Countries in East Asia region have thriving trade and economic relations with each other through free trade agreements. The Association of Southeast Asian Nations (ASEAN) has free trade agreements with six partners namely People’s Republic of China (ACFTA), Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA) as well as Australia and New Zealand (AANZFTA).
In order to broaden and deepen the engagement among parties and to enhance parties’ participation in economic development of the region, the leaders of 16 participating countries established the Regional Comprehensive Economic Partnership (RCEP). The RCEP was built upon the existing ASEAN+1 FTAs with the spirit to strengthen economic linkages and to enhance trade and investment related activities as well as to contribute to minimising development gap among the parties.
The current ASEAN+6 framework was originally proposed by Japan, in competition with the ASEAN+3 framework suggested by China. ASEAN+3 mean ASEAN and three of its trading partners, China, Japan, South Korea (CJK). Japan proposed the inclusion of Australia, New Zealand and India to dilute China’s influence within the region. Despite this disagreement between the regional frameworks