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Last Updated : Nov 04, 2019 08:40 PM IST | Source: Moneycontrol.com

India decides not to join RCEP: Decoding the reasons behind its decision

The RCEP could force India to cut duties on about 90 percent of the goods that are currently imported to India over the next 15 years.

Gaurav Choudhury @gauravchoudhury


The Indian government on November 4 announced that it has decided not to join the Regional Comprehensive Economic Cooperation (RCEP) as  negotiations failed to address New Delhi's concerns.


"We took the right decision to not join RCEP in national interest. India participated in RCEP in good faith and negotiated hard. India has significant core interests that remain unresolved," Ministry of External Affairs said in a statement.

What is RCEP?


The Regional Comprehensive Economic Partnership (RCEP) is a proposed free-trade agreement (FTA) among 16 countries.


The countries in RCEP include the 10 ASEAN countries — Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Myanmar, Brunei, Cambodia, Laos —and their largest trading partners—Australia, China, India, Japan, New Zealand and Korea.


What is the deal's significance?


The deal, once implemented, will create the world's largest trading bloc. These 16 countries account for about half of the world’s population, 25 percent of global GDP, nearly a third (30 percent) of global trade and the 26 percent of world foreidng direct investment flows (FDI). These


Negotiations for this agreement, which will entail substantial lowering of import tariffs for movement of goods and services across the member nations, have been ongoing since 2012.


India's worries


The RCEP could force India to cut duties on about 90 percent of the goods that are currently imported to India over the next 15 years. This has raised concerns that India will be flooded with cheaper imported goods, particularly from China and dairy products from Australia and New Zealand.


In his opening remarks at the ASEAN-India summit on November 3, Indian Prime Minister Narendra Modi did not mention the ongoing RCEP negotiations. Instead, he spoke about the ASEAN-India partnership and the decision to review his country’s trade agreement with the bloc.


"This will not only make our economic relations more stronger, but our trade will also be balanced," Modi said.


Throughout the duration of RCEP negotiations, PM Narendra Modi and his team ensured a deal for India, while ensuring the domestic industry and farmers’ interests are adequately safeguarded.


There have been concerns that India will be flooded with cheaper imported goods, such as steel from China and dairy products from Australia and New Zealand.


India registered a trade deficit in 2018-19 with as many as 11 RCEP member countries.


The industry reservations aren’t unfounded, given India’s huge trade deficit with China. China is India’s largest trading partner while we are China's 11th largest trading partner India had a trade deficit of $104 billion with RCEP countries. More than half of this was with China at $53 billion. This has raised worries about India being flooded with Chinese goods once the RCEP deal takes effect.


What were the key issues concerning tariffs?


One of the key issues concerns the base year. India is opposed to the proposal that 2013 be treated as the base year for reducing tariffs, effectively implying that member countries should slash import duties on products to the level that existed in 2013. India is pushing for 2019 as the base year, given that import duties on many products such as textiles and the electronic products have gone up in the last six years.


What were the other key thorny issues on reduction of tariffs?


India wants an auto-trigger mechanism to be institutionalised in the pact. This would serve as a kind of protective mechanism that a member country can invoke to safeguard in case of a unexpected flow of imports after RCEP comes into effect.


Besides, there are issues around ratchet obligations. India wants exemptions built into the ratchet obligations as part of the pact. A ratchet  obligations implies that a member country cannot raising tariffs once the pact comes into effect. An exemption would imply that a country will be able to erect restrictive measures later on grounds of protecting national interest.

There is also the issue of data localisation under RCEP deal. India wants all countries to have the rights to protect data. This would imply that countries can share data only where it is “necessary to achieve a legitimate public policy objective” or "necessary in the country's opinion, for the protection of its essential security interests or national interests".



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First Published on Nov 4, 2019 06:56 pm
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