India on the cusp of striking a deal on RCEP as deadline nears
By Abhishek G Bhaya
Asia;India
India was given 10 days to resolve its differences with other RCEP countries after a ministerial meeting in Bangkok on October 11-12 failed to arrive at a consensus on New Delhi's concerns. /Photo via Twitter @PiyushGoyal

India was given 10 days to resolve its differences with other RCEP countries after a ministerial meeting in Bangkok on October 11-12 failed to arrive at a consensus on New Delhi's concerns. /Photo via Twitter @PiyushGoyal

India has negotiated a nearly 10 percent relief over China in tariff elimination during the ongoing Regional Comprehensive Economic Partnership (RCEP) talks, according to local media reports, paving the way for New Delhi to resolve the sticking points ahead of the deadline to conclude the world's largest free trade pact involving 16 Asia-Pacific countries, which is expected to be officially announced on November 4 at the ASEAN Summit in Bangkok. 

The reported breakthrough was reached after China and India – the proposed trading bloc's largest economies – recently signaled their readiness to thrash out their differences over the deal. Chinese President Xi Jinping assured Indian Prime Minister Narendra Modi during the Mamallapuram informal summit that New Delhi's concerns of trade imbalance with Beijing would be taken into account. 

"The Chinese commitment to work with India for reducing the bilateral trade deficit – which is one of the biggest reservations India has on the RCEP – might have been just what India was looking for," noted Amitendu Palit, a senior research fellow and research lead (Trade and Economic Policy) at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS), in a recent piece

The relief for India will mean that its exporters can access 10 percent more Chinese product lines without facing tariff barriers, the Hindustan Times reported citing three people familiar with the matter. 

Indian negotiators and experts are stationed in Bangkok to fine-tune commercial and legal issues pertaining to the RCEP, an official with direct knowledge of the matter told Hindustan Times. They are expected to iron out key issues before the ASEAN Summit kicks off in the Thai capital on October 31.

India was given 10 days to resolve its differences with other RCEP countries after an earlier ministerial meeting in Bangkok on October 11-12 failed to arrive at a consensus on New Delhi's concerns. The key sticking point for India in RCEP has been its trade deficit with China, which New Delhi fears will increase once the pact is activated. 

At Mamallapuram, Xi addressed India's concerns by stressing on the "need to explore the gradual expansion of the 'China-India Plus' cooperation to South Asia, Southeast Asia and Africa, create a more unobstructed regional connectivity network, and strike the RCEP agreement as early as possible." 

"As the RCEP braces for a finish at the Bangkok ministerial, all eyes are on India. The Modi-Xi Summit might have assuaged Indian concerns over RCEP, perpetrating more imports and a wider trade deficit. But domestic opposition remains unabated," Palit remarked. 

RCEP is a proposed free trade agreement between the ten member states of the Association of Southeast Asian Nations (ASEAN) and its six FTA partners – China, India, Japan, South Korea, Australia and New Zealand. The talks on finalizing RCEP began way back at the 2012 ASEAN summit in Cambodia. 

These prospective RCEP countries are home to nearly 48 percent of the world's population and account for about 33 percent of the global GDP. Trade within the bloc comprises close to 30 percent of global trade, while the 16 countries collectively account for almost 33 percent of global investment. 

"If India remains out of RCEP, we will be left isolated from this large trading bloc. The trade among RCEP countries is about 2.8 trillion U.S. dollars. If India sits outside RCEP, whether it is in our interest or against our interest, it is also the responsibility of the government to see. You will want us to engage to find solutions which are in national interest," India's Commerce Minister Piyush Goyal said earlier this month. 

Challenges remain 

The RCEP ministerial meeting on October 11-12 reportedly discussed 14 issues of disagreements, five of which pertain particularly to India. /Photo via Twitter @PiyushGoyal

The RCEP ministerial meeting on October 11-12 reportedly discussed 14 issues of disagreements, five of which pertain particularly to India. /Photo via Twitter @PiyushGoyal

The ministerial meeting on October 11-12 – where Goyal led the Indian delegation – reportedly discussed 14 issues of disagreements, five of which pertains particularly to India. According to an Economic Times report, India wants to change the base year to apply reduced tariffs to 2019, from 2013; an auto-trigger mechanism to curb sudden surges in imports and decide on which products it doesn't want to offer the same tariff concessions to all countries; and future domestic policy concessions in investment and services sectors (called 'ratchet' in trade parlance). 

There's no official confirmation yet whether India has been able to strike a deal with all the RCEP countries on these matters. If an agreement remains elusive by Tuesday, Modi will have his task cut out at the ASEAN Summit in Bangkok (October 31 to November 4), where the leaders of the RCEP countries are expected to officially announce the final trade pact on November 4. The agreement will be signed in early 2020, according to reports. 

After putting the pending issues before the other heads of states or governments and depending on the response, Modi will have to take the final call on whether India remains in the RCEP or withdraws. 

India, meanwhile, is facing strong opposition against joining the RCEP domestically from the industry, farmers and civil society organizations. They complain various sectors of the Indian economy, including agriculture, dairy, services and data, would be impacted. 

"The challenge for the Modi government is huge. On the one hand, it is conscious of the importance of being in the RCEP. Whatever the fears on imports, economically, India is likely to face isolation if it opts out. The same value chains that are being castigated by domestic protest groups are India's hope for drawing in private investments in manufacturing and services if they run through India. They are the way forward in generating at least some new jobs in the local industry," Palit observed. 

He argued that giving up on the RCEP would mean a considerable loss of geopolitical goodwill for India. "India's hopes of being heard seriously in regional and global affairs would receive a rude jolt if it opts out of the economic order symbolized by the RCEP that is looking to bind Southeast Asia, East Asia, Oceania and India, through common trade and investment rules."

Palit contended that abandoning the RCEP would mean severely damaging India's credibility in working with multilateral and regional arrangements. "It might, in the foreseeable future, hurt India's efforts to project itself as a global leader in major initiatives like sustainable development and climate change. It would also inflict considerable harm on India's prospects of spearheading cross-regional initiatives like the BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation)," he said.

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