The elephant in the room: Chinese import fears weighed heavy on India’s decision to reject RCEP

RCEP: While rejecting the deal, Prime Minister Narendra Modi told the leaders that the RCEP in its present form was against the spirit of give and take.

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Prime Minister Narendra Modi was in Bangkok to attend the RCEP summit.

Regional Comprehensive Economic Partnership (RCEP): The fear of a surge in imports from China was the main reason behind Prime Minister Narendra Modi’s decision to reject a comprehensive regional trade agreement with ASEAN and 5 other nations including China, say foreign trade experts. China is India’s biggest trading partner with a total two-way trade of over $ 92 billion dollars in FY FY 2017-18. However, it is highly skewed in China’s favour as India’s exports to China were just 22% per cent of the country’s import from China in the year, creating a trade deficit of $60 billion dollars. Experts say India is not able to increase its export to China despite offsets and even today, the maximum number of anti-dumping measures taken by the country is against Chinese imports which will not be possible under the RCEP and the deal offered to India did not address these concerns.

“It is always good to be a part of a trade bloc but that does not mean that it hurts you more than what you gain,” said Ajay Dua, a Delhi based development economist and former secretary in the ministry of commerce and industries.

In 2016-17, India exported goods and services worth $13.33 billion to China while the imports from the country were pegged at $61.28 billion, a trade deficit of nearly $60 billion. In other words, the value of India’s exports to China was less than 22% of the country’s imports from China.

“We already have a fairly wide trade deficit with China and if we are not able to increase our exports even after getting offsets and our imports keep on increasing then our trade deficit with China would have increased further,” said Abhijit Das, head of the Centre for WTO Studies at Indian Institute of Foreign Trade in Delhi.

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Despite the same rate of increase in India’s exports and imports from China, the trade deficit widened by $12 billion. While India’s exports to China grew by nearly 26% to $16.75 billion in FY2017-18, the country’s imports also grew at almost the same rate to $76 billion.

In order to stem the tide of cheap Chinese imports, the government imposes anti-dumping duties on Chinese products.

According to the information given in Parliament, there were as many as 99 products in January this year where the government had imposed anti-dumping duties on Chinese products. These products included chemicals and petrol-chemicals, pharmaceuticals, fibres and yarn, machinery, steel products and rubber.

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According to experts, the situation has not changed much since then.

“Even today, the maximum number of anti-dumping duties in India are on Chinese products,” said Ajay Dua.

Indian industry was apprehensive of cheap Chinese imports flooding the Indian market in the event of India joining the comprehensive trade agreement of 16 Asian economies. According to trade experts, after signing the agreement, the country would have lost whatever little protection it has.

“Now if you are going to cover them (imports from China) under the RCEP and say that a duty of only 5-7% would apply on these products and, that too, will keep reducing and become duty free in some years then what is the protection that you have other than non-trade barriers,” Ajay Dua told Financial Express Online.

In addition to the fear of Chinese products flooding the Indian market, Indian negotiators were also frustrated as India’s demand in the services sector were not heeded to. According to trade experts, international trade is based on the comparative advantage of countries, while a country like China has become the world’s manufacturing powerhouse, a country like India is strong in the services sector with a strong pool of English speaking professionals with technical skills. However, under the present format, the country saw a little scope for the export of services.

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“Our export interests, particularly in China, were not given adequate opportunities. For example, China manages to protect its market through a variety of non-tariff barriers and there appears to be very little in the agreement to address this issue,” Professor Abhijit Das told Financial Express Online.

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