RCEP figures in Xi-Modi 'informal' talks: What the free trade deal entails and why India has reservations against it

  • RCEP is being negotiated among 10 Association of Southeast Asian Nations (ASEAN) members and their six trade partners (Australia, China, India, Japan, Korea and New Zealand)

  • As per the plan, India is expected to reduce or eliminate duties on about 80 percent of goods imported from China under the proposed agreement

  • India has been in two minds about the usefulness of the deal as it wrestled with the conflict of staying in the group while protecting its domestic economy

Chinese president Xi Jinping was in India for an informal dialogue with Prime Minister Narendra Modi while Commerce Minister Piyush Goyal is in Thailand's capital Bangkok this week to participate in final phases of negotiations for a giant regional free trade zone. These two seemingly unrelated updates are in fact indicators that the National Democratic Alliance government is standing at the crossroads of making probably the toughest decision it was faced with thus far: whether or not to join the Regional Comprehensive Economic Partnership (RCEP).

The meeting in Thailand, which concludes on Saturday, is likely to be the last one at this level to help conclude the long-stalled negotiations before the end of this year. Meanwhile, the importance of Xi's visit to India is clear in the light of the fact that RCEP is primarily viewed as a China-led response to a similar grouping called the Trans-Pacific Partnership (TPP), put forward by the US. With China embroiled in a bitter trade war with the world power, it is crucial for Xi to build consensus on alternative arrangements and take them forward.

Therefore, although the talks were informal and the discussion was largely generic in nature rather than being issue-specific, RCEP still cropped up in their discussions.

Foreign Secretary Vijay Gokhale, who did not mention RCEP in his initial statement detailing scope of discussion between two leaders, later revealed, when questioned, that the two leaders discussed the regional free trade agreement. Gokhale said, "President Xi has assured us that India's concerns over RCEP will be duly discussed. Although both Modi and Xi emphasised on the importance of having a rules-based global trading system, Indian prime minister clarified to China that a deal should be balanced and equitable. China said it has heard India's concerns and has agreed that there are still issues that need addressing."

 RCEP figures in Xi-Modi informal talks: What the free trade deal entails and why India has reservations against it

File image of Prime Minister Narendra Modi with Chinese president Xi Jinping. PTI

What is RCEP?

RCEP is being negotiated among 10 Association of Southeast Asian Nations (ASEAN) members — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam — and their six trade partners (Australia, China, India, Japan, Korea and New Zealand).

The aim is to cut a trade deal spanning across the vast geography of all the above 16 nations, which will give them freer access to each others' markets.

As per the plan, India is expected to reduce or eliminate duties on about 80 percent of goods imported from China under the proposed agreement.

Similarly, India may cut customs duties on 86 percent of imports from Australia and New Zealand, and 90 percent for products imported from ASEAN nations, Japan and South Korea, with which India already has a comprehensive free-trade agreement. The cut or elimination of these duties could be implemented over a period of 5, 10, 15, 20 and 25 years.

How important is RCEP?

Although the negotiations began as early as 2012, RCEP talks were given a new impetus after Donald Trump pulled the United States out of the competing Trans-Pacific Partnership (TPP) trade deal in one of the first acts of his administration. Taken together, the 16 countries negotiating the RCEP encompass about 45 percent of the world’s population and more than a third of its GDP.

With the US president's infamous mercurial nature and rather whimsical approach towards trade negotiations, RCEP has the potential to provide a diversified market to the member nations. China is already in the process of resolving a trade dispute with the US, India too is engaged in friendly but aggressive negotiations for a fresh trade deal, after US suddenly stripped the country of its preferential trade partner status.

How far have the talks progressed?

According to Moneycontrolover the last six years, 26 rounds of talks had been held, apart from seven minister-level meetings, to give shape to this ambitious trade arrangement and the member nations are racing against time to announce a deal at the next ASEAN summit in November. The Indian Express reported that 21 of the 25 chapters of the final agreement have already been concluded while the rest are in the last stages. The member nations have vowed to come to a final agreement by November.

What are the concerns regarding RCEP?

