 "Nirmala Sitharaman")
PM Narendra Modi (Image source: ANI Twitter handle) The visit of Prime Minister Narendra Modi to Laos for the Asean-India Summit this week had been expected to provide speed to the Regional Comprehensive Economic Partnership (RCEP) agreement.
However, RCEP leaders failed to come up with a deadline for the mega regional trade pact that has only become more complicated after 14 rounds of negotiations and four ministerial meetings.
For India, RCEP presents a decisive platform to influence its strategic and economic status in the Asia-Pacific region. Expected to be the largest regional trading bloc in the world, accounting for nearly 45 per cent of the global population with a combined gross domestic product of $ 21.3 trillion, it will also bring the biggest economies of the region into a regional trading arrangement.
However, a tough fight awaits India at the next round of negotiations after its latest move regarding a single rate of tariff reduction did not elicit positive response from other nations at the last meet, according to trade experts and officials alike.
Started in 2012, RCEP comprises the 10 economies of the Asean region (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and six of its free trade partners (Australia, China, India, Japan, New Zealand and South Korea).
Launched in 2012, the original target of concluding a deal was by end 2015. However, member nations have managed to only submit initial offers for trade in goods and services apart from initial reservation lists for investment. The issue of tariff reduction had then taken hold.
India had made its boldest move at the Laos ministerial meet in August by shifting its stance from a three tiered, differential levels of tariff reduction to a single one applicable to all RCEP members. However, it is yet to pay off smoothly at the latest round of negotiations in Ho Chi Minh City.
“There has been no significant improvement in negotiations with regards to merchandise trade at the latest round of negotiations in Ho Chi Minh City.” a commerce ministry official had said under conditions of anonymity. He added that although countries seemed favourable to India’s new stance, talks have barely progressed and India was under pressure for the next round.
Commerce and Industry minister Nirmala Sitharaman, had said last month that a departure from the earlier stance represented a normal progression in the negotiations since no other nation was on board with the idea. She added countries were looking towards a list of common concessions with minimum deviation with regards to some items.
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Under the previous plan, the 10 countries which are part of the Association of Southeast Asian Nations (Asean) were being offered up to 80 per cent tariff liberalisation. Of this, 65 per cent elimination of tariff was to come into force immediately upon completion of the agreement. Another 15 per cent tariff elimination was to happen over 10 years. In the second tier, India offered 65 per cent tariff elimination to South Korea and Japan, with whom it has free trade agreements.
While mega goods exporter China had vehemently opposed the approach, India managed to rope in Japan and South Korea to endorse its plan. However, the Asean bloc had submitted a joint paper in support of a single tariff reduction during the 13th round of negotiations held in New Zealand, allegedly after being egged on by China.
“It remains to be seen whether the latest change in stance would help the country, since India had based its negotiating principles till now on this.” a trade expert said not wishing to be named.
Also, similar levels of tariff reduction, if finalised, would hurt India the most as it has relatively higher tariff regime. This has always forced India to reduce tariffs much more than partner nations.
Now, India is cautiously approaching tariff reduction with regards to China, with which it has a large trade deficit, another official said. While the principle of a single rate of reduction will be applicable to all nations, the number of tariff lines under such reduction as well as the phase out period will be different for China, he added.
The period for phasing out tariff lines for imports from China could be 20-30 years, as it is essential to ensure Indian industry has enough time to improve its competitiveness. India’s goods trade deficit with China has surged from $1.1 billion in 2003-04 to $52.7 billion in 2015-16.
The steel and heavy industries sector have been apprehensive that China may use RCEP to try and gain more market access in India even as it remains unwilling to import more.
Indian businesses have also questioned the need for new trade pacts as they argue existing agreements have not helped boost India’s exports, but rather led to increasing imports. This has led to the government reviewing India’s existing FTAs.
The Korean FTA was reviewed in June. India had a trade deficit of about $10 billion in 2015-16 with the nation and domestic steel industry has repeatedly argued against increasing imports. In the case of India-Asean-FTA, post implementation, imports from Asean rose by 79 per cent while exports grew by only 39 per cent.
A general lack of competitiveness of Indian firms vis-à-vis foreign counterparts have been pointed out repeatedly as the primary cause. According to the estimates of Asian Development Bank, utilisation rate of India’s FTAs varies between 5 and 25 per cent – one of the lowest in the region.
Other mega exporters like South Korea and Japan also pose a significant threat to India's manufacturing exports. Likewise, Australia and New Zealand have a clear interest for lower tariffs in agriculture commodities to gain greater market access in India's food, wine and dairy sectors.
India is therefore primarily interested in playing on its strength – robust services trade on the back of a burgeoning educated class. It is pushing for securing greater market access for services trade and easing restrictions in the sector, especially under Mode 4 issues dealing with cross-border migration of services professionals.
However, here also, with a limited services trade with South-east Asian countries and strong competitors like the Philippines, India is looking at a tough battle. While the latest round has not seen the country receive better offers on services, currently India is assessing the nature of offers on more than 90 services categories.
“India’s new approach may provide movement in services after much struggle to arrive at a balanced plane of discussion,” Director-General of policy think tank Research & Information System for Developing Countries said.
Also, targeted is an easier visa regime for the movement of IT and other service professionals in service-oriented developed economies like Australia, Singapore and New Zealand. On investment issues too, India's interests have clashed with those of others as countries like Australia and Malaysia vying for growing Chinese overseas investments.
RCEP leaders, especially from the Asean now want a fast conclusion to the pact. This is partly due to another mega trade pact - the United States led Trans Pacific Partnership (TPP) casting its shadow on RCEP. Some member nations, Japan, Australia, New Zealand, Singapore, Malaysia, Vietnam and Brunei, are already part of the TPP. Lately, other Asean members like Philippines, Indonesia and Thailand have also started to show an interest in jumping on the TPP bandwagon.
Some known sources suggested three rounds of talks may be held to accelerate talks in the current year with the next one in China next month where chief negotiators will meet to iron out differences before the next ministerial slated for November this year.
