RCEP: Has Govt of India foreclosed its options of joining any FTA in the future?

By: |
November 20, 2020 5:00 AM

The Atmanirbhar Abhiyan is in total contradiction to the raison d’etre of trade agreements like the RCEP deal.

A quick analysis of the tariff cuts agreed by RCEP members shows that they have remained loyal to their script.

Exactly a year after India had walked away from the negotiating table, the Regional Comprehensive Economic Partnership (RCEP) has become a reality. Fifteen countries in the East Asian region have forged the largest free trade agreement (FTA) ever, culminating eight years of arduous negotiations. In 2019, total trade of RCEP members was $10 trillion, or about 28% of world trade, but as high as 44% of their trade flows was intra-RCEP. In other words, there was a strong rationale for the RCEP members for concluding this FTA, and now that the deal is done, East Asia is set to become even more integrated.

India had withdrawn from the negotiations, then at the final stages, with the prime minister indicating that India would not sign a deal that does not address its concerns. Among the several concerns that India had, were issues of tariff cuts, especially in respect of its imports from China and shifting of the base year for tariff cuts from 2014 to 2019, the threat of circumvention of rules of origin due to tariff differentials across RCEP members, exclusion from Most Favoured Nation (MFN) obligations in the chapter on investment and carving out of sensitive sectors from “Ratchet obligations” in the investment chapter. Besides, some of India’s principal areas of interest, for instance, movement of natural persons under Mode 4 of services trade, never received the requisite importance from the other RCEP participating countries.

Over the past year, several RCEP members, including Japan and Australia, were keen to see India re-engaged through a series of interventions. The importance of India for the RCEP dynamics cannot be underestimated given, on the one hand, the potential market provided by 15% of the world’s population, and the export-oriented nature of almost all RCEP members, on the other. It is, therefore, hardly surprising that before they inked the deal, RCEP ministers adopted a declaration “acknowledging the strategic importance of India eventually becoming a party to the RCEP Agreement to create a region of even deeper and expanded value chains for the benefit of all people in the region and contribute further to the development of the global economy”. The ministers extended three sets of “concessions” to India. First, the RCEP agreement would remain open for accession by India from the date of entry into force of the Agreement, which implies that if India decides to join the agreement on a later date, it will be treated as an original signatory of RCEP. Secondly, RCEP signatory states will commence negotiations with India at any time once India submits a request in writing of its intention to accede to the RCEP Agreement and, finally, at any time prior to its accession to the Agreement, India may participate in RCEP meetings as an observer and in economic cooperation activities undertaken by the RCEP signatory states under the RCEP Agreement, on terms and conditions to be jointly decided upon by the RCEP signatory states. In other words, the door is open for India to join RCEP at the point of its choosing.

Although there has not been any official response from the government of India to the aforementioned overtures made by the RCEP ministers, it seems unlikely that India would accede to RCEP anytime soon. There are three reasons for this possibility. First, the concerns that India had raised during the negotiations have not been taken into consideration in the agreed text. Secondly, the China-factor, which was the dominant theme underlying the opposition of domestic stakeholders to RCEP, has become even more significant following the border-standoff, and of course, the realisation of the government of India that the level of dependence on China is not desirable. And, finally, the government has adopted a series of measures during the past several months, including restrictions on investments from China and strengthening domestic value chains in several critical sectors that sit uneasily with the broad framework of RCEP.

Throughout the period of India’s engagement with RCEP, there was considerable unease in India about the extent of tariff cuts that the countries participating in the negotiations were pushing for. Thus, while the RCEP participating countries were reaching an agreement on eliminating tariffs on 90% or more of traded products, the government of India was increasing the tariffs to meet the growing demands from the domestic stakeholders. Thus, India’s average tariffs increased from just below 14% in 2017 to nearly 18% in 2019, and average tariffs on non-agricultural products increased from below 10.7% to over 14%. This was the first time that the trend of reducing border protection, which was initiated in the first half of the 2000s, was reversed.

A quick analysis of the tariff cuts agreed by RCEP members shows that they have remained loyal to their script. The major economies have promised to reduce their average tariffs to well below 5% within a decade of implementing the agreement, while the list of products excluded from tariff cuts constitute a small share of their traded products. There remains considerable doubt as to whether India could have participated in such an exercise at opening its market.

Atmanirbhar Abhiyan, the government’s flagship programme for the revival of the manufacturing sector, stands in clear contradiction of the fundamental raison d’etre of all FTAs, especially a regional trade agreement like the RCEP, the foremost objective of which is to strengthen the regional value chains. Does this imply that the Government of India has foreclosed its options of joining any FTA in the future?

The author is Professor, School of Social Sciences, JNU. Views are personal

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