Although member nations are keen to draw up a conclusive agreement within the tight deadline, the pressure to finish should not obscure the importance of crafting a final agreement that doesn't lose focus on maintaining equitability among member nations in an already unequal world. According to South China Morning Post, critics have panned the body for rushing forward with an agreement that neither lays down terms and conditions for environmental nor labour standards nor does it tackle issues related to procurement processes and corruption.

India and Japan are among the countries with reservations about the pact that it could exacerbate global inequality and hurt small traders in unequal economies like India.

Where does India stand on the deal?

Reuters quotes sources to report that India has finally decided to march ahead and join the China-led trade pact, despite some domestic concerns that the country could be flooded with cheaper Chinese imports.

However, that said, the country has for the longest time stayed in two minds about the usefulness of the deal as it wrestled with the conflict of staying in the group while protecting the interest of its domestic economy.

Local producers fear cutting tariffs on dairy and other produce would open the door to cheap Chinese imports and threaten the agriculture sector that supports 82 percent of India's population. Another dilemma that the ruling Bharatiya Janata Party faces is that its ideological parent RSS is vehemently opposed to compromising local interest in favour of an international deal. The RSS-affiliated Swadeshi Jagaran Manch on Thursday announced that it would hold a nationwide protest against the RCEP. Earlier, RSS chief Mohan Bhagwat too suggested caution in trade relations with other countries during his annual Vijayadashami address at Nagpur.

"The RCEP would further deteriorate the situation... SJM rejects the fallacy of global value chains (GVC). For those who are advocating RCEP as an instrument to facilitate India's integration with GVC, we would like to state that global or local, production value chains are not a homogenous string of production process; they are value chains driven by very large multinational companies which produce the final finished goods and reap maximum benefit out of that chain," SJM said.

Aside from agriculture products, critics say cheaper Chinese mobile phones, steel, engineering goods and toys could also flood the Indian market. Ministries led by agriculture minister Narendra Tomar, textile minister Smriti Irani, steel minister Dharmendra Pradhan, mines and minerals ministry of Prahlad Patel have already ether opposed the deal or are seeking protection for farmers and domestic industry, Business Today reported.

India's China-sized problem

China is the elephant in the room and the primary reason India hesitates in joining the free trade pact.

India registered a trade deficit in 2018-19 with as many as 11 RCEP member countries. But the largest of these gaps was with China, with whom India has a trade deficit of a whopping $57 billion, which the other country justifies as the difference in their production capacities. China is India’s largest trading partner while we are China's 11th largest trading partner. In a decade to 2017-18, India’s exports to China rose by $2.5 billion. In the same period, China’s imports in India rose by $50 billion.

Indian industries set to gain from the deal only if the domestic producers and service providers can compete with Chinese hegemony and cutthroat costing. According to a Parliamentary Standing Committee report, Indian goods are costlier by about nine percent as compared to Chinese items in the global market. Chinese industry gets loans at 6 percent, compared to 11-14 percent in India. Furthermore, logistics costs are one percent of the business in China, compared to three per cent in India. Power tariff, capital expenditure, taxation and licensing costs also remain much higher in India that wipe out any scope of competetive pricing for Indian makers.

And then there is the concern of cheap Chinese goods flooding Indian markets.

The Standing Committee noted that India’s anti-dumping duties on Chinese goods were being evaded by misclassification of products. The committee found that Chinese manufacturers were re-routing their products through the markets of other countries that India has Free Trade Agreements (FTA) with. Then, when a much larger free trade grouping will come into existence, all pretext of such illegal rerouting and tax evasion techniques will no longer be necessary.

But proponents of the deal say it’s better for Indian agriculture to be in the trade zone than out.

"It would be better for India to have an open approach where agriculture can compete globally rather than adopt a conservative approach," said AK Gupta, director of the Agricultural and Processed Food Products Export Development Authority, which falls under the commerce ministry.

However, India finds some reprieve in the fact that it has reportedly convinced member nations to include a safety mechanism against any unusual rise in the dumping of goods. The Reuters report quoted officials involved in the negotiation process as saying that the country has reached an agreement in principle with other countries to include clauses to protect domestic traders against a sudden surge in imports. The safeguard mechanism would trigger duties if goods are deemed to have been dumped from a partner country.

With inputs from agencies

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

Updated Date: Oct 12, 2019 17:06:58 IST