Scrapping trade lines hinges on reciprocity
India is considering sweetening its offers for countries, including China and Japan, for liberalisation in goods trade at the 16-nation Regional Comprehensive Economic Partnership (RCEP), provided it is assured of commensurate pledges from others in services trade and investment.
At the latest round of negotiations in Vietnam last week, India is learnt to have shown its readiness to consider scrapping as much as 80% of tariff lines in merchandise trade for all RCEP partners, barring China. New Delhi also is comfortable with removing 65% of tariff lines for China initially (a marked improvement from the initial offer of 42.5%), although these tariffs could be abolished only over a period of time to protect interests of domestic industry, said a source. 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, he added.
Despite its willingness to sweeten its offer in the latest round of talks, India still seems to oppose an “early harvest”, a diplomat from a potential RCEP partner told FE.
This means it wants agreements on all the three pillars of negotiations — goods, services and investment — be implemented only as a package, not one at a time. So even if a consensus is reached early on goods (which is what most nations want), India feels it shouldn’t be enforced in isolation.
Initially, India had offered to abolish 80% of tariff lines for 10 Asean members, 65% of tariff lines for Japan and South Korea and 42.5% for China, Australia and New Zealand.
In return, while South Korea and Japan were willing to offer 80% tariff elimination for Indian goods, China was ready to remove only 42.5% tariff lines. Australia and New?Zealand offered to abolish 80% and 65%, respectively, of tariff lines for merchandise imports from India.
If implemented, India’s latest concession will benefit China the most. Already, even without any free trade agreement, India had a massive merchandise trade deficit of almost $53 billion with China in 2015-16. The giant neighbour was the biggest contributor to India’s $93-billion goods trade deficit with all potential RCEP partners in 2015-16. The scrapping of tariff lines means import duties on specified items would be cut to zero over a mutually agreed-upon time frame.
India’s willingness to make further concessions in goods at the RCEP is aimed at expediting the negotiation process, as pressure mounts on the bloc to clinch a deal following the Trans-Pacific Partnership between the US and 11 others. Already, the 2015 deadline for the RCEP deal has lapsed and, going by the progress so far, the fresh deadline of 2016 is likely to be missed, too.
Currently, India’s average import tariff rate is around 13.5% (the highest among RCEP nations, so its sacrifice level will be the biggest as well) and in case of non-agricultural items, it’s even lower — 10%.
According to a recent estimate by the finance ministry, India could lose tax revenue of R75,733 crore a year if it scraps tariff on merchandise imports entirely now, to either counter or emulate the TPP model of zero duty over a period of time.
Several countries are already unwilling to commit much in liberalising their services trade or investment space, and are interested in seeking more concessions from India in goods trade.