India — famous for walkouts in Parliament — walks out of the RCEP
While political turmoil in Maharashtra continues and the judiciary gave a clear verdict in the Ram Janmabhoomi case in Ayodhya, another significant event took place in the last week and that concerns India’s economy in a big way.
The Supreme Court in its 1000-page verdict has stated that the land where the disputed structure stands be handed over to build a temple and that the Governments of India and Uttar Pradesh constitute a board within three months to operate the temple. It has also asked both governments to locate an alternative plot of land in the vicinity of 5 acres for a mosque to be built. The Sunni Wakf Board on its part has stated that it does not intend to file a review petition.
Getting back to RCEP,
India’s decision to not join the Regional Comprehensive Economic Partnership (RCEP) has been praised by both supporters of Swadesi movements and the Left.
The Regional Comprehensive Economic Partnership (RCEP) is 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 its five (formerly six) FTA partners (China, Japan, South Korea, Australia and New Zealand). In November 2019, India, the sixth FTA partner, decided to opt out of the pact.
Now, you may ask, what is a Free Trade Agreement?
A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
So why did India walk out of the RCEP?
The key sticking point for India in RCEP is its trade deficit with China which is feared to increase once the pact is in place and has proposed different levels of tariff concessions for China to safeguard its domestic industry from cheap imports. Farmer and civil society organisations also expressed concern at the rules on investment and e-commerce.
Referring to a leaked draft of the investment chapter of the agreement, they said Japan wants a ban on caps on royalty payments and technology transfers, something that will be a drain on India’s revenues. They said various sectors of the Indian economy including agriculture, dairy, services and data would be impacted, going by the leaked texts of the agreement and asked why the government is involved in e-commerce negotiations in the pact when it is opposed to even engaging on the subject at the World Trade Organization (WTO).
The RCEP could force India to cut duties on about 90 percent of the goods that are currently imported to India over the next 15 years. This has raised concerns that India will be flooded with cheaper imported goods, particularly from China and dairy products from Australia and New Zealand.
… but … Should India have joined the RCEP?
Apart from giving up the first mover’s advantage, India would give up the chance to frame the grouping’s rules and investment standards if it fails to join the RCEP at this stage. Staying out would also run counter to the Narendra Modi government’s plans to ramp up its engagement with ASEAN countries through the “Act East” policy, as well as its hopes for maritime cooperation in the India-Pacific.
Missing out on Regional Comprehensive Economic Partnership is a huge loss. RCEP could have brought in some opportunities in manufacturing in the global value chain (GVC), but experts believe this too would have been neutralised because of the lack of infrastructure.
However, from a political perspective, India’s decision overnight to walk away from immediate involvement in the RCEP, a trade zone encompassing half the world’s population and a third of its economy is good for almost everyone. Trade agreements are hard precisely because deals that are worthwhile economically tend to be politically hazardous, and vice versa.
India’s trade deficit with these countries has almost doubled in the last five-six years — from $54 billion in 2013–14 to $105 billion in 2018–19. Given the export-import equation with the bloc, a free trade agreement with the grouping would have increased it further. India had raised the issues during negotiation stage as industry and farmers had expressed their serious concerns over RCEP.
While India’s decision has its merits and demerits, it has decided not to join the RCEP. Do check out the topic on UnFound and stay up to date on the latest developments.
Contributed by Srikanth Ramakrishnan
