Hesitancies in an RCEP deal

The major fear of Indian businesses is that the mega deal will give duty-free access to other nations, especially China, resulting in a surge in import of manufactured goods

Last month, the trade ministers of 16 countries, at an 8th ministerial meet in Beijing, called for conclusion of the proposed Regional Comprehensive Economic Partnership (RCEP) talks by early November. Last week, they met again at Bangkok, to reiterate their commitment to quickly sort the issues in question.

This has brought enough pressure on our government to vigorously engage with stakeholders, to participate more actively in the negotiations. RCEP is a proposed free trade agreement (FTA), between the 10 member-states of the Association of Southeast Asian Nations (Asean) and its six proposed FTA partners (China, Japan, India, South Korea, Australia and New Zealand). Formally launched in 2012, these negotiations have gone through 27 rounds and eight ministerial conferences, besides several other meetings. 

When concluded, the deal is estimated to cover about 25 per cent of global Gross Domestic Product, 30 per cent of global trade, 26 per cent of foreign direct investment flow and 45 per cent of the world’s population.

China is eager to conclude the deal at the earliest, considering its trade war with the United States. India seems to prefer a delay, with the lack of domestic consensus on benefits from the agreement. Other countries are between these two extremes, although there are enough noises in favour of getting the deal done sooner rather than later.  

The commerce ministry says it has held more than 100 stakeholder consultations, seeking business’ inputs for formulating India’s interests. These cover a wide spectrum of the economy —agriculture, chemicals, petrochemicals, pharmaceuticals, plastics, textiles, metals, automobiles and machinery. However, the business sector, especially manufacturing, is not convinced about benefits from an agreement, considering the past experience on FTAs with Korea, Asean and some other countries. These resulted in increased import into this country, without matching export to those countries. 

The major fear of Indian businesses is that the mega deal will give duty-free access here to other countries, especially China, resulting in a surge in import of manufactured goods. Even the dairy sector is apprehensive that duty-free import, especially from New Zealand, will impact the lives of milk producers in a big way. The argument that Indian producers will also get duty-free access to huge markets in China does not impress them, as the confidence that they can exploit such access to their advantage is lacking, except perhaps for producers of pharmaceuticals. More, the negotiations are intensifying just when the domestic economy is slowing and export is stagnant. 

The commerce minister has invited representatives of RCEP to Delhi for discussing various technical issues and essential elements of ways to protect domestic producers and to get better market access in services. He has assured that the government will balance the interests of those who feel they are at a disadvantage vis-a-vis the Chinese companies and ensure the agreement will be good for India. But, he also did hint that it is difficult to please everyone.  

At the core of India’s dilemma is the erosion of our competitiveness in recent years.  The government has tried to address this through export subsidies, higher tariffs and non-tariff barriers. The need is to restore confidence of the trade by addressing long-term structural issues even while trying to negotiate better terms in the mega trade deal.   

E-mail: tncrajagopalan@gmail.com