Centre to Form Group of Ministers (GoM) to Decide India’s Fate Regarding Joining RCEP

• 07 Aug 2018

The Central government will set up a Group of Ministers (GoM) to decide the course of action regarding India joining the 16-nation Regional Comprehensive Economic Partnership (RCEP).

• The GoM comprises Commerce and Industry Minister, Finance Minister, Defence Minister and Housing and Urban Affairs Minister.
• Most ministries and departments have expressed reservations about India joining the proposed RCEP.
• The move comes amid pressure from other potential RCEP members to show substantial progress in negotiations by the end of this year.

Regional Comprehensive Economic Partnership Programme (RCEP)

• RCEP is a proposed FTA between 10 ASEAN countries (Brunei, Myanmar,Cambodia,Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam) and their six FTA partners, namely Australia, China, India, Japan, South Korea and New Zealand.
• The proposed RCEP aspires to cover almost every aspect of economy such as goods, services, investment, economic and technical cooperation, intellectual property rights (IPR), rules of origin and competition and dispute settlement.
• 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:
  • 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.

Concerns

• Since RCEP proposes to eliminate import tariffs on 90% of goods, many across the Government felt that joining the pact could severely dent local manufacturing and jobs in India.
• 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 2005 to $83 billion in 2017, of which China alone accounts for over 60% of the deficit. There are concerns that China’s $60-billion trade surplus with India will swell even further as it floods the market with cheap goods at zero tariff.
• Moreover, India's experience with trade pacts hasn't been very good. India already has trade pacts with Asean, Japan and South Korea.
• The view is that it got a raw deal on services, its core strength, under the Asean trade agreement while losing out on market access in goods that is hurting domestic manufacturing.
• The Parliamentary Standing Committee on Commerce in December 2017 strongly recommended that India seek better market access for its products and services where India has an edge over ASEAN nations, like leather goods and pharmaceuticals, to improve the trade balance with ASEAN.
• The committee also found that while exports of agricultural products from India faced high import tariffs and barriers, leading to a sharp drop in trade, there was ‘near absence of quality norms’ for import of cheap processed food products from ASEAN countries.
• Consequently, India has so far maintained that a speedy and successful conclusion of the agreement would be possible only with the inclusion of a higher level of services and investment in the India-Asean trade basket since India’s strength lies in services trade, and negotiation on this is critical.

Way Forward

• It is vital for India to ensure that the RCEP is truly comprehensive and does not just focus on market access for goods while ignoring services where it has comparative advantages.
• India should actively pursue second generation reforms of its domestic economic policies, including those that reform its factor markets, to make its trade more competitive.