India rejects mega trade pact with China and Asean members

India on Monday decided against joining the Regional Comprehensive Economic Partnership (RCEP) trade deal, holding that it did not receive any “credible assurance on market access and non-tariff barriers”.

The other 15 members, however, decided to go ahead and sign the trade deal sometime next year, keeping the door open for India to join at a later date.

Negotiations for RCEP, which includes 10 member states of the Association of Southeast Asian Nations (Asean) and six free trade partners—China, India, South Korea, Japan, New Zealand and Australia—began in 2012. Indian industry was, however, apprehensive that the deal would lead to a surge in cheap imports from China with which India already has a trade deficit of over $50 billion.

Analysts have held that India was unlikely to gain any major market access to China even if Beijing substantially reduces its tariff levels, as New Delhi has not negotiated non-tariff barriers with RCEP members, especially China. The dairy sector was also opposed to the deal as it feared cheaper imports of skimmed milk powder from New Zealand would harm marginal dairy farmers in India.

The proposed deal took a political turn as farmer organizations, trade unions, the Swadeshi Jagran Manch affiliated to the Rashtriya Swayamsevak Sangh and political parties including the Congress openly protested the RCEP deal, making it difficult for the government to find a middle ground.

At the third RCEP Summit in Bangkok, Prime Minister Narendra Modi said the present form of the 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 RCEP agreement.”

A joint statement issued by RCEP said the 15 RCEP participating countries except India that have concluded text-based negotiations for all chapters of the deal will begin legal vetting to sign the pact next year. “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 statement said.

The timing of the deal was also questioned by analysts when the Indian economy is in the midst of a severe downturn (Graphic: Paras Jain/Mint)
The timing of the deal was also questioned by analysts when the Indian economy is in the midst of a severe downturn (Graphic: Paras Jain/Mint)

Briefing reporters in Bangkok, Vijay Thakur Singh, secretary (East) in the external affairs ministry, said India has conveyed its decision at the summit not to join the RCEP agreement. “This reflects both our assessment of the current global situation as well as the fairness and balance of the agreement. India had significant issues of core interest that remained unresolved. India has participated in good faith in RCEP discussions. It 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,” she said.

The timing of the deal was also questioned by analysts when the Indian economy is in the midst of a severe downturn. India’s GDP grew at a six-year low of 5% in the June quarter and most international and domestic forecasting agencies have pared their growth projections for India to below 6% for 2019-20.

At the end, there were essentially three demands from India, which other countries could not accommodate. India wanted to shift the base year for tariff cuts from 2014 to 2019 as it has increased customs duties on several items in recent years. It sought to include a large number of items in an auto-trigger mechanism to prevent a sudden surge in imports from China. India also wanted stricter rules of origin to prevent China from dumping its cheaper goods through other RCEP member countries.

Beyond these three demands, Modi seemed to have also pressed for a better deal in services trade through liberal movement of skilled professionals to create more job opportunities.

“Gone are the days when Indian negotiators caved in to pressures from the global powers on trade issues. This time, India played on the front foot, stressing the need to address India’s concerns over trade deficits and the need for other countries to open their markets to Indian services and investments,” a government official said on condition of anonymity.

India won’t join RCEP free trade deal, cites unresolved ‘core’ issues

Prime Minister Narendra Modi attended the third Regional Comprehensive Economic Partnership summit in Thailand’s Bangkok on Monday.

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Former foreign secretary Kanwal Sibal said withdrawing from RCEP must have been a difficult decision for India because there were both positives and negatives.

“On the whole, the negatives outweighed the positives and, therefore, to my mind, the right decision has been taken,” he said.

Sibal said, in effect, RCEP was a free trade agreement with China from India’s point of view. “So long as our serious bilateral trade issues remain unresolved, RCEP would have only aggravated our problems. If China had in recent years addressed our concerns with regard to trade deficit, opening up the market to our goods, we would have been confident that within RCEP, our concerns would have been addressed also. But without China doing it bilaterally, our expectation that they would do it multilaterally, does not make any sense,” he added.

Amitendu Palit, an economist at the Institute of South Asian Studies in the National University of Singapore said by staying out of RCEP, India has invited far-reaching economic consequences. “(It) would be interesting to see how it addresses these in the years to come,” he tweeted.

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