Business

As Current Rounds of Talks Draw to a Close, Questions About RCEP Loom Large Over India

With the RCEP asking for stronger protection for its investors, India is reviewing and trying to replace its investment treaties with a new model.

The third RCEP conference in May 2017 at Hanoi, Vietnam. Credit: PTI

The third Regional Comprehensive Economic Partnership conference in May 2017 at Hanoi, Vietnam. Credit: PTI

The Regional Comprehensive Economic Partnership (RCEP), the new mega free trade agreement (FTA) on the horizon, is looming large. Being negotiated between the ten-member ASEAN bloc and Japan, South Korea, Australia, New Zealand, China and India, the mega FTA is seen as the small (but steadily growing) brother of the Trans-Pacific Partnership (TPP) that cost the Democrats, at least partially, the US election.

As the RCEP goes through its 19th round of negotiations in Hyderabad from July 24- 28, questions and concerns for India are intensifying. India has always been a hesitant player in this mega FTA, reluctant to commit to the ambitious standards set by its partners, be it in goods (both agricultural and industrial), intellectual property rights, investment, e-commerce or other areas. But India’s offensive interest lies in services, most notably in Mode 4 or movement of Indian professionals to the other RCEP countries. And however unrealistic this is under the current global environment, it makes India keen not to abandon the game and doggedly fight on.

However, if anything on paper has to materialise in services, even if unrealisable in reality, the cost won’t be small. India has to be ready to give up a lot in its goods producing sectors, in both agriculture and industry. In addition, it may have to concede policy space in areas such as intellectual property rights, e-commerce and investment. These areas are sensitive from a policy perspective for all developing countries and represent significant challenges to regulatory space.

India has already been grappling with its investment agreements and is facing 20 investor treaty cases where a large cross section of its policymaking is being held ransom by foreign companies investing in India. The RCEP asks for stronger protection provisions for its investors than in some of India’s current investment treaties. As an interesting juxtapose, India is now reviewing and trying to replace its investment treaties and with a new model text, which, while not perfect, contains much more safeguards. India has presented this as its proposal in the RCEP, but other countries do not seem to be interested. It seems the infamous investor-state dispute settlement clause that allows foreign investors to sue governments in international tribunals may have been already accepted.

E-commerce, on the other hand, is a relatively unknown area with complex dynamics. Unconfirmed reports say the earlier stance of “no binding rules” seem to be gravitating towards a binding regime in the RCEP. Multiple proposals in this chapter suggest e-commerce in the RCEP is not only about the trade of rapidly growing and hugely profitable digitised and digitisable (with almost infinite potential) goods and services, it is about the control of future policymaking across a number of sectors including industrial policy, financial policy, labour policy and so on. The control of big data is key to the future economic policymaking and profit generation, and the big corporations developing and profiting from e-technology want to ensure “new rules” in e-commerce that guarantee there are no rules for them even in the future. Moreover, India has said no to e-commerce negotiations at the WTO and any difference in its stance at the RCEP is likely to have repercussions.

In fact, in a surprising turn of events, even government procurement (GP) seems to be on the table. India has always rejected demands for opening up this arena, which involves government purchase contracts in goods and services. India, like most developing countries, uses this for development purposes; to develop domestic industry especially small and medium-sized enterprises (SMEs), to give preferences to weaker suppliers such as women’s self-help groups, and khadi and village enterprises. In fact, the EU’s repeated demands for opening up GP was a key block in the EU-India FTA negotiations. In the earlier rounds, GP did not seem to be on the cards, but in recent times, talks on GP seems to be on the menu. Even transparency and cooperation in GP can bring more compliance burden and will discriminate against domestic suppliers as these provisions will relate only to foreign companies.

But let us come back to the question of agriculture and industry. While costs to policy space from the above chapters are likely to be enormous, the goods chapter that deals with the primary and traditional instrument of “trade”, i.e., import duty reduction, still holds immense importance for India. That is because both agriculture and to a lesser extent, industry, in India are still protected by tariffs or import duties. While clamour for elimination of duties grows worldwide, it is undeniable that the developed countries used high tariffs to protect their economies and producers at different stages of development; US used 50% import duty while industrialising while the EU countries used 18-30%. But in today’s world, they are asking the followers to do it differently.

India currently faces a demand to eliminate duties on 92% of its products and perhaps keep very low duties on another 7%, covering a total of 99% of all its agricultural and industrial products. What will be the implication of duty elimination in the RCEP on India?

In agriculture, even with relatively modest coverage (by RCEP norms) in the ASEAN-India FTA, and without full duty elimination on certain plantation products, India is flooded by imports of vegetable oil, notably palm oil and coconut oil, rubber, fruit and nuts, cocoa, coffee, vanilla, cinnamon and cloves. Trade deficit in palm oil stands at over Rs 40 thousand crores and in rubber at Rs 4.8 thousand crores, having devastating impact on farmers and plantations in these sectors.

Moreover, the new partners, Japan, Australia and New Zealand are big players in the agriculture arena. While Japan did not give or ask for tariff access to its agricultural products under the Japan-India FTA (2010), the 99% coverage will now give Japan access to Indian markets. Apart from the ‘sacred five’ products, rice, wheat, dairy, beef, and sugar, Japan’s booming exports are seafood and processed food products. Australia and New Zealand are large exporters of meat and dairy products and are asking for specific access into these markets, as confirmed by the chief negotiator from New Zealand. New Zealand produces five times the dairy it needs.

But apart from the high food standards faced by Indian farmers in these markets, they are also significant subsidisers. Japan is a large subsidiser while Australia and New Zealand much less so, but if we compare per farmer figures, Japan, New Zealand and Australia give US $14136, 2623, and 537  worth of subsidies (WTO notified) per farmer respectively, compared to US $228 per farmer in India. Subsidies, as it turns out, cannot be negotiated under an FTA.

Detailed analysis is clearly required in the industry. The Indian industry is up in arms against this FTA and not without reason. India’s total trade deficit with China stands at Rs 342.706 thousand crores, half of the total Indian trade deficit and this, without an existing FTA. Trade deficit with ASEAN stands at a growing Rs 64.147 thousand crores and with Japan at Rs 34.059 thousand crores. Given an industry that is still grappling to find its feet, this FTA could represent a major threat to SMEs, industrial promotion and job creation.

But the most worrying trend remains that of secrecy and non-transparency in the process. The FTA negotiations are more secret than Trump’s interactions with Russia for sure. Texts are not shared with affected stakeholders, and the state government and the parliament’s role remains cosmetic. No ratification by the parliament is needed in India and even impact assessment studies are not in public domain. The country at large, it seems, is bypassed in the FTA; and the RCEP negotiations, in particular, have been one of most closely guarded secrets in the history of India’s trade policymaking.

Ranja Sengupta works as a senior researcher with Third World Network and is based in New Delhi.