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Indian Economy

Deadlock in RCEP Trade Negotiations

  • 12 Jun 2019
  • 4 min read

Senior officials from India and China met in New Delhi to try and reach a common ground on market-opening commitments under Regional Comprehensive Economic Partnership (RCEP) negotiations.

Regional Comprehensive Economic Partnership (RCEP)

  • RCEP is a proposed regional economic integration agreement among the 10 ASEAN countries and its six free-trade agreement partners—Australia, New Zealand, Japan, China, South Korea and India.
  • Once implemented, it would result in one of the largest free trade bloc accounting for 45% of the world's population, and a combined GDP of about $21.3 trillion and 40% of the world trade.

India’s Concerns vis-a-vis China

  • India is not comfortable with opening markets in goods being pushed especially by China. India wants to offer much lower market access in goods to China compared to other members such as the ASEAN, Japan and South Korea. However, China is not willing to accept it.
  • India wants clearly defined rules of origin to ensure integrity and sanctity of tariff differentiation. This is to prevent Chinese goods from flooding the country through member countries that may have lower or no duty levels.
    • Chinese garments are already making their way into India through the duty-free route under the South Asia Free Trade Pact and the Duty-Free Quota-Free window from Bangladesh.
  • At least 13 countries including Australia, Japan and New Zealand oppose India’s proposal for strict criteria to determine the source country of a product, based on which they get tariff concessions in the 16-nation Regional Comprehensive Economic Partnership (RCEP) trade pact.
  • India had a trade deficit with 11 RCEP members including China, South Korea and Australia in 2018-19.
  • India has so far offered to eliminate tariffs for 70-80 % of goods for China over an extended period of time and it is unwilling to give more concessions.
    • China runs a trade surplus of over $60 billion with India and the domestic industry is reeling under heavy competition from Chinese goods.
  • India’s aluminium and copper industries are worried about China’s presence in the grouping and anticipate widening of the trade deficit due to an alarming spike in imports and a potential threat to the Make in India initiative.
  • China is also hinting at going in for a free trade agreement between the ASEAN, China, Japan and South Korea (ASEAN+3) if the RCEP talks take too long.

The South Asia Free Trade Pact

  • The South Asia Free Trade Agreement (SAFTA) is an agreement among the seven South Asia countries that form the South Asian Association for Regional Cooperation (SAARC): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
  • It came into effect on 1st January 2006, with the aim of reducing tariffs for intra regional trade among the seven SAARC members.
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