The Regional Comprehensive Economic Partnership (RCEP) leaders who met on the sidelines of the 31st ASEAN Summit in Manila recently have expressed their commitment to resolve differences and conclude the ASEAN+6 country free trade agreement (FTA) by 2018. Indian Prime Minister Narendra Modi, during his three-day visit to the Philippines, has also extended his support for a balanced outcome of the RCEP negotiations. RCEP is a proposed FTA between 10 ASEAN countries and their six FTA partners, namely Australia, China, India, Japan, South Korea and New Zealand. It accounts for 25% of global GDP, 30% of global trade, 26% of FDI flows and 45% of the total population. From India’s point of view, RCEP is critical. In fact, RCEP countries account for almost 27% of India’s total trade. Exports to RCEP countries account for about 15% of India’s total exports and imports from RCEP comprise 35% of India’s total imports. India runs a trade deficit with ASEAN as well as partner countries of RCEP. India’s trade deficit with the bloc has risen from $9 billion in FY05 to $83 billion in FY17, of which China alone accounts for over 60% of the deficit. After over 19 rounds of negotiation since 2012, RCEP countries have failed to conclude the mega trade deal.
India’s commerce ministry has received a lot of backlash over its protectionist attitude in the ministerial negotiation rounds. India’s earlier offer of differential tariffs under the three-tier approach for different countries (especially China) was rejected by member nations. According to media reports, India had offered complete liberalisation on almost 75% of the tariff lines earlier. However, it was later pressurised to liberalise 90-92% of total tariff lines. On tariff liberalisation, India has been worried about dumping of cheap Chinese goods into the domestic market, which could hurt its manufacturing industry, given China’s scale, cost-optimisation and subsidy regime. Thus, India Inc has urged the ministry to refrain itself from giving larger tariff cuts to China to ensure a level-playing field for the domestic industry. India, however, continues to maintain its tough stance on tariff elimination, intellectual property rights and services trade, cognisant of its experience from previous FTAs. India’s trade balance with previous FTA partner countries has deteriorated post signing of FTAs. For instance, the combined trade deficit with ASEAN, Japan and South Korea has increased from $16 billion in 2010 to $23 billion in FY17. Exports, too, haven’t seen any exponential growth to FTA partner countries despite tariff cuts. Exports to FTA and non-FTA partner countries have, in fact, grown at a similar pace over the past decade (13% year-on-year). This points to the fact that India has not gained much from its previous FTAs.
Source: Financial Express