Reboot on RCEP

| Updated on January 12, 2018

It is still possible for India to win back its lost negotiating space

There can be no escaping the fact that India is losing ground in trade negotiation talks with the Regional Comprehensive Economic Partnership — a bloc of 16 countries (Asean plus Japan, China, Korea, India, Australia and New Zealand) seen to be led by China. When top commerceministry officials said soon after the recent RCEP meeting at Hanoi, that India would agree to no more than 80 per cent free tariff lines (with a deviation of 6 per cent either way), against the demand of 92 per cent, it could not have come as a consolation to industry and agriculture that have already been inundated by dirt cheap and zero tariff goods from China and the Asean (with which India has an FTA), respectively. India’s position marks a climbdown from two years ago, when it had proposed a three-tier tariff structure: 80 per cent tariff-free lines with Asean, essentially maintaining the FTA status quo; 65 per cent free lines for Japan and Korea; and 42 per cent free lines for China, Australia and New Zealand. What is now on the cards, only as a best-case scenario, is perhaps 74 per cent free tariff lines with China to be arrived at over the next 15-20 years. Meanwhile, India’s insistence on lower services investment and visa barriers for its professionals is not making headway. In this context, a rethink on RCEP talks is called for.

RCEP’s pressure arises from the fact that tariffs within its other members are already remarkably low, with Japan and China deeply integrated into the Asean economy (and with each other) in terms of trade, investment and global supply chains. India remains an outsider in this club, with the exception of China, with which it runs a huge trade deficit. India accounts for just over 3 per cent of Asean exports and below 2 per cent of the latter’s imports, whereas China accounts for over 11 per cent of Asean exports and nearly 20 per cent of its imports. China has displaced Japan and the US as Asean’s principal trading partner. The challenge is for India to break into this bloc at a time of growing protectionism in the West, without compromising its interests in agriculture, industry and intellectual property rights. With the RCEP being more accommodative than the now defunct Trans Pacific Partnership to the conditions of developing countries, it may yet be possible for India to wrest this space. Its USPs are its large market, its skilled workforce and its pluralist, democratic ambience.

While trying to recover lost ground at RCEP, India must be clear about dovetailing tariff openness with its ‘Make in India’ programme. India can be flexible about opening up sectors such as legal services, entertainment and accountancy. In the long run, it should ramp up its skill and technology levels to match RCEP countries by investing in R&D and quality education. The key lies in driving growth through productivity and innovation, rather than low-cost labour alone.

Published on May 25, 2017

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