No RCEP not end to Act East Policy
by Ashok B Sharma on 10 Nov 2019 1 Comment

India refused to be part of its neighbourhood mega-trading bloc, Regional Comprehensive Economic Partnership (RCEP), in in its present form as its demands were not met. That does not mean it has to forgo its Act East Policy. Joining a trade bloc is only one of the ways of fostering regional integration. India remains engaged with ASEAN and its other institutions like ARF, ADDM+ believing in the centrality of the bloc. It is also engaged in other regional and sub-regional groups like East Asia Summit, IORA, IONS, BIMSTEC, Mekong-Ganga Cooperation etc.


India has bilateral relations with all countries in the region even up to the remote Pacific Islands. Mutual development, economic cooperation, connectivity and people-to-people contact have been the cornerstone of India’s policy and hence not being part of RCEP does not make the Act East Policy irrelevant in any way.


The proposed RCEP included India, 10 ASEAN countries and five participating countries that have FTAs with ASEAN (China, Australia, New Zealand, Japan and South Korea), accounting for 30% of world GDP and more than 29% of global trade intended to become a strong pivot for world economy.


The Leaders’ Statement issued at the conclusion of the 3rd RCEP Summit at Bangkok /Nonthaburi in Thailand said: “We 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.

“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.”


The 10 Chapters for negotiations included 1) Initial Provisions and General Definitions; 2) Trade in Goods; 3) Rules of Origin, including Annex on Product Specific Rules; 4) Customs Procedures and Trade Facilitation; 5) Sanitary and Phytosanitary Measures; 6) Standards, Technical Regulations and Conformity Assessment Procedures; 7) Trade Remedies; 8) Trade in Services, including Annexes on Financial Services, Telecommunication Services, and Professional Services; 9) Movement of Natural Persons; 10) Investment; 11) Intellectual Property; 12) Electronic Commerce; 13) Competition; 14) Small and Medium Enterprises; 15) Economic and Technical Cooperation; 16) Government Procurement; 17) General Provisions and Exceptions; 18) Institutional Provisions; 19) Dispute Settlement; and 20) Final Provisions.


Basing on these chapters of negotiations, India put forward that in all the FTAs it has signed with ASEAN, Japan, South Korea, it is already trade deficit and the WTO plus deal like RCEP in its present form will make things worse for the country’s industry, farmers and the common man. Its dairy sector, pharmaceutical industry, textiles, chemical industry, completely built units in auto sector, agro products and small scale sector will be severely affected.


Even though India has decided not to be part of RCEP till its legitimate demands are met, efforts are on to keep the FTAs that India has signed in the region alive. ASEAN has already agreed to negotiate a revision of its FTA with India. Negotiations are in process for revision of FTAs with Japan and Korea. New Delhi is also negotiating FTAs with Australia and New Zealand.


It is not that Indian trade and industry are unable to face competition. It is also not that India is shying away from trade. This issue is the bilateral deals signed with ASEAN, Japan and South Korea, which need revision in consultation with all stakeholders in the country while being mutually acceptable to both parties. This will go a long way to bridge India’s trade deficit. Revision of these deals will form the basis for any future negotiations with RCEP if at all it takes place.


It is pertinent to also study why Indian exports could not take advantage of the market access offered by FTAs, while imports to India consistently increased. Also it is noteworthy to study what has hindered the competitiveness of Indian trade. Why India industry could not be part of the value chain in the region and why lagged behind in value addition?


India ran a continuous trade deficit with all the three FTA partners in capital goods, while in consumer goods trade surpluses were recorded for ASEAN members and Japan. This positive trade balance was driven by exports to Singapore to meet the demands of Indian diaspora. Imports of Indonesian coal and Malaysian cooking oil shifted the trade balance in ASEAN’s favour. There has been an increase in imports from South Korea in capital goods, intermediate products and even consumer goods. India ran trade deficit in high technology products and its exporters could not sufficiently penetrate markets in Japan and South Korea with low technology products.                                                                


Among non-FTA partners, India’s trade deficit with China is due to imports of capital goods, intermediates, consumer goods and high and low technology products, while its raw material exports are not sufficient to cover the deficit. Indian medicinal products have difficulties in gaining access to Chinese markets. Indian pharmaceutical industry is dependent upon imports of active pharmaceutical ingredients (API) from China so also the digital economy for imports of high technology products. The increased presence of Chinese products in India is due to the unilateral reduction in tariffs in early 2000s.


Though India’s trade with Australia and New Zealand is small, it is having trade deficit with these countries. India imports largely coal from Australia and wood from New Zealand. India has so far not given market access to wheat, sugar, fruits and dairy products in which these oceanic countries have comparative advantage. 


The drastic tariff reduction proposed in RCEP within a short span of time will spell doom for Indian industry and agriculture. This amounts to a WTO plus and TTP plus regime where there is no sufficient trigger for protecting sensitive products from a surge in imports. Tariff differential with China will be rendered ineffective as it would use the weak rules of origin and do some cosmetic value addition and push its products in Indian market. Investment rules are TRIMS plus and TTP plus and not in accordance with India’s Model Bilateral Investment Treaty 2015.


IPR rules would weaken India’s IPR regime and largely affect the generic drug industry. RCEP’s free flow of data is not in consonance with India’s date security and localisation policy so also its e-commerce agenda. RCEP mandates its member countries to disclose in advance any such laws, regulations, procedures and administrative rulings of general application with respect of any matter covered by this agreement so that interested parties have reasonable time to comment. This kills the policy space of a sovereign national government.


India should not worry about not being part of this type of RCEP deal which would be a blow to its economy and sovereignty. It should go ahead with revising its existing bilateral FTAs and strike new bilateral engagements with countries in the region. RECEP is not an end to its Act East Policy.  

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