Wednesday, July 28, 2021

India Stays Out Of RCEP: National Interests Paramount

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Nations engage with countries and regional groupings to protect and promote national interests. Seven years ago, when the Regional Comprehensive Economic Partnership (RCEP) negotiations commenced, it was natural for India to actively participate in it, given its ‘Look East’ and thereafter ‘Act East policies’. The objective of RCEP was to establish a modern, mutually beneficial and comprehensive regional grouping and, round after round, India was pressing for such an outcome.

In the spirit of regional camaraderie, India had decided to enter the RCEP negotiations, even after having taken a hit in most of its Free Trade Agreements (FTAs) with East Asian nations. India’s trade deficits with ASEAN, Japan and Korea have more than doubled since the FTA agreements. Imports from the FTA partners have increased by leaps and bounds, but India’s FTA utilization rates have been lukewarm, due to non-tariff barriers to market access. India drastically reduced its tariffs under the Trade in Goods agreement with ASEAN, hoping to make good for these losses in the Trade in Services Agreement. The trade in Goods agreement, unfortunately never took off, given the reluctance of some ASEAN members.

No less than the Indian Prime Minister Mr. Modi had urged RCEP members for a linkage between the goods and services negotiations. This would have made good for possible losses that India was likely to face in the goods negotiations. Unfortunately, some countries exhibited reluctance to open up their services sector, while making ambitious demands upon India to open up markets for trade in goods.

The deadline for conclusion of RCEP, has been extended time and again. It had been decided initially to use the 2014 Most Favoured Nation (MFN) duty rates for negotiation. As RCEP was set to enter into force in 2020, India had requested that the base year for customs duty cuts be moved to 2019 to reflect the current realities. This advice was not agreed to, by many countries. Over the years, exports especially from China have swamped Indian markets, threatening its domestic industries. India had, thus, requested for an Auto Safeguard Trigger Mechanism where higher duties could be levied to prevent surge in imports. This was however, not agreed to, possibly because countries were eyeing India’s big domestic market

Additionally, India pressed for stricter rules of origin (ROOs), to prevent misuse of differential tariff regimes through circumvention and rerouting. India had agreed to reduce tariffs on Chinese commodities over a 20-year period. However, most of these commodities would have got duty free market access from least developing countries, rendering, framing and implementation of Rules of Origin, critical. India has registered many cases of gross origin violation especially under the ASEAN FTA, and wanted full-proof mechanisms to protect its domestic industries, against unfair international trade practices. This was an extremely fair demand that went unheeded due to the resistance by many RCEP member-countries.

Other WTO plus provisions, introduced by the rich countries of RCEP bloc pertaining to investments and e-commerce, would have had serious ramifications for developing countries like India. Clauses barring mandatory transfer of technology and capping of royalty outflows under investments chapter, and, forbidding data localization under the e-commerce chapter would have tremendously limited the policy space, if agreed to.

Many of these concerns had been aired repeatedly by India’s Commerce and Industries Minister and other senior functionaries at the RCEP Ministerial meetings and negotiating rounds. Unfortunately, in the absence of balanced outcomes, India decided not to sign the RCEP, primarily to protect the interests of her domestic sector and small businesses. However, both the joint leaders’ statement on RCEP and the Indian government have made it clear that if RCEP countries accommodate New Delhi’s core interests and resolve outstanding issues in a mutually satisfactory manner, then India can consider signing the RCEP agreement.

Script: Satyajit Mohanty, IRS, Senior Economic Analyst

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