No deal: India pulls out of RCEP pact as partners play hardball

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Published: November 5, 2019 4:56:25 AM

PM took the final call; India to now explore FTA talks with US, UK & EU.

rcep, pm modiFrem left: Cambodia’s Prime Minister Hun Sen, New Zealand’s Prime Minister Jacinda Ardern, Prime Minister Narendra Modi, Chinese Premier Li Keqiang and Thai Prime Minister Prayuth Chan-Ocha at the third Regional Comprehensive Economic Partnership summit in Bangkok on Monday.

India on Monday pulled out of the 16-nation Regional Comprehensive Economic Partnership (RCEP) agreement, capping six years of talks to clinch the world’s biggest free-trade deal in the face of stiff resistance from domestic industries and political circles and reluctance of partners like China to grant it meaningful concessions despite hard negotiations in recent weeks.

Briefing reporters in Bangkok, the venue of the RCEP leaders’ summit, Vijay Thakur Singh, secretary (east) in the ministry of external affairs, suggested the RCEP deal, in its current form, would have had “significant issues of core interest impact” on the livelihood of India’s vulnerable sections.

Separately, sources said India would, from now on, generally seek to sign trade pacts with only those countries with which it has trade surplus (unlike the RCEP grouping). It could explore the possibility of a trade pact with the US and the UK (after the Brexit), and also resume negotiations with the EU for the proposed free trade agreement (FTA).

Interestingly, a joint statement of RCEP nations after Monday’s summit doesn’t mention about India’s decision to pull out.

It merely said: “India has significant outstanding issues, which remain unresolved. All RCEP participating countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues.”

This joint statement of RCEP nations suggests other nations are probably keeping the doors open for India to join back should it so decide.

Asked if New Delhi would like to come back to the negotiating table if other members tried to address its concerns, the MEA secretary (East) told reporters that India had already conveyed its decision of not joining the RCEP to all the partners, indicating that New Delhi was unlikely to reconsider its pullout move.

“India has participated in good faith in the RCEP discussions and had negotiated hard with a clear eyed view of our interests. In the given circumstances, we believe not joining the agreement is the right decision,” Singh said at the briefing. She, however, didn’t specify the India’s concerns that were not adequately addressed, saying the partners were well aware of them.

Sources said India was willing to back the RCEP deal at the leaders’ summit provided it got an assurance from partners that its concerns on safeguard mechanism for domestic industry, tariff concessions etc would be addressed and changes would accordingly be made in the final text of the agreement before it’s ready to be signed next year. However, some members were not willing to wait longer and negotiate with India.

Former NIti Aayog vice-chairman Arvind Panagariya said without India, the RCEP isn’t a huge deal, as others already have some kind of agreements among themselves. However, he said he wasn’t clear about the additional safeguards India was seeking, as tools like anti-dumping and safeguard duties were already there under the WTO framework for industrial goods, although the farm sector might have some concerns.

Biswajit Dhar, professor at the Centre for Economic Studies and Planning of JNU, said the pull-out would give the government some breathing space to draw new strategies to bolster domestic competitiveness, especially in the farm and industrial sectors. “Things have to change fundamentally, from the ground,” he stressed.

Differences between India and some others like China still persisted on certain crucial aspects–especially in safeguard mechanism, tariffs and rules of origin–even after tough negotiations over the weekend, a source aware of the talks had told FE. Each side had presented the outcome of the talks to their respective leaders. Given the state of the negotiating positions and the reluctance of some partners to be more accommodative in protecting India’s interests, Prime Minister Narendra Modi took the call against joining the RCEP.

The deal has faced severe domestic opposition from not just industries, including steel and dairy, but also the government departments overseeing these sectors, thanks to persisting fears of dumping by countries like China. Both steel and dairy ministries were critical of the RCEP. Recently, the Congress party also stepped up its opposition to the trade deal.

However, several experts, including noted economist Arvind Panagariya, had highlighted the importance of India joining the RCEP to better integrate with the global value chain and improve its trade competitiveness.
Most RCEP members wanted to conclude the negotiations in 2019 so that a deal could be formally signed in 2020 (after the announcement by the leaders on Monday). Some of them were earlier upset with what they called India’s “recalcitrance” in sealing a deal early. For its part, India has been trying to safeguard the interest of its industry that fears higher trade imbalance (Its past free trade agreements with Asean, Japan and Korea have already widened its trade deficit).

Safeguards for domestic industry, particularly, remain a crucial part of India’s negotiations. A source had earlier said that India was planning to employ an “auto-trigger” safeguard mechanism for imports from not just China but also Australia and New Zealand to better protect domestic players from irrational spike in imports. However, the move was resisted.

Even without RCEP, India’s merchandise trade deficit with China stood at $53.6 billion in FY19, or nearly a third of its total deficit. Its deficit with potential RCEP members (including China) was as much as $105 billion in FY19.

The RCEP is a proposed mega trade pact between the 10 Asean members, India, Australia, China, Japan, South Korea and New Zealand. According to initial estimates, it accounts for 25% of global gross domestic product, 30% of trade, 26% of foreign direct investment flows and 45% of population.

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