3rd RCEP Summit | 05 Nov 2019

Why in News

In the recently held Regional Comprehensive Economic Partnership (RCEP) Summit in Thailand, India decided not to finalize the RCEP trade deal. India has expressed its concerns over lowering and elimination of tariffs on products from other countries, as it would negatively affect the domestic agricultural and industrial sector.

Key Points

• All members of RCEP (except India) have concluded the text-based negotiations for the trade deal. The agreement is expected to be signed by 2020.
• The purpose of the deal is to create an integrated market. This would ensure easier availability of products and services across the entire region.

Reasons for India’s Exit

• Inadequate Protection against Import-surge: India has apprehensions that the rising imports due to the signing of the Free Trade Agreement (FTA) would lead to flooding of Chinese products in the Indian market.
  • India had already been demanding an auto-trigger mechanism that would allow it to raise tariffs on products in instances where imports cross a certain threshold; which now won’t happen with this deal.
• Trade Deficit: Despite having separate bilateral FTAs with most RCEP nations, India has recorded trade deficits with these countries.
  • India already has a trade deficit of over $50 billion with China, and the current deal will further lead to increasing of this deficit.
• Lack of Market Access: India has not received any credible assurance on its demand for more market access with respect to mobility of Indian labour, services and agricultural commodities, and its concerns over non-tariff barriers. 
  • RCEP participants (like China) have used non-tariff barriers in the past to prevent India from expanding its exports to the country.
  • A nontariff barrier is a way to restrict trade by using barriers other than a tariff. These include quotas, embargoes, sanctions, and levies.
• Problem with Base Year: India’s demands regarding the base year that would be used to reduce tariffs on the products (traded as part of the pact) was not considered.
  • India demanded for considering 2014 as the base year for tariff reductions instead of 2013, as India raised import duties on several products between 2014 and 2019. Using a base year before 2014 would lead to a drastic drop in the import duties on these products which would negatively impact Indian interests.
• Sectors Impacted: Due to the availability of cheaper alternatives from other participant countries, some domestic sectors may take a hit.
  • For instance, the Indian dairy industry would face stiff competition from Australia and New Zealand, if India signs this deal. 
  • Likewise, steel and textiles sectors have also demanded protection from similar competition.
• Rules of Origin: India has concerns over possible circumvention of these rules.
  • Rules of Origin is the criteria used to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.
  • Current provisions in the deal reportedly do not prevent countries from routing their products through other countries (on which India would originally maintain higher tariffs). 
  • This may allow countries like China to dump in more products into India.

Way Forward

• A mutually beneficial RCEP in which all countries gain reasonably is the need of the hour. 
  • India has 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.
• RCEP provides a chance for India to bring in historic trade reforms in the economic sector, which in itself will cement India's position as a major global economy and make Indian industry globally competitive.

Source: IE