RCEP and India: Why India was Right in Walking Out?

Manohar Bhat
March 15, 2020

 

India’s departure from the Regional Comprehensive Economic Partnership (RCEP) came as a big blow to other members of this ambitious free trade agreement covering much of the Indo-Pacific region. India decided to walk out of this agreement in November 2019 by considering both domestic as well as geopolitical factors. Prime Minister Narendra Modi, in his speech at the RCEP summit, contended that the “present form of RCEP agreement does not fully reflect the basic spirit of and agreed guiding principle of RCEP.” This article intends to argue that the RCEP in its current form does not serve India’s interest and that India was right in walking out of it. RCEP negotiations formally began in 2012 at the ASEAN summit in Cambodia to achieve a modern, comprehensive, high quality and mutually beneficial economic partnership agreement among member states. Over the years, India also took part in the RCEP negotiations and contributed to a certain extent in shaping the new economic framework. As such, India’s call to walkout came as a surprise. Several factors, both domestic and external, can be seen to have contributed to such a decision. 

India’s walkout from the RCEP negotiation had much to do with addressing domestic economic issues within. Some of the sectors which are expected to be hit the hardest by this agreement are manufacturing, farming, dairy, marine, chemicals, pharmaceuticals industry, iron, steel, and non-ferrous metals. The manufacturing sector in India has been in deep trouble, and the economic slowdown has affected the service sector, at a time when India is pushing it ahead to compete with ASEAN countries. A large number of Indian Industries vehemently opposed the idea of tariff elimination, which will unnecessarily clear the way for the dumping of Chinese goods in the Indian market. Chinese products have been flooding the electronics, steel and iron, and textile sectors in India. On the contrary, China is not importing Indian goods like generic drugs and information technology services, thus deepening the trade deficit with China. 

Another important sector, which will suffer badly from the RCEP agreement, is dairy farming. India’s milk production capacity has doubled up since 2000, which makes India the largest producer and consumer of milk and related products. In case India entered the RCEP, it would be hard to face competition from countries like Australia and New Zealand, adversely hitting 50 million producers’ families in India. The RCEP will also infringe on India’s intellectual property laws. India consistently rejected all the proposals pushed by countries like Japan and South Korea to undertake some of the obligations, which goes beyond the WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in the context of patents. Henceforth India’s stand on IPR in all free trade agreements is clear, which also includes RCEP. 

China’s production capacity in steel and aluminum is much more than that of India. The infrastructure of steel manufacturing in India is in abysmal condition, which makes steel production costlier than other countries. In order to create a level playing field in the steel and aluminum sector, the industry has urged the government to provide an export incentive of $40 per tonne of steel to put domestic and global industries on the same page before it opens upmarket for global competitors. While the export of steel has grown 37%, but at the same time imports have also jumped to 27%. The Industry’s fear also stemmed from a steady increase in the share of duty-free imports from FTA countries like Indonesia, Japan, and Korea. Therefore, it is no surprise that the steel lobby in India has been strongly opposing the RCEP agreement. 

Fisheries also remain a sector, which will be negatively impacted by the RCEP since the entry of new foreign vessels and opening up Deep Sea Fishing (DSF) might pose serious challenges for Indian fishers. Other sectors which faces problems from the RCEP are cashew, coir, tea, coffee, spices and many other agro-based products which largely dependent upon exports. 

India’s trade deficit with China has grown many folds. The trade imbalance between the two countries stands at almost $53 billion. Once the RCEP gets implemented, cheap Chinese goods will flood the Indian markets and create uneven platforms for domestic manufacturers and other local players. Indian Parliamentary Standing Committee on Commerce also expressed its concerns over the trade deficit and urged the present administration to tackle this gargantuan challenge. Chinese goods like automobiles, steel and aluminum will hit domestic industries. 

However, there is still a window of opportunity for India to join the RCEP. Union Commerce and Industry Minister Piyush Goyal signaled that India is open for negotiation if RCEP member countries come up with a better set of framework to address India’s pressing issues. The way forward for India is to address domestic concern in the best possible way. Unless India comes out of its economic slowdown, it will be difficult to engage with mega-trade deals like the RCEP and negotiate from a position of strength. India’s domestic reforms and strengthening the manufacturing sector is the need of the hour. India should also find ways to increase competitiveness and boost its “Make in India” campaign, which aims to make India a manufacturing hub. If India finds ways to transform itself from net importer to net exporter in the manufacturing sector, joining the RCEP will make sense. 

*** The author is a Post Graduate Research Scholar at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education ***