New Delhi: India has a whopping $104 billion trade deficit with the 16-member Regional Comprehensive Economic Partnership (RCEP) grouping, which is 64% of India’s total trade deficit of 2017-18. No wonder, there is a raging debate on whether India should remain or quit the RCEP negotiations. RCEP comprises the 10-member Asean grouping and its six free trade partners, including China, India, Japan, South Korea, Australia and New Zealand. Once concluded, RCEP will create the largest regional trading bloc, making up 25% of GDP, 30% of global trade, and 26% of foreign direct investment (FDI) flows.
What India stands to gain from RCEP negotiations
State of play
Negotiations have dragged on for almost five years, primarily because of India’s reluctance to significantly open up its market, given the sensitivities around agriculture- and labour-intensive domestic industries. On 31 August, at the Singapore Ministerial, RCEP members, however, staged a coup of sorts by adopting a “package of year-end deliverables”, for which negotiations need to be concluded by December. Given that member countries, India and Indonesia, are going to polls early next year, sealing the negotiations will ensure that the deal will be signed sometime next year. India claimed “big success” as members conceded to its demand to liberalize their services market and allow movement of skilled professionals (Mode 4).
However, former trade secretary Rajeev Kher said India should not overplay the Mode 4 card as the geopolitical situation has made it difficult for countries to negotiate easier immigration norms. “India should focus on skilling its manpower as the aging countries of Asia would anyway need skilled professionals from India because of its demographic advantage.”
India has already agreed to offer tariff liberalization on 74% of goods from China, Australia and New Zealand, and it could go up to 86% for other RCEP members. However, the member countries want India to open up its market for 92% of traded goods, which India finds too ambitious to accommodate. Now India has agreed to top up its earlier offer by engaging in bilateral negotiations with countries on a quid-pro-quo basis.
Elephant in the room
It is China. With a $63 billion trade deficit only with China, India is apprehensive that if it further liberalizes its market by reducing import duties on goods under the RCEP deal, then China will flood its markets, especially in the steel and textiles sectors. The steel industry has been demanding to completely exclude steel tariff lines from RCEP negotiations, fearing China will dump cheap steel items in the domestic market and that the Indian steel industry, which is already reeling under high levels of bad debt, will not be able to remain competitive.
Arnab Kumar Hazra, assistant secretary general , Indian Steel Association, said India has already burnt its fingers by giving tariff concessions to South Korea and Japan, given that after FTAs with them steel imports have substantially increased without commensurate increase in investments in India from these countries. “It’s not about being proponents of free trade or not. Please understand, China has completely distorted the global steel market as they have 50% of the world capacity. Hence, it will be naive to open up the sector to China under RCEP.”
However, Kher said India need to look at RCEP from a much broader and long-term perspective. “Today, your competitiveness may not be there in several product lines, but because of the reforms in the last four years, the potential of your competitiveness is improving. Secondly, it cannot happen that all sectors will grow. Some sectors have to die. You must pick the winners and losers.”