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As India Raises Concerns Over RCEP, is New Delhi Ready for World’s Largest Free Trade Agreement?

As India Raises Concerns Over RCEP, is New Delhi Ready for World’s Largest Free Trade Agreement?

Under RCEP, India would be required to eliminate tariffs on 74% of goods from China, Australia and New Zealand, and 90% goods from Japan, South Korea and ASEAN, facing the risk of becoming a dumping ground for cheap Chinese goods.

New Delhi: With the Indian delegation engaged in last-minute negotiations with 10 ASEAN and five other countries, including China, to seal the Regional Comprehensive Economic Partnership (RCEP), the arrangement is likely to be delayed as the Indian team led by commerce minister Piyush Goyal put forward new demands on Sunday.

The Indian government is worried its small businesses will be hard hit by any flood of cheap Chinese goods. Prime Minister Narendra Modi repeated his country's concerns during talks with ASEAN leaders on Sunday, highlighting the “meaningful market access for all parties. However, if signed, the RCEP will be the largest economic bloc in the world. The countries involved account for nearly half of the global economy, spanning from India to New Zealand.

What is RCEP and why are India and China so crucial to it?

The RCEP is a trade deal that is currently under negotiation among 16 countries — the 10 member countries of the Association of Southeast Asian Nations (ASEAN), and the six countries with which the ASEAN bloc has free trade agreements (FTA). The negotiations were first launched at the 2012 ASEAN Summit in Cambodia, where the ten member nations of the regional bloc decided they wanted a larger, integrated trade deal.

The ASEAN, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, has FTAs with India, Australia, China, South Korea, Japan and New Zealand.

While the effort was largely initiated by the ASEAN states, it soon became clear that India’s concerns over China was on top of the negotiations. According to a report, by 2050 RCEP is projected to have a GDP of $250 trillion. India and China together are expected to make up 75% of this figure. So, for RCEP to work, India and China need to be on the same page.

How close are we to a deal?

The agreement has a total of 25 chapters. Sources said that before Prime Minister Narendra Modi left for Bangkok, 21 of these had already been negotiated. Goyal has accompanied the PM to Bangkok to smooth over the final rough edges.

Prior to Prime Minister’s visit to Bangkok, Secretary (East) in the Ministry of External Affairs, Vijay Thakur Singh, said, “RCEP negotiations have been on for many years. It represents a significant economic and trade opportunity for all. Efforts are being made to provide a fair and transparent trading environment. There are still certain outstanding issues that are imperative to be resolved.”

Why is India wary of China?

Under RCEP, India would be required to eliminate tariffs on 74% of goods from China, Australia and New Zealand, and 90% goods from Japan, South Korea and ASEAN. In the midst of an economic slowdown, India faces the risk of becoming a dumping ground for cheap Chinese goods.

India’s position is a difficult one. While it can’t remain isolated, it wants to make sure that Chinese goods don’t dominate its market. New Delhi, in particular, is seeking protections against Chinese agricultural goods. Several voices in India, from the Congress to farmers’ outfits and even the RSS-linked Swadeshi Jagran Manch, have argued that a Free Trade Agreement with China would be the death knell for India’s manufacturing and production sectors. However, experts believe that working out an agreement with China within the framework of RCEP may be the only way to deal with Beijing.

Retired diplomat Mohan Kumar, former chief negotiator for India at the WTO, said that India’s $57 billion trade deficit with China is a cause of concern.

“India's concerns vis-a-vis China are well known. On one hand, it is about facing an import surge from a country where some state subsidies are invariably involved. Also, our own exports -- for instance, pharma products -- face regulatory delays and, or obstacles (also known as non-tariff barriers) in China. The net result is that we have a huge trade deficit with Beijing, which is unsustainable in the long term,” he said.

He, too, is of the opinion that the viable option in this context will be to deal with China within the framework of RCEP. “But the devil is in the details and one would have to see the fine print to make proper assessments,” he added.

Jabin Jacob from Department of International Relations and Governance Studies, Shiv Nadar University, cautioned against taking the Chinese promise at “face value”. “The Chinese legal system is unreliable and unfair to foreign economic entities. The law-maker, the enforcer, the regulator and the adjudicator in China are all enjoined by the Chinese Party-state to support the country’s drive towards self-reliance and domination of global markets,” he said.

According to him, Beijing doesn’t rely on globalization and trade rules that continue to be heavily dominated by the West. “China’s promises at RCEP or any other institution, therefore, need to be treated with skepticism,” he said.

Is an FTA necessary for India to become a $5 trillion economy?

A Free Trade Agreement may be the next big leap after the 1991 Liberalisation policy that India needs to hurtle towards its target of becoming a $5 trillion economy.

India has $100 billion trade with five trading partners. But, it doesn’t have FTAs with any of them. If we New Delhi were to double the GDP by 2022, it also needs to double its trade volume with its big trading partners.

In the words of Kumar, “We cannot become a $5 trillion economy by relying on Most Favoured Nation (MFN)-based, WTO anchored trade, alone. We need preferential tariffs for our exporters which can be secured only through FTAs. We tried a FTA with EU but could not succeed for a variety of reasons.”

“We have four trading partners, namely the US, EU, China and the Gulf Gooperation Council (GGC), with whom we have trade (imports plus exports) of $100 billion each. But we don’t have an FTA with any of them. This is untenable. We need FTAs with at least two of the four partners listed above. So it is not a case of either or: it is really a case of concluding FTAs with as many of our trading partners as possible, keeping in mind our vital interests,” Kumar added.

Can RCEP move forward without India?

RCEP negotiations have gone on for seven years now and reports suggest the other 15 partners are getting frustrated with India’s cautious approach. So the question is, can the other RCEP partners move forward without New Delhi on board?

When asked this question, Secretary (East) said, “I can’t speculate.”

However, Mohan Kumar believes that while it may be possible for India to miss the bus, the RCEP may not make a lot of sense without it. “My own view is that RCEP does not make a lot of sense without India. Most of the other countries already have FTAs with China. India has an FTA with ASEAN, Japan and Korea, but does not have one with China, and is also yet to conclude a FTA with Australia and New Zealand,” he said.