As RCEP Negotiations Hit Final Stretch in Singapore, Will India Take the Plunge?

The Modi government has climbed down from its initially cautious position, but will it be enough to push the free trade deal through?

New Delhi: South Asia’s attention is on India as trade ministers from 16 countries gather in Singapore on Monday to ensure the early conclusion of talks for launching what would be the world’s largest free trade area.

All eyes are on the Indian government, which has so far fended off pressure to commit to comprehensive tariff cuts on a wide range of goods.

However, trade experts feel time is running out for Prime Minister Narendra Modi as negotiations enter the last lap to bring the envisaged Regional Comprehensive Economic Partnership (RCEP) into reality as quickly as possible. Other countries, especially China, are pushing for the early conclusion of talks, leaving India isolated.

RCEP has been envisaged as including ten ASEAN group members (Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam) and their six FTA partners – India, China, Japan, South Korea, Australia and New Zealand.

India has a trade deficit with ten out of 16 countries in negotiations to ink the mega free trade pact.

According to commerce ministry data, India’s trade deficit with seven countries – Indonesia, Thailand, China, Japan, Korea, Australia and New Zealand – increased in 2017-18 from the preceding fiscal.

The trade gap with China, Korea, Indonesia and Australia has increased to $63.12 billion, $11.96 billion, $12.47 billion and $10.16 billion in 2017-18. It was $51.11 billion, $8.34 billion, $9.94 billion and $8.19 billion respectively in 2016-17.

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India’s domestic industries, specifically the steel and textile sectors, have opposed any move for making further tariff concessions under the proposed RCEP pact. 

Political considerations have, nevertheless, kept India from backing out of negotiations. For India, China is the big elephant in the room.

That is the reason some trade experts have warned that India should be careful in RCEP negotiations.

For one, as Biswajit Dhar, professor, Centre for Economic studies and Planning, Jawaharlal Nehru University (JNU), told The Wire, India should be cautious while negotiating tariffs for manufacturing and farm products.

On the other hand, there are industry veterans like Naushad Forbes, former president, Confederation of Indian Industry, who feel that trade deficits have nothing to do with free trade agreements and pacts.

In an article published in Business Standard recently, Forbes tried to dispel the impression that free trade pacts lead to trade deficits. He argued that China has a huge trade surplus with India, though there is no free trade agreement between the two Asian giants. Similarly, India has a big trade surplus with the US even in the absence of a bilateral free trade pact.

Also read: Delhi’s RCEP Talks on Intellectual Property Shouldn’t Forget India’s Role as ‘Pharmacy of the World’

Currently, RCEP countries want India to commit duty cuts on at least 92% of tariff lines. Fearing that it would cede too much ground to China, India’s initial proposal during negotiations was a three-tier tariff reduction plan. Countries that came under the third tier, which would include China, would only be offered 42.5% liberalisation in tariffs.

Under pressure from other countries, and hoping perhaps to gain something on the services front, India back-tracked and took back its three-tier proposal. The problem now is that India’s new offer (tariff liberalisation on 74% of goods for China and a few other countries and up to 86% for all other RCEP members) is not being viewed favourably either.

In return for tariff liberalisation on goods, India has sought greater commitment from RCEP members on liberalisation of the services sector, especially easy movement of its professionals to other countries in the proposed trade bloc.

It has pushed for adopting ASEAN-Australia-New Zealand FTA as the template. However, its demand has failed to find traction with other RCEP members, resulting in a lowering of its ambitions.

RCEP set to get political push this week

During his recent visit to Japan, Prime Minister Narendra Modi signalled India’s resolve to conclude RCEP negotiations. India and Japan reaffirmed the strategic importance of the early conclusion of the negotiations for a high-quality, comprehensive and balanced RCEP agreement for realising full benefits of a free and open Indo-Pacific region, as per the vision statement issued at the end of Indian prime minister’s visit to that country.

RCEP negotiations are set to get the much-needed political push from heads of governments from member countries including Modi assembling in the city state later this week.

Also read: RCEP Negotiations Will Not End in 2018, Says Suresh Prabhu

At the conclusion of their meeting at the end of August this year, trade ministers vowed to conclude RCEP negotiations by the end of this year. However, given the quantum of work that still needs to be done, it looks unlikely that RCEP talks will be concluded by December end.

The proposed RCEP deal is envisaged to have 18 chapters, but negotiations have been concluded in four areas only.

The trade PACT would cover nearly 50% of the global population, 32% of the world GDP and 29% of the international trade and 26% of foreign direct investment flows.

The proposed agreement, for which negotiations started in Cambodian capital Phnom Penh in November 2012, aims to cover goods, services, investments, economic and technical cooperation, competition and intellectual property rights.