People Dispatch - 18 October 2019
RCEP: As deadline looms, trade unions call out dangerous clauses
By Pavan Kulkarni
Trade negotiators representing 16 countries set to sign the controversial Regional Comprehensive Economic Partnership (RCEP) have been tasked with arriving at an agreement on the clauses by October 19.
This is despite concerted opposition to a number of key clauses from trade unions, people’s movements and activists in these countries. In India, for instance, 10 central trade unions released a memorandum, urging the government to withdraw from the negotiations.
Should the disagreements between the governments be resolved on schedule, the heads of these states are expected to sign the Free Trade Agreement (FTA) on November 4 at the 3rd Leaders’ Summit in Bangkok. With the 10 ASEAN countries, along with India, China, Japan, South Korea, Australia and New Zealand, becoming parties to the RCEP, this agreement, once effective, will bring about a third of the world’s economy and 45% of its population under its purview.
At the 9th Intersessional Ministerial Meeting held on October 11 and 12, trade ministers of these countries could not arrive at a consensus, mainly due to objections raised by India to chapters pertaining to the regulation of trade, investment and data flow across borders.
Most of the other governments, which already have bilateral FTAs between each other, have been able to arrive on a common understanding, despite widespread domestic opposition from farmers’ groups, trade unions and civil society.
But an agreement with Indian negotiators has so far not been arrived at because the country does not have an existing FTA with three RCEP countries – Australia, New Zealand and, most importantly, China, which is the biggest economy in the region.
For an initial period of 8-10 years, India is seeking to apply a safety mechanism on imports from these countries, which will trigger automatically if the imports of 68 specific commodities, identified as sensitive, cross a stipulated threshold.
In theory, this mechanism should ensure that once the imports of these items cross an annual limit – specified either in terms of volume or in terms of price – import duties can begin to apply on them, or quantitative restrictions can be set, which will result in items above the threshold being sent back.
India is seeking to apply this mechanism mainly to Chinese exports, 80% of which is expected to find a duty-free entry into the country after the RCEP is concluded. Of the $105 billion trade deficit India already has with RCEP countries – which is roughly 60% of the country’s total trade deficit – $53 billion is with China. This is despite the fact that currently, in the absence of an FTA, only around 15-20% of its goods can be imported into the country without tariffs.
“Industry at risk”
Under such circumstances, if allowance for duty-free entry is extended to 80% of the Chinese exports, the very “existence of a large share of India’s industry would be at risk, which [in] turn will lead to job losses at unprecedented levels,” the 10 Indian central trade unions warned. Unemployment in India is already at a record 45-year high.
After initially pitching for an agreement over 42.5%, India has finally agreed to concede to China’s demand to have tariffs removed for 80% of its exports. Peoples Dispatch has learnt from sources familiar with the negotiations that 28% of these exports will get a duty free entry as soon as RCEP becomes effective. Import duties against the rest will be removed over the course of the following 20 years, in four phases of five years each.
The Indian government hopes that the ‘auto-trigger’ safeguard, which it is seeking, will prevent the flooding of its domestic market with Chinese goods. However, experts are skeptical.
“[T]he question is, by how much should imports increase for duties to be imposed? The threshold issue is the most difficult and contentious. In the WTO, a long battle was fought by developing countries led by India, to get something like this introduced as a part of agriculture disciplines. This has now been virtually abandoned. So, I’m not sure how [the] RCEP participating countries would agree to this proposal, especially at the 11th hour,” Prof. Biswajit Dhar, author of over half a dozen books on international trade, told Peoples Dispatch.
Nevertheless, India is also seeking to apply this safeguard to imports from Australia and New Zealand. Since neither of the two countries have an FTA with India, most of their exports currently face import duties. Under RCEP, India has agreed to waive off duties on about 85% of the exports from these two countries.
Organized dairy farmers in the country have been exerting pressure on the Indian government to protect the dairy sector from competition from New Zealand and Australia. The two countries have a significant advantage over local farmers in processed dairy products such as cheese, milk powder etc.
While the Indian government is likely to seek to place the dairy sector in the 15% or so of the remaining products on which tariffs will continue to apply, New Zealand and Australia may not agree to this. Dairy products are among the most important exports for these countries. New Zealand exports 93% of its dairy produce and Australia exports 36%.
India and the 10 ASEAN countries have existing FTAs, under which around 78-80% of the exports from this block already enter Indian territory without facing any tariffs, and visa-versa. Under RCEP, India has agreed to raise this allowance to around 90%.
Existing FTAs with Japan and South Korea protects 75-80% of its exports from import duties in India. Peoples Dispatch has not been able to confirm by how much this allowance has increased under RCEP agreements.
The statement of the 10 Indian trade unions complained that India’s RCEP commitments to eliminate most tariffs will cost an estimated $8.5 billion in government revenue per year. This will take a further toll on budgets, whose size is already being squeezed year after year.
