Updated: November 18, 2020 12:11:13 pm
Container boxes are seen at the Yangshan Deepwater Port, part of the Shanghai Free Trade Zone, in Shanghai, China, on September 24, 2016. (Reuters photo: Aly Song)
On Sunday, 15 countries solidified their participation in the Regional Integral Economic Association (RCEP). Even when India chose to stay on the sidelines after exiting the discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.
Described as the “largest” regional trade agreement to date, the RCEP was originally being negotiated between 16 countries: ASEAN members and countries with which they have free trade agreements (FTAs), namely Australia, China , Korea, Japan, New Zealand and India. .
The purpose of RCEP was to facilitate the availability of products and services from each of these countries in this region. Negotiations to map out this deal had been underway since 2013, and India was expected to be a signatory until its decision last November.
Why did India leave?
On November 4, 2019, India decided to exit the discussions on “outstanding important issues”. According to a government official, India had been “constantly” raising “fundamental issues” and concerns throughout the negotiations and was asked to take this position, as they had not been resolved before the deadline to commit to signing the agreement. His decision was to safeguard the interests of industries such as agriculture and milk and give an advantage to the country’s service sector. According to officials, the current structure of RCEP still does not address these issues and concerns. 📣 Click to follow Express Explained on Telegram
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To what extent is China’s presence a factor?
Rising tensions with China are one of the main reasons for India’s decision. While China’s participation in the deal had already been difficult for India due to various economic threats, the confrontation in the Galwan Valley has soured relations between the two countries. The various measures that India has taken to reduce its exposure to China would have been uncomfortable with its commitments under RCEP.
The main problems that remained unresolved during the RCEP negotiations were related to India’s exposure to China. This included India’s fears that there were “inadequate” protections against surges in imports. He considered that there could also be a possible circumvention of the rules of origin, the criteria used to determine the national source of a product, in the absence of which some countries could dispose of their products by shipping them through other countries that enjoy lower tariffs. .
India was unable to guarantee countermeasures such as an automatic trigger mechanism to increase tariffs on products when its imports crossed a certain threshold. He also wanted the RCEP to exclude most favored nation (MFN) obligations from the investment chapter, since it did not want to distribute, especially to countries with which it has border disputes, the benefits it was giving to strategic allies or for geopolitical reasons. India felt that the agreement would force it to extend the benefits granted to other countries for sensitive sectors such as defense to all members of the RCEP.
The RCEP also lacked a clear guarantee on market access problems in countries like China and non-tariff barriers to Indian companies.
The leaders and trade ministers of 15 countries from the Regional Comprehensive Economic Association (RCEP) pose for a virtual group photo in Hanoi, Vietnam, on Sunday, November 15, 2020 (VNA via AP).
How much can India’s decision cost?
There is concern that India’s decision will affect its bilateral trade relations with RCEP member nations, as they may be more inclined to focus on strengthening economic relations within the bloc. The move could leave India with less room to take advantage of RCEP’s large market; the size of the deal is gigantic, as the countries involved represent more than 2 billion of the world’s population.
Given the attempts by countries like Japan to get India back into the deal, there are also concerns that India’s decision could affect the Australia-India-Japan network in the Indo-Pacific. Potentially, it could put a key in the works in informal conversations to promote a Supply Chain Resilience Initiative between the three.
However, India’s stance on the deal is also due to learnings from unfavorable trade balances it has with various RCEP members, some of which even have FTAs. An internal government assessment has revealed that growth in trade (CAGR) with partners over the last five financial years was a modest 7.1%. While “there has been a growth rate in both imports and exports to these NAFTA partners,” the “utilization rate” of FTAs for both India and its partners has been “moderate” across all sectors. According to this study, which covers the pacts with Sri Lanka, Afghanistan, Thailand, Singapore, Japan, Bhutan, Nepal, Republic of Korea and Malaysia.
India runs trade deficits with 11 of the 15 RCEP countries, and some experts believe that India has been unable to take advantage of its existing bilateral free trade agreements with various RCEP members to increase exports.
“You don’t enter into free trade agreements simply to offer your market to partner countries. While it adapts to its partner countries, its aim is also to increase the presence of its products in its partners’ markets, and India has not been able to achieve the latter goal, ”said trade expert Biswajit Dhar, a professor at the Center for JNU for Studies and Economic Planning. “Our share of imports from RCEP partner countries has stagnated or fallen,” he said.
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Vietnamese Prime Minister Nguyen Xuan Phuc, left, and Commerce Minister Tran Tuan Anh, right, applaud next to a screen showing Chinese Premier Li Keqiang and Commerce Minister Zhong Shan holding a deal. RCEP signed, in Hanoi, Veitnam. (AP / PTI photo)
What are India’s options now?
India, as the original RCEP negotiating participant, has the option of joining the agreement without having to wait 18 months as stipulated for new members in the terms of the agreement. The RCEP signatory states said they plan to begin negotiations with India once it submits a request of its intention to join the pact “in writing”, and can participate in meetings as an observer prior to accession.
However, the possible alternative that India may be exploring are revisions to its existing bilateral FTAs with some of these RCEP members, as well as newer agreements with other markets with potential for Indian exports. More than 20 negotiations are taking place.
India currently has agreements with members such as the ASEAN bloc, South Korea and Japan and is negotiating agreements with members such as Australia and New Zealand. Two reviews of the India-Singapore ECSC have been completed; In 2016, the India-Bhutan Trade and Transit Agreement was renewed; and the India-Nepal Trade Agreement was extended in 2016. Eight rounds of negotiations have been completed for the review of the India-Korea CEPA, which started in 2016. India has taken over the review of the India-Japan CEPA and India FTA ASEAN with its business partners.
There is also a growing view that it would be helpful in India’s interests to invest heavily in negotiating bilateral agreements with the US and the EU, both currently in the works.
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