000 crore in 2018-19 from the previous fiscal, as it allowed duty-free and lower duty import of more goods from the trading bloc. Last fiscal’s giveaway — which is as much as the Centre hopes to collect through the super-rich tax this year — may rise in the coming years as the current utilisation of the trade pact is only around 40% of its potential. But the bigger fear for policy makers, especially those in the finance ministry, is the revenue foregone due to the Regional Comprehensive Economic Partnership (RCEP) agreement that is currently under negotiation. With the talks gathering steam, the revenue department has raised the red flag, arguing that concessions could easily top Rs 30,000 crore a year once they kick in and will nearly double to Rs 60,000 crore after the agreement is fully in force.
Many, however, see it as a notional revenue loss since a large part of the trade would not take place in the absence of the free trade deal. Going by the experience of past agreements, India’s imports from a trading partner have gone up at a faster pace than exports, with little gains accruing on the services front.
In contrast, India stands to gain little as import duty in some of the countries is much lower. World Bank data base estimated that in 2017, India’s average duty was 5.2% (including agriculture goods), compared to 3.8% in China and 2.1% in Indonesia.
Besides, India’s imports from the 15 countries added up to around $173 billion, while exports were of the order of $68 billion. “Low duty imports will have a massive impact on our manufacturing sector. We can virtually forget about the Make in India,” said a revenue officer. It will not only result in trade creation, which will lead to domestic production being replaced by imports, but also see goods from other countries, such as the US, getting replaced by cheaper rivals from China and Vietnam, officials warned.
During a recent meeting with the Asean troika led by Indonesia, commerce and industry minister Piyush Goyal himself highlighted at least nine concerns with the India-Asean Comprehensive Economic Cooperation Agreement (CECA) that has been in place for close to a decade now, in a suggestion to ensure that RCEP does not suffer from such drawbacks.
Like RCEP, where the entire focus is on removal of tariffs, Asean too saw a massive import duty cut. But, Goyal pointed out that non-tariff barriers were preventing India’s exports from entering several markets. For instance, in Japan and South Korea, steel exports meet barriers erected by local industry. Several officials have pointed out that there is a need to discuss ways to prevent non-tariff barriers from holding up exports.
Similarly, the government pointed out that the review mechanism needs to be robust as India’s concerns on Asean CECA haven’t been addressed since 2011, with the 10 countries putting the blame on each other. “If there are more countries, a review may be even tougher,” said an officer.
Trade with RCEP countries
2018-19
From: Sidhartha, Nov 5, 2019: The Times of India
See graphic:
Trade with RCEP countries, 2018-19
