Table of Contents
UPSC PERSPECTIVE
- Mains Paper 2 – International Relations | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests
WHAT JUST HAPPENED?
- The government has set up a four-member group of ministers (GoM) headed by trade minister Suresh Prabhu to advise prime minister Narendra Modi on whether to continue with or withdraw from the 16-member Regional Comprehensive Economic Partnership (RCEP) negotiations.
NOTES
- A group of four Ministers — Suresh Prabhu, Piyush Goel, Nirmala Sitharaman and Hardeep Puri — has been tasked with steering the discussions with Secretaries of key Ministries and Departments.
- The committee, which also includes the Cabinet Secretary, will meet on August 10.
WHAT WORRIES INDIA?
- Regional Comprehensive Economic Partnership
- A proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six Asia-Pacific states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).
THE SIZE
- In 2017, prospective RCEP member states accounted for a population of 3.4 billion people with a total Gross Domestic Product (GDP, PPP) of $49.5 trillion, approximately 39 percent of the world’s GDP
- The FTA is scheduled and expected to be signed in November 2018 during the ASEAN Summit and Related Summit in Singapore, after the first RCEP summit was held on 14 November 2017 in Manila, Philippines.
- India under pressure to cut tariffs further
- Faced with slow progress on the issue of easier movement of professionals across borders, there is now increased pressure on India to eliminate import duties on 92% of its traded goods with 15 countries including China under a regional trade agreement.
- India, instead, has offered to eliminate tariffs on 80% of products with a margin of 6% depending on level of development of the other country as part of the Regional Comprehensive Economic Partnership (RCEP). With this math, India may have to eliminate duties on 74% of its traded goods with China over the long run.
INDIA’S CONCERNS
- It would expose sensitive items, including farm and dairy goods, automobiles and steel products, to tariff cuts.
- For investment too, there are contentious areas such as liberalizing based on a negative list (wherein all items are to be included except those specifically mentioned in a list) and the inclusion of an Investor State Dispute Settlement mechanism.
- This could lead to India getting involved in costly legal suits filed against it by corporates.
TRADE DEFICIT
- There is concern across ministries that joining the accord could severely dent local manufacturing and jobs.
- China’s $60-billion trade surplus with India will swell even further as it floods the market with cheap goods at zero tariffs.
- India has a trade deficit with as many as 10 RCEP countries, including China, South Korea and Australia, among others.
NOTES
- India’s exports to RCEP account for about 15% of its total exports and imports from RCEP comprise 35% of total imports. India’s trade deficit with RCEP has risen from $9 billion in FY05 to $83 billion in FY17, of which China alone accounts for over 60% of the deficit.
- India already has bilateral FTAs with Asean, Korea and Japan and negotiations are underway with Australia and New Zealand.
ANOTHER ISSUE FOR INDIA
- India has dragged its feet as the pact doesn’t provide for free movement of skilled workers, a key concern for New Delhi given its large pool of tech workers, even as it opens its market to a clutch of nations known for their manufacturing prowess.
- India is not part of any major trade group and wouldn’t want to get left out of this one, especially when the future of WTO is under a cloud due to global trade wars.
NOTES
- With President Donald Trump withdrawing the U.S. from a separate 12-nation Trans-Pacific Partnership last year and starting a full-blown global trade war, RCEP grouping accounting for 3.5 billion people and $22.5 trillion in gross domestic product, is being seen as the champion of free trade.
WHAT EXPERTS HAVE SAID ON THIS
- Former Chief economic adviser in the finance ministry, Arvind Subramanian, too, had said that India needs to be extra cautious and take into account geostrategic issues while moving ahead with the RCEP deal, as it would mean opening up the market to its adversary China.
WHAT EXPERTS HAVE SAID ON THIS
- Former foreign secretary S. Jaishankar, at a presentation before the parliamentary standing committee on commerce, had called for “observance of due restraint” and warned against concluding trade arrangements that are not in India’s medium-term interest.
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