Regional Comprehensive Economic Partnership – Issues and Analysis

Negotiations concerning the proposed free trade agreement between ASEAN and 6 other Asia – Pacific Nations – Regional Comprehensive economic partnership – is ongoing.  A look at what the agreement has to offer for India and other nations

What is RCEP- Regional Comprehensive Economic Partnership?

RCEP is a proposed mega-regional Free Trade Agreement (FTA) between 16 Asia-Pacific countries including India, China, Japan, South Korea, Australia, New Zealand and the 10-member ASEAN bloc. The negotiations for the agreement began in 2013 and is yet to reach a conclusion.

Also See : ASEAN

What are objectives behind Regional Comprehensive Economic Partnership?

• The Regional comprehensive economic partnership aims to open up trade in goods and services as well as liberalise investment policies in member countries
• The core of the negotiating agenda would cover trade in goods and services, investment, economic and technical cooperation and dispute settlement.
• The agreement will require member countries to eliminate import duty on many products.

How big will RCEP market be?

RCEP will cover a market of over three billion people in these countries — whose total GDP is more than $17 trillion and account for 40 per cent of world trade.

Significance of the Regional Comprehensive Economic Partnership

• The partnership would be a powerful vehicle to support the spread of global production networks and reduce the inefficiencies of multiple Asian trade agreements that exist presently.
• The successful conclusion of the RCEP negotiations would serve as a fresh move towards regional integration and unleash economic linkages that would be immensely beneficial for all involved.
• If negotiated successfully, RCEP would create the world’s largest trading bloc and have major implications for Asian countries and the world economy.

What are the major concerns regarding the  Regional Comprehensive Economic Partnership?

• Countries in the RCEP  grouping other than China are worried about agreeing to eliminate tariffs altogether as such a move will mainly help China and will lead to flooding of Chinese goods in RCEP signatory nations
• Dumping from China could harm local industries in the importing countries.
• Investor – State Dispute Settlement clauses : Investor-State Dispute Settlement clauses in the final pact will help private investors to easily drag governments to international arbitration tribunals and claim huge amounts as compensation for any ‘losses’ they suffer including due to policy changes. Hence members doesn’t want to incorporate this clause in the final agreement
• Single undertaking : According to the principle, each aspect of the negotiation, including on goods, services and investment cannot be agreed separately. This principle is important for India as there are apprehensions that negotiation on opening up services is progressing at a much slower rate than talks on liberalising goods trade.

Major concerns of India regarding Regional Comprehensive Economic Partnership

• Opposition on liberalisation of services :ASEAN countries led by Singapore have opposed India’s demand for greater liberalisation of services – meaning opening up more services sectors in various modes and temporary movement of skilled workers overseas for work. Greater market access in services is of interest to India as it is a leading services supplier.
• Tariff elimination :Countries such as Singapore, which has near zero tariffs on most goods, and Malaysia, where 90 percent of trade is carries a negligible customs duty, are exerting pressure on India to lower barriers while India, with many infant industries, is defensive about the same. Tariff reduction will have serious implications for agriculture and  industrial products.
• Policy flexibility and sovereignty to pursue independent economic, social and environmental policies will be under threat
• Previous experience : In agriculture and allied products, the plantation sector is already reeling from the impact of the India-Asean FTA even with relatively high protection of agriculture and a tariff-coverage of 73-80 per cent. If tariff cuts cover 92-80 per cent of products, the impact will be huge.
• Dairy Sector : New Zealand’s export-oriented dairy products will decimate India’s growing dairy sector, which is still largely small-scale.
• Trade deficit : Even without an FTA, India faces a total trade deficit of ₹3.45 lakh crore in 2015-16 with China. It will only increase if RCEP comes into force.
• E-Commerce : E-commerce commitments, if any, will allow companies such as Alibaba from China to displace Indian manufacturing especially in the SME segment.
• Elimination of export subsidies on minerals and raw materials may threaten domestic raw material availability for industrialisation and encourage over-mining.
• Outward FDI : Effect of liberalisation in investment is unclear as India’s  outward FDI is not competitive in most services except for IT and ITES.
• Intellectual property : RCEP pitches for strong provisions on IPR with several members pushing for provisions that go beyond TRIPS, with serious adverse consequences for access to generic medicines manufactured in India.

The way forward

• Proposals are in the pipeline to treat goods from China differently from others

• It is difficult for India to agree to eliminate duties on 90 per cent of items for all members especially for China
• Opt out and reciprocity principle : An alternative suggested in The ‘opt out and reciprocity’ principle which proposes that if a country cannot agree to what the majority of members were ready for, it can opt out from that provision and wait for a time till it is ready to sign up.
• There is a flexibility clause which could help break deadlocks and protect national interests, but could also limit, change or curtail progress in achieving greater liberalization.
• India seeks to protect its markets from China, New Zealand and Australia by seeking ‘deviations’, under which it would offer certain members smaller concessions than those offered to all countries.
• In return for eliminating or reducing tariffs on goods, India wants RCEP member countries to work toward liberalisation across all modes of services, including movement of professionals.
• A balanced intellectual property protection for pharmaceuticals and encouragement to  other countries to adopt and use similar measures that ensure generic competition is the need of the hour

India is keen that the FTA ensures easier temporary movement of such professionals as well as an ‘RCEP Travel Card’ for business people.

• India needs to assess its own choices and weigh the impact on its whole policy space vis-a-vis the the advantages that RCEP may offer before making any commitment

UPSC and Regional Comprehensive Economic Partnership

Prelims : Current events of national and international importance.

Mains   :   GS 2 India and its neighborhood- relations. Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interestsEffect of policies and politics of developed and developing countries on India’s interests, Important International institutions, agencies and fora- their structure, mandate.

Prelims Perspective

The term ‘Regional Comprehensive Economic Partnership’ often appears in the news in the context of the affairs of a group of countries known as  [UPSC Prelims 2016]

a) G20

b) ASEAN

c) SCO

d) SAARC

Mains Perspective

Model questions

For India, RCEP presents a decisive platform to influence its strategic and economic status in Asia- Pacific region. Discuss

Sources: The Hindu The Diplomat The Hindu BusinessLine The Hindu The Hindu Wikipedia The Hindu The Hindu BusinessLine The Hindu Wikipedia