RCEP – TO SIGN OR NOT TO SIGN?

There is a stormy quiet in the disquiet which India has unleashed by not signing the Regional Comprehensive Economic Partnership or RCEP deal. Out of the 16 nations in the RCEP, India is the only voice of dissent and it is being accused world over of being ‘protectionist’ and derailing years of bringing this RECP together. We have been told in strong words that if we do not sign, RCEP will go ahead, with or without India.

So what’s this RCEP all about; a quick refresher course right here!

Let’s begin at the beginning; what exactly is this RCEP?

It’s a free trade agreement between 16 nations, which includes 10 ASEAN countries — Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Myanmar, Brunei, Cambodia, Laos — and the six countries these countries have free-trade agreements with — Australia, China, India, Japan, New Zealand and Korea.

Why is this RCEP crucial?

Well, the sheer size of the market it covers is HUGE. It comprises 25% of global GDP, 30% of global trade and 26% of foreign direct investment flows.

What does it mean by ‘Free Trade?’

This pertains to imports and exports between countries with the aim of bringing down number of processes in place, with very little or no tariffs and quotas. The idea is to provide free access to markets for goods and services across these 16 nations.

Why is India refusing to sign?

At the 22nd Oct meet, India refused to sign and now the final call is reportedly to be taken by Modi. If further negotiations go ahead, the agreement will be completed by Nov and deal will be signed only by next year.

India has refused to sign because:

1: The base year for calculation of tariff is to be taken as 2013 when the RCEP negotiations first began; India wants this to be changed to 2019. India raised customs duty in 2014 and these over the years have gone up 13 to 17% on an average. If we go by 2013, India will have to sign on for far lesser customs duty than what it is now.

2: India wants an ‘auto-trigger’ in place where if imports surge, it will retain the right to decide whether or not it wants to continue with the same lowered tariff.

3: India wants an exemption on ‘ratchet obligations.’ Once the deal is signed to bring down tariffs and quotas, it is frozen, no tinkering allowed. India wants to retain the liberty to hike tariff in the future if the situation demands so.

4: 14 out of the 16 countries have vehemently opposed India’s demand for protecting data locally – each country should have the right to share whatever data it thinks is deemed necessary for the deal.

5: From within India, there is a huge shout of protest form most sectors as the fear is that RCEP will flood Indian markers with cheap goods (mainly Chinese) and this will maim the small and medium scale sectors permanently. Most countries in the RCEP want India to slash existing tariffs on some 90% goods. Industries which are most worried are dairy (mainly exports from New Zealand), automobiles, textiles, steel, agriculture products – tea, coffee, rubber, cardamom and pepper. If we sign the RCEP, we will have to remove tariffs on 74% of goods imported from China, Australia and New Zealand, and 90% goods from Japan, South Korea and ASEAN.

NITI Aayog has also put out a report which shows very clearly that in every such trade agreement, India imports more than what it exports and has very clearly concluded that “Indian industry will have more to lose than gain if it agrees to a liberal tariff elimination schedule specially w.r.t China.”

So now what comes next?

If we remain out of the RCEP, we will be isolated from a $2.8 trillion trade bloc. But at the same time, we need to be careful that India does not become a dumping ground for cheap Chinese goods. The Indian economy is already hurting from the slowdown and this, many fear, will further hurt.

The ideal thing to do would be to work out an agreement with China within the framework of RCEP. At the same time, we have no Free Trade Agreements (FTAs) signed with any of our four trading partners – EU, China, USA and Gulf Cooperating Council. Why can’t we have FTAs with at least 2 of these partners? We have an FTA with Japan, ASEAN and South Korea. So maybe we could use the diplomatic ties which Modi has been trying to foster through his various foreign trips with China, New Zealand and Australia.

Can RCEP go ahead without India?

Absolutely if China has its way! Without India, it might not be as big as expected as India and China dominate all trade in these regions. Thus RCEP will we see some more negotiations and in all likelihood will get delayed further.  

Well, India can neither walk away nor can it walk into it blindly. It is a very tough call to make. But all through, we need to be aware that the RCEP will essentially be about signing with China and then ASEAN.