India decides to opt out of RCEP, says key concerns not addressed

News:India has decided to pull out of the Regional Comprehensive Economic Partnership(RCEP) Agreement as India’s core issues remained unresolved during the negotiations.

Facts:

About RCEP:

• RCEP is a proposed regional free trade agreement (FTA) comprising of ASEAN countries (Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam) and their 6 FTA partners (India, China, Japan, South Korea, Australia and New Zealand).
• The aim of RCEP is to create an integrated market spanning all 16 countries making it easier for products and services of each of these countries to be available across this region.

Reasons for India Pulling out of the agreement:

Domestic industry:

• India is worried that RCEP could force it to cut duties on about 90% 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.This may have an impact on India’s domestic industry.

Base year for reducing tariffs:

• 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 electronic products have gone up in the last six years.

Trade Deficit:

• India has massive trade deficits with almost all of the RCEP countries. Out of 15 RCEP countries,India has trade deficits with at least 11. Further,India’s trade deficit with these countries has also almost doubled in the last five-six years  from $54 billion in 2013-14 to $105 billion in 2018-19. 
• Hence,given the export-import equation with the bloc,a free trade agreement with the grouping would have increased the trade deficit further.

Auto-trigger mechanism:

• 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 an unexpected flow of imports after RCEP comes into effect.

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.

Services sector:

• India has demanded that the RCEP participating countries should open up their services sector so that Indian professionals and workers can have easier entry into their market.
• However, the countries are very sensitive about protecting this sector and have not offered much liberalisation.