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RCEP: PM Modi Keeps Nation’s Interest Paramount Inspite Of Extreme International Pressure! Here Are The Details Of The Treaty And What’s In Store For India Next!

The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) such as Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, and its five (formerly six) FTA partners China, Japan, South Korea, Australia and New Zealand.

A free trade agreement (FTA) or treaty is a multinational agreement according to international law to form a free-trade area between the cooperating states. FTAs, a form of trade pacts, determine the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers, thus affecting international trade.

On November 4th 2019, India, the sixth FTA partner, decided to opt out of the pact. In light of India’s departure, China announced that India is welcome to join the RCEP whenever it’s ready.

For the moment, China appears to be the big winner here, and with its trade and supply chain networks that links to Asean, is looking to becoming the unchecked dominant power of Asia.

But the fact is India is ready for Business but on it’s own terms.

Evan Feigenbaum of Carnegie Endowment for International Peace (CEIP) tweeted soon after India’s decision became public, “India seems to be dropping out of RCEP, meaning we are likely to have two large trade and investment “blocs”-TPP and RCEP-setting rules and standards for the economic area in this region but with NEITHER the US nor India included. US and India with a new thing in common-not necessarily a good one: now firmly united in being outside both TPP and RCEP. So, we get pan-Asian rules/standards without the “Indo” and without the giant economy across the “Pacific.” Can you have “Indo-Pacific” when you have neither?”

As of now the decision to opt out of RCEP has come purely out of concern for the domestic farmers, workers and consumers. Because there is no such deal as ‘Indo Pacific’ is on table right now!

Prime Minister Modi said in his speech that, “the present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India’s outstanding issues and concerns in such a situation.

Prime Minister said that the country’s farmers, traders, professionals and industries have stakes in such decisions. “Equally important are the workers and consumers, who make India a huge market and the third biggest economy in terms of purchasing power parity. When I measure the RCEP agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhiji nor my own conscience permit me to join RCEP,” he said.

Negotiations for RCEP had went on for seven years. India’s issues over the agreement have been a long-standing, and while trade ministers of all 16 countries met during the sidelines of the ASEAN summit, the problems raised by India could not be resolved.

Issues which led to India staying away from the deal include,

Ratchet obligation – an obligation for a Contracting Party to adjust its reservations to reflect any new liberalisation measure (the “ratchet” effect), an auto-trigger mechanism in case there is a sudden surge in import, and a base year for tariffs, among others.

There was a lot of opposition to India being a part of the agreement from multiple industries, as well as the Rashtriya Swayamsevak Sangh (RSS). One of the primary reasons for the opposition was the fear that the market would be flooded with imported goods.

India will now aim for bilateral trade deals with key countries in the Asian region. The first is likely to be a trade agreement with Australia, though perhaps not New Zealand. Sources have said, India has identified Indonesia, Vietnam, Australia, Japan and Singapore as its key economic partners in this region.

India’s Asean FTA will continue, though even that is being re-negotiated, as are the ones with Thailand and even South Korea. But top sources indicated that in Asia, India would prefer to pursue bilateral arrangements for some time, much like Trump in the US.

India said on Monday that a lack of assurance on safeguards to protect the domestic industry from dumping by China and no credible promise by Beijing to allow market access to Indian goods were reasons it was quitting the pact.

Now the government will double down on its efforts to curb imports from China, which were more than $70 billion in 2018-19. Presence of significant amounts of major non-tariff barriers that are publicly known and China’s unwillingness to remove them were major hindrances towards a treaty.

The latest twist in India’s policy on foreign trade may, however, benefit the US. “US President Donald Trump has over the past two years continued to put pressure on India for a broad based free-trade agreement (FTA) talks. These may start sooner rather than in the distant future,” a senior trade expert said.

During Prime Minister Narendra Modi’s last visit to the US, Trump had promised a trade deal with India “very soon”, and a larger deal down the line.

This was followed up by Commerce and Industry Minister Piyush Goyal last month batting for ‘closer trade engagement’ with the US. “India and the US have resolved most of their broad trade differences and the countries must look at a much larger deal like a bilateral agreement,” Goyal had said in no uncertain terms.

While both nations are sorting out multiple fights over the reduction of tariffs and market access, trade negotiators have been trying to create a ‘trade package’ encompassing multiple sectors.

The package consists of mutual trade concessions that provide an amicable solution from both sides. India is considering the dismantling of its current price cap regime for coronary stents with a trade-margin policy, while it may also allow lower duties on import of certain information and communication technologies products such as high-end mobile phones and smart watches from the US. Further, bilateral talks are expected soon.

The previous United Progressive Alliance regime, had compromising India’s trade interests. The NDA government has remained cautious on not repeating a deal similar to India’s FTA with the Association of the Southeast Asian Nations (Asean) bloc.

India’s revenue foregone due to New Delhi’s first major multilateral deal has more than doubled to nearly Rs 26,000 crore in 2018-19.

Being the basic framework of the RCEP deal, the FTA with the 10-nation grouping came into effect in 2010.

Exports to the 10 economies stood at $37.4 billion in 2018-19, up by 9 per cent on year. On the other hand, imports were higher at $59.31 billion, up by 25 per cent from the previous year’s $47.13 billion.

The figure has strengthened calls for a more stringent review of existing FTAs with South Korea and Japan, which haven’t been able to reduce India’s trade deficit with these nations. On the other hand, the revenue department feared the tax loss may be as high as Rs 60,000 crore for the proposed RCEP.

India is still in the game of trade but not at the terms of China.


Dr Sindhu Prashanth

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