Political and Economic Notes:
Exit RCEP - EntER US
On November 4, India
announced its decision to exit the
negotiations on the proposed
Regional Comprehensive Economic
Partnership (RCEP). Prime Minister
Narendra Modi conveyed the
decision at the third RCEP Summit
that took place in Bangkok. Modi
stated: “The present form of the
RCEP Agreement does not fully
reflect the basic spirit and the
agreed guiding principles of RCEP.
It also does not address satisfactorily
India’s outstanding issues and
concerns. In such a situation, it is
not possible for India to join the
RCEP Agreement.”
During a media briefing at
Bangkok, India’s foreign ministry
official added: “India had significant
issues of core interest that remained
unresolved… India has participated
in good faith in the RCEP
discussions and has negotiated
hard with a clear-eyed view of our
interests. In the given circumstances,
we believe that not joining the
agreement is the right decision for
India.”
With India opting out of the
RCEP negotiations, the remaining
15 RPCs have decided to move
ahead with the proposed agreement.
In a Joint Statement issued on
November 4, the RCEP leaders
noted: “15 RCEP Participating
Countries have concluded text-
based negotiations for all 20
chapters and essentially all their
market access issues; and tasked
legal scrubbing by them to
commence for signing in 2020.”
Both the ruling BJP and
opposition Congress parties claimed
credit for the decision. Many a
political commentators lauded Modi
for his commitment to country’s
interests. Yet, India can still join the
RCEP before it is signed next year.
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The Joint Statement issued by
the RCEP leaders on November 4
stated: “India has significant
outstanding issues, which remain
unresolved. All RCEP Participating
Countries will work together to
resolve these outstanding issues in
a mutually satisfactory way. India’s
final decision will depend on
satisfactory resolution of these
issues.”
Later on, the trade ministers of
Australia, Singapore, and Japan
expressed hopes that India will
continue talks on the outstanding
issues. While the Chinese Vice
Foreign Minister, Le Yucheng,
stated: “Whenever India is ready,
it’s welcome to get onboard.”
If signed, the RCEP would
have been its biggest FTA, and the
country would have to offer far
reaching concessions than already
made under its existing FTAs with
ASEAN, Malaysia, Singapore,
South Korea, and Japan. Hence,
most RCEP countries would like
India to join the RCEP as it offers
them preferential access to a large
Indian market. For Australia,
additional market access for
agricultural exports would be
substantial if India joins the RCEP
because it already has an FTA with
all the 15 countries except India.
After joining RCEP, India would
have had to eliminate tariffs on
almost 90 percent of items from
ASEAN, Japan, and South Korea;
and on more than 74 percent of
items from China, Australia, and
New Zealand.
The fear of cheaper imports
displacing domestic production is
real, and the proposed pact could
negatively affect the livelihoods of
millions of Indians and cripples its
manufacturing sector. The
consequences of cheaper imports
displacing domestic production
would be far-reaching as close to
93 percent of the country’s work
force is in the informal sector
without any social security.
The main objection raised by
many in India is that the country
would be flooded with cheaper
imported goods such as
manufactured goods from China
and dairy products from New
Zealand once the tariff and non-
tariff trade barriers are removed
under the RCEP.
India has been demanding
lower barriers for pharma and IT
exports to China, but it was not
addressed so far. At the same time,
India’s exports to China primarily
consist of raw materials such as
iron ore, metals, and cotton, while
China’s exports to India are
dominated by finished manufactured
products such as mobile phones
and electrical machinery.
In 2018, India registered a
trade deficit with 11 out of 15 RPCs.
Trade analysts have pointed out
that India’s trade deficit with RPCs
will further increase if it joins the
RCEP on the current terms.
India’s experience with earlier
FTAs with Japan, South Korea, and
ASEAN countries has been far from
satisfactory. These FTAs have not
resulted in a more balanced and
mutually beneficial trade. Post-FTA,
bilateral trade volumes have
increased, but imports from partner
countries have increased at a
faster pace than India’s exports with
partners.
As far as the services sector is
concerned, India could not secure
greater market access in its trade
agreement with ASEAN. In the case
of bilateral trade agreements with
South Korea, Japan, Malaysia, and
Singapore, where India successfully
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