Data flow restrictions
Another crucial issue on which India raised an objection is the section of the RCEP dealing with flow of data.“[A] party [to RCEP] shall not take measures that prevent transfers of information, including transfers of data by electronic or other means, necessary for the conduct of the ordinary business of a financial service supplier,” the draft states, according to a quote revealed by the Hindu.
The section however adds that nothing in the above mentioned paragraph prevents a regulatory authority in an RCEP country “from requiring a financial service supplier to comply with domestic regulation in relation to data management and storage and system maintenance, as well as to retain within its territory copies of records” for “regulatory or prudential reasons”.
A source familiar with the negotiations explained to Peoples Dispatch that this language sets the free flow of data as a default rule, while making provision for states to regulate the flow of data or mandate copies within the territory as a policy exception. The Indian negotiators are seeking to modify the text in a way that when in conflict, the state policy is given primacy over the rule of free flow of data.
However, India has been trying to achieve this by using vaguely defined terms such as “public interest” and “national security.”
Speaking at a public meeting about RCEP’s impact on India in New Delhi, Parminder Jeet Singh, the executive director of IT for Change, warned that such language basing state policy on exceptions rarely works in favor of the less advanced countries that partake in FTAs. The past experience of trying to protect India’s agriculture sector by claiming such exceptions at the WTO, he said, clearly demonstrates this.
Data, Singh insisted, is not a matter affecting only the e-commerce sector. Digitization affects all sectors – ranging from services and industry to agriculture. When the Indian government has repeatedly declared data to be the new national wealth, he argued, it must refuse to enter into any trade agreements which curtails its policy-making authority over data flow.
Another contentious part of the RCEP negotiations has been the demands made by Japan in the chapter pertaining to investment. Japan has demanded a complete ban on obligations of technology transfer and on caps on royalty payment.
The Indian government, which is currently considering a re-introduction of caps on royalty payments which is resulting in a massive capital flight from the national economy, has opposed this. Opposition to these demands has also come from the 10 ASEAN countries, Kavaljit Singh, the director of Public Interest Research Centre, told Peoples Dispatch.
The chapter on Intellectual Property Rights (IPR) had originally envisioned extension of patent protection for pharmaceutical companies over 20 years. Various unions and activist groups working on healthcare access in India, as well as in the ASEAN countries, had fiercely opposed this.
This extension was eventually dropped from RCEP. What has been agreed upon includes no significant change over the IPR set out in the TRIPS agreement. However, enforcement rules have been made more stringent, and penalties for infringement have sharply increased.
RCEP text also proposes that “in order to reduce the complexity and cost of obtaining the grant of a patent”, members should endeavor to reduce the differences in the processes of securing patents in their respective countries. Both India and ASEAN countries have opposed this clause.
The joint statement by Indian trade unions had warned that “RCEP is expected to include provisions that promote and lock-in the liberalization of public services, such as the so called ‘standstill’ and ‘ratchet’ clauses.”
These clauses prohibit members from re-introduction of tariffs, re-nationalization of privatized companies etc – in effect denying the states the right to reverse liberalization after it proves to be against the public interest. “In essential services, if private providers fail to deliver, it is the government’s responsibility to take those services back into public hands,” unions insisted.
However the Indian government, as well as the rest of the members, have agreed to these clauses. India has only sought to keep the ratchet clause out of the Investor State Dispute Settlement (ISDS) – which is arguably one of the most notorious clauses included in most of the FTAs.
This allows foreign corporations to sue sovereign states for billions of dollars if a certain public policy change undertaken by the latter negatively affects its profit margins. The disputes are settled, not by the domestic courts, but by international for-profit arbitrators, who often have a conflict of interest in favor of the corporations. Revolving doors through which the arbitrators move to become counsels of the same companies which file such cases have been well documented.
By 2016, 11 of the RCEP countries were already faced with at least 50 ISDS cases, 40% of which targeted India, from which a total of $12.3 billion was claimed. At least $164 million has been awarded to foreign companies by India.The next most sued of the RCEP countries is Indonesia, which has paid the largest known amount of $337 million to multinational building materials company Cemex after losing an ISDS case.
About 68% of the companies that have sued RCEP countries are based in Europe. Even though RCEP does not include any European countries, companies based in Europe or the US can use their subsidiaries in RCEP countries to lead the assault.
In an attempt to avoid more ISDS cases, the Indian government, after a review in 2016, decided to terminate Bilateral Investment treaties (BITs) with at least 57 countries with which the initially agreed period of the treaty had either expired or was on the verge of expiring. Indonesia had also terminated at least 22 BITs by then, and has been letting many others expire without renewal or replacement.
The RCEP seeks to lock the ISDS clause into a regional trade agreement, which will be much harder to amend or terminate than bilateral treaties. So far, details about the ISDS have not been agreed upon by RCEP countries. However, it has not been dropped, but only postponed, Kavaljit said.
RCEP countries have decided to work out an agreement on ISDS within five years of the treaty going into effect. Kavaljit maintains that if ISDS clause is not opposed now, it will be extremely difficult for countries to resist its institutionalization once RCEP is activated.