Indian resistance could spell trouble for RCEP

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Bangkok Post | 8 January 2018

Indian resistance could spell trouble for RCEP

by Narendra Kaushik

India is moving closer to rejecting the Regional Comprehensive Economic Partnership (RCEP), with a top government official declaring that the proposed 16-country agreement does not fit with the government’s "Make in India" campaign.

The ominous signs are emerging just three weeks before a summit intended to celebrate the silver jubilee of formal relations between India and ASEAN, whose leaders have all been invited as special guests for Republic Day celebrations on January 26.

Negotiations are already two years behind schedule for the RCEP, an ambitious pact that would include the 10 Asean states plus China, India, Japan, South Korea, Australia and New Zealand. Friction between China and India over what will and won’t be protected has been a major stumbling block, though far from the only one.

A report issued late last month by a parliamentary committee studying trade with Southeast Asia quotes Foreign Secretary S Jaishankar as saying that "observance of due restraint" was called for with respect to the RCEP talks. The country should "not conclude trade agreements which are not to our medium-term advantage", he added.

The foreign secretary reportedly made the comments when he appeared before the committee in June last year. While "dwelling on the likely benefits arising out of proposed RCEP", he said that "though larger free trade arrangements are important for getting preferential access to the markets, it is important to be cautious about the manner in which such arrangements work out in respect of our imports as well as our efforts to increase the share of the manufacturing sector in our economy".

Mr Jaishankar emphasised that India’s "external trade arrangements must be supportive of the Make in India initiative", referring to the campaign by Prime Minister Narendra Modi to attract investors from around the world to set up more production bases in the country.

The foreign secretary expressed regret that the emphasis in trade agreements "is mostly on trade in goods and the same enthusiasm is not shared for trade in services. ... Reluctance to give market access for trade in services is a big challenge."

In what looks like a clear reference to the rising deficit in India’s trade with Asean, Mr Jaishankar said that "a lot of our agreements have not served as well as they could have".

In the 2016-17 fiscal year that ended last March 31, the value of India-Asean trade increased to US$71.7 billion, but Asean exports exceeded Indian imports by $9.56 billion. The deficits were widest with Indonesia, Malaysia, Thailand, Brunei and Laos.

The RCEP aims to cover goods, services, investment, economic and technical co-operation, competition and intellectual property rights. Negotiations have dragged on for five years, through 20 rounds of talks involving trade officials, five ministerial meetings, three inter-sessional ministerials and one summit-level round.

The last round of negotiations was held in Hyderabad in July last year and the next round is expected to take place early this year.

India has long resisted pressure from other aspiring RCEP members to commit to opening up 90% of its traded goods to competition because the latter have not agreed to improve market access in services, one of the country’s strengths, particularly in the IT field. They have also not accepted India’s proposal to allow more movement of professionals and skilled workers across borders for short-term work.

New Delhi initially proposed three different levels of tariff reductions. It offered a 42.5% tariff concession to China, 80% to the 10 Asean members and 65% to the other four countries: South Korea, Japan, Australia and New Zealand.

Subsequently, Delhi agreed to extend the same concessions to all participants except China. India fears that if it extends the same tariff concessions to China, the latter might flood its market, swelling a trade deficit that reached $50 billion in 2016-17 and hampering its efforts to ramp up manufacturing. China as well as Asean nations, Australia and New Zealand have rejected India’s proposals.

The government has also emphasised holding parallel negotiations on trade in goods and services. "On goods, negotiation is moving, but on services it is not moving at all. It cannot be moving so fast in goods, that nothing happens in services," said Nirmala Sitharaman, then commerce and industry minister (she moved to defence last September), during talks in Hanoi last May.

Biswajit Dhar, an economics professor at Jawaharlal Nehru University, said India was justified in expressing its reservations about what is on the table at the moment. He said the foreign secretary’s statement to the parliamentary committee was a "reflection of India’s discomfiture over the RCEP".

"The RCEP deal will be detrimental to Make-in-India and proposed industrial policy. I don’t see how the process can move forward," Mr Dhar said, identifying agriculture and automobiles as sectors that would need protection.

He criticised the RCEP members for not considering India’s demand for inclusion of services in negotiations and extending tariff cuts to China. "You cannot have your cake and eat it too. They must agree to negotiate services. [At the same time] India should be clear on the political message [on China]," he added.

Prime Minister Modi has invited all 10 heads of Asean governments for a commemorative summit on Jan 25. Led by Singapore Prime Minister Lee Hsien Loong, the chairman of Asean this year, the group will be the chief guests at Republic Day celebrations the following day.

Mr Dhar said he saw a disconnect between hosting Asean leaders and being intransient on the RCEP. But Dr B Bhattacharjee, a research fellow with the Indian Council of World Affairs, believes the two are separate issues.

"There should be no comparison between the two events," he told Asia Focus. "India’s stand on the RCEP should not be seen as a counter to its intention to build close relations with Asean."

Dr Bhattacharjee expressed hope that a middle ground could still exist on the RCEP. "Australian Prime Minister Malcolm Turnbull spent four days in India in April last year. That shows his interest in the Indian market. The same is applicable to others," he said.

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source: Bangkok Post