Point of no return? China border row adds to India’s unease over RCEP

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June 24, 2020 7:16 AM

Although the 15 other nations went ahead with the RCEP pact in November 2019, some of them (Japan and Australia, for instance) were keen to address India’s concerns.

“Given its tumultuous relations with the US and India now, China is trying to clinch the RCEP deal at the earliest,” said one of the sources.“Given its tumultuous relations with the US and India now, China is trying to clinch the RCEP deal at the earliest,” said one of the sources.

China’s misadventure on the Ladakh border may have hardened India’s intent to stay away from the Beijing-dominated Regional Comprehensive Economic Partnership (RCEP) and chances of New Delhi’s return to the negotiating table for the mega regional trade deal seem all but over now.

A virtual meeting of the trade ministers of RCEP members was held on Tuesday. For its part, New Delhi has refrained from joining RCEP deliberations despite invitations from other members at least twice since its pull-out from the mega regional trade deal in November 2019, sources told FE. “Given its tumultuous relations with the US and India now, China is trying to clinch the RCEP deal at the earliest,” said one of the sources.

Earlier in February, India had skipped a meeting in Bali where its concerns on the mega regional trade deal were sought to be discussed. New Delhi had reportedly received another invitation in April to join the talks. India’s decision to refrain from talks had come in the wake of China showing no flexibility in its negotiating positions.

India pulled out of the RCEP talks in Bangkok on November 4 last year and made its return incumbent on adequate redressal of its concerns. Commerce and industry minister Piyush Goyal had then said New Delhi was unwilling to budge on its demands for an “auto-trigger” mechanism for safeguarding its industry from dumping and strict rules of origins of imported products to check the abuse of tariff concessions, despite pressure from potential partners. Indian industry had apprehended massive dumping of cheap and sub-standard products by China once the trade deal was clinched.

Also, New Delhi was steadfast in certain demands, including credible steps and market access to address India’s $105-billion trade deficit with RCEP members, change in the base year to implement the tariff abolition from 2014 to 2019 and a more balanced deal on services.

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, and $47 billion in the first 11 months of FY20, even without factoring in the deficit with Beijing-proxy Hong Kong.

Although the 15 other nations went ahead with the RCEP pact in November 2019, some of them (Japan and Australia, for instance) were keen to address India’s concerns. However, China’s willingness to consider its demands had fallen far short of New Delhi’s expectations. RCEP, without a large market like India, remains far less attractive than what it was touted to be.

Some of India’s demands, such as the one for tough rules of origin, could be too hard for countries like China to accede to. Upon India’s insistence on the 35% value addition clause in the RCEP agreement, other partners, mainly China, wanted to limit the list of tariff lines with such a level of value addition to just 100. India had rejected such a short list.

New Delhi also feels without strict rules of origin, its different tariff concessions for different countries (the offers are least ambitious for Beijing) and safeguard/anti-dumping tools against any irrational spike in imports will be rendered meaningless. Even the Budget for 2020-21 reiterated India’s intention to tighten such rules.

To protect its industry, India had decided to trim or remove tariffs on Chinese goods only in phases over a period of 20-25 years. Similarly, its tariff concessions were to be the least ambitious for China — it offered to reduce or abolish import duties on a total of 80% of imports from China, against 86% from New Zealand and Australia, and 90% from Asean, Japan and South Korea.

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