Regional Comprehensive Economic Partnership (RCEP) and India

Context:

• Recently, the government of India has decided to set up a group of ministers (GoM) to examine the issues related to the proposed Regional Comprehensive Economic Cooperation (RCEP)

What is 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).

Aim: To strengthen economic linkages and to enhance trade and investment related activities

Coverage Area: trade in goods and services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs) and other issues.

Importance of RCEP:

1. The RCEP member countries represent 49% of the world’s population and accounts for 30% of world GDP. It also makes up 29% of world trade and 26% of world FDI inflows. According to estimates if the RCEP is implemented it would bring large income gains to not only Asia but the world economy.
2. RCEP will also reduce the overlapping between Asian FTAs.
3. RCEP will reduce the trade barriers in Asia and the new rules will be consistent with WTO agreements.
4. RCEP will promote easier FDI flows and technology transfers by multinational corporations
5. RCEP and protectionism: With rise of protectionism, RCEP is important for promoting free trade in the region.

India and RCEP:

• Under RCEP negotiations, India has been asked eliminate import duties on 92% of its traded goods with RCEP members.
• However, India offered to eliminate tariffs on 80% of products with a margin of 6% depending on level of development of the other country. It has also asked for a longer implementation period for China.

Significance of RCEP for India:

1. Joining the RCEP is important for India since it is not a part of the other proposed large trade agreements like the trans-pacific partnership (TPP) and transatlantic trade and investment partnership (TTIP). It would enable India to strengthen its trade ties with Australia, China, Japan and South Korea and thus reduce the potential negative impacts of TPP and TTIP on the Indian economy.
2. The rise in protectionism and non- tariff barriers and regulatory measures and the deadlock in WTO negotiations are also important reasons for India to join the RCEP agreement as it can increase market access.
3. RCEP also has the potential to influence India’s strategic and economic status in the Asia-Pacific region and help in fulfilment of India’s Act East Policy
4. RCEP will facilitate Indian companies to access new markets. Further, it will give a boost to Foreign Direct Investment (FDI)
5. RCEP will particularly boost textiles and pharma industries. It will also facilitate India in removing technical barriers to trade like sanitary and phyto-sanitary measures of these products.

Concerns for India:

1. Trade Deficit with China:

• India has a trade deficit with ASEAN as well as the partner countries of RCEP and China alone accounts for 60% of the trade deficit.
• According to NITI Aayog, at a time of growing protectionism and US’s stance towards China, opening India’s market for China could have adverse impact on India’s economy.
• India’s trade with China is much skewed and lowering tariffs could lead to unrestricted imports into India with very limited access for Indian exports into the Chinese market.

2. Impact on Agriculture and allied Activities:

• Agriculture and allied sector in India has already been facing adverse effects due to India-ASEAN FTA despite of relatively high protection of agriculture and a tariff-coverage of 73-80%.
• Under RCEP, if tariff cuts cover 92-80% of products, there will be adverse impact due to heating up of competition for Indian farmers
• Further, there are concerns that New Zealand’s export-oriented dairy products will negatively impact India’s growing dairy sector, which is largely small-scale.

3. Impact on Manufacturing:

• There are concerns that RCEP will have adverse impact on Indian manufacturing sector while competing with cheaper products from ASEAN and China
• According to civil society representatives, reduction of import duties to promote global value chain will lead to mass layoffs, low wages and exploitation of labour
• Further, Japan and South Korea has asked India to eliminate export restrictions on minerals and raw materials. This may threaten domestic raw material availability for industrialisation and encourage over-mining. Indian experts opine that this would lead to a new form of neo-colonialism.

4. Issues related to Intellectual Property Rights and Health Sector:

• There are allegations that Japan and South Korea have been advocating for ‘TRIPS Plus’ IP protection regimes in the RCEP.
  • The provisions include patent term extensions, seizure of suspected IP-infringing medicines in trans-shipment and damages for patent infringement determined according to the value assessed by the patent owner.
• If these proposals are agreed upon, then it could adversely affect the generic medicine sector in India, by undermining provisions in Indian Patents Act
• A strong IPR regime based on patent term regime and data exclusivity will hinder India’s cheap supply of drugs, specially related to HIV/AIDS to developing countries, especially in Africa.

5. Impact on E-commerce:

• The e-commerce rules in RCEP impose binding rules that will mandate India to give away data to large multinational companies.
• Critics opine that this would have privacy and security issues for not only individuals but also the government.
• Further, critics speculate that wholesale duty-free import of goods by e-commerce giants like Alibaba in China will threaten local products developed by SMEs and domestic job creation in those segments

6. Demand for labour movement:

• At RCEP negotiations, India has demanded for both Mode 3 (investments) and Mode 4 (movement of people) with a RCEP business visa for professionals.
• However, RCEP countries like Australia and Singapore have been unwilling to accommodate India’s demands to liberalise their services regime and allow freer mobility of Indian workers

Way forward:

1. Despite all the concerns, India must take into account the significance of RCEP and not move out of RCEP negotiations.
2. Before signing a trade agreement like RCEP, India should review and assess its existing FTAs in terms of benefits to various stakeholders like agriculture, industry and consumers and also examine changing trade patterns.
3. RCEP should be signed keeping in mind that it the terms are mutually reciprocal and the focus should be on products and services which have the maximum export potential