Important Articles

No pact for India

Context
After seven years, RCEP negotiations, started in 2012, have concluded in Bangkok.
India’s Stance

  • India still has some unresolved issues, and this has resulted in it holding back its decision to join the RCEP.
  • India has decided to maintain a consistent stand throughout the negotiations. It has decided to keep its self-interest at the forefront.
Importance of RCEP
  • After the global financial crisis in 2008, many mature economies are struggling to regain ground lost. Emerging economies are in focus for growth opportunities.
  • The international trade focus has clearly shifted from the West towards developing economies in Asia and other regions.
  • The developing markets’ share of global trade has doubled from 16% in 1991 to 32% in 2011 – which is an average increase of 0.8% a year. Since 2008, the rise has been almost twice as fast, at 1.5% a year.
  • This significant increase in South-South trade is turning established trade patterns and practices on their head.
Concerns of India about RCEP
  • India has been vigorously pushing for South-South trade through policies like “Look East” unveiled in recent times.
  • India ran a merchandise trade deficit with 11 out of the 15 other members of RCEP in 2018-19, totaling $107.28 billion.
  • In 2018-19, 34% of India’s imports were from this region, while only 21% of India’s exports went to this region.
China
  • China is the biggest trade partner amongst these countries and the major concerns that India had throughout the negotiations were with regard to China.
  • Cheaper goods – There is a fear that the imports of cheaper electronic and engineering goods from China could increase further with RCEP. This could have a negative impact on the manufacturing sector.
  • Therefore, Indian negotiators have taken steps to ensure that domestic manufacturing is effectively protected from unfair competition.
Ratchet agreement
  • Another area of concern for India is our unfulfilled want for exemptions from the Ratchet obligations.
  • As per the Ratchet mechanism, if a country signs a trade agreement with another country where it relaxes tariffs and quotas on merchandise exports and imports, it cannot go back on them and bring in measures that are more restrictive.
  • India wants a clear exemption from the Ratchet obligations, so that it can bring restrictive measures to protect the interests of exporters and importers, if needed.
Local industries
  • Many farmers and milk cooperatives have raised their concern on RCEP.
  • In India, several small and marginal farmers are dependent on milk for their daily expenses as income from crops is seasonal.
  • If India signs the RCEP, without exemptions for dairy and its products, it would allow the dairy industry of Australia and New Zealand to unfairly target its huge market.
  • New Zealand exports 93.4% of its milk powder, 94.5% of its butter and 83.6% of its cheese produce. However, the government has given its assurance that it would protect the interests of homegrown milk cooperatives through adequate safeguards.
India’s stand on free trade agreement
  • So far, India has proceeded with extreme caution. Just entering into agreements and focusing on tariff reduction has not helped the country as it has seen in the mixed experience of its FTAs.
  • The merchandise trade data shows that over the years, the merchandise trade deficit has widened with the ASEAN countries.
  • India’s main requirement is that of a balanced outlook which is a win-win for all.
On Service trade
  • India is running a services trade surplus with the world.
  • Therefore, it is trying to push for a strong agreement on the services trade, including a deal on easier movement of skilled manpower.
  • Even the IMF has said that services trade could be a substantial engine of growth for India and other south Asian economies.
  • As per ILO data, around 58% of India’s workforce is medium-skilled and 16% is high skilled, and to protect their interest is of paramount importance.
  • Trade – India commands around 1.7% share of the world’s total goods exports ranking 20th as per the WTO 2018 data.
Key issues
  • Key issues that have prevented India from coming on board include “inadequate” protection against surges in imports.
  • This is a major concern for India, as its industry has voiced fears that cheaper products from China would “flood” the market.
  • India had been seeking an auto-trigger mechanism that would allow it to raise tariffs on products in instances where imports cross a certain threshold.
  • India has also not received any credible assurances on its demand for more market access, and its concerns over non-tariff barriers.
Conclusion
  • For achieving a 5% share in world exports, India must build its manufacturing capabilities.
  • How India manoeuvres the geo-political space will determine how successful it is in becoming an export behemoth.
  • All RCEP Participating Countries will work together to resolve these outstanding issues in a mutually satisfactory way.
India’s final decision will depend on the satisfactory resolution of these issues.


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