India has raised several issues which are proving a stumbling block for RCEP negotiations to move ahead.
But in the backdrop of progress made in the reviving TPP, there is a need for urgency, as opportunities could be lost.
What is “Regional Comprehensive Economic Partnership (RCEP)”?
East Asia Summit (EAS) - was established in 2005 with 16 countries.
Its primary objective of creating an “Asian Economic Community (AEC)”.
Its founding members were the 10 countries of the ASEAN block and - Japan, South Korea, China, India, Australia, and New Zealand.
EAS has since expanded with the joining of “Russia and USA” as members in 2011 and has also significantly broadened its working agenda.
RCEP - ASEAN has “Free Trade Agreements (FTA)” individually with other founding members of EAS, but there is no comprehensive deal.
Hence, for furthering the cause, RCEP was envisioned between the 16 founding members of the EAS.
In 2012, the ASEAN and its six FTA partners launched negotiations for establishing RCEP as a means to achieve deeper economic integration.
The RCEP was expected to be finalised, first in 2015 and then in 2017, but after 20 rounds, the negotiations are yet to be concluded.
Reasons for Delay - India’s resistance to offer tariff concessions to the extent desired by other members is touted to be the main bottleneck.
India has also been conservative about the time schedule for progressive tariff relaxation and has been proposing differential tariffs for different countires.
Recently, India has shown willingness to drop some of its reservations in exchange for concessions in the form of certain services liberalisation.
But this will only further slowdown negotiations as even at the intra-ASEAN level, trade liberalisation in services is limited to traditional sectors.
Notably, only sectors like “transport, tourism and, to some extent, the financial services” are liberated across ASEAN.
What are the external compulsions?
Trans Pacific Partnership (TPP), lost considerable significance after the US pull out in early 2017.
But recently, “Comprehensive and Progressive Agreement for TPP (CPTPP)” was successfully initiated (without USA), which has revived TPP negotiations.
CPTPP membership is a subset of the “Asia-Pacific Economic Cooperation (APEC)”, of which India is not a member but some ASEAN members are.
Notably, India’s application to join APEC is pending for long and future accession will also be hard as it requires the consensus of all members.
In this backdrop, India needs to speed up RCEP negotiations for its own good as ASEAN members might otherwise prioritise CPTPP over RCEP.
What is the present state of ASEAN India trade?
An FTA agreement in 2010 formaliesed business ties, but trade has increased from $45 billion to just about $71 in 8 years.
Notably, ASEAN’s share in India’s total trade has been a constant 10-11% and while Indian exports have only marginally increase.
Conversly, India’s share in ASEAN’s total trade is less than 3%.
Also, the composition of the trade showed little increase in manufactured goods, with Palm oil import and meat product export dominating.
Enhancing trade with Asean (increasing exports in particular), can happen only if India enhances its value chain integration with ASEAN.
As RCEP has immense potential to facilitate this integration process, the current stalemate needs to be resolved on a priority basis.
What is the way forward?
If India continues to remain inflexible in the negotiation process, other countries may choose to bring in more difficult provisions in the RCEP.
Thrust for services liberalisation may open up demands for e-commerce and stricter intellectual property provisions, which will make India uncomfortable.
Also, considering that ASEAN countries have the option of joining both RCEP and CPTPP, there is the inherent risk of de-prioritising Indian concerns.
This beholds the risks of India losing opportunities for trade integration at both, the global and regional level.
To overcome these challenges, India policymakers must show more flexibility and Indian industry has to be willing to face competition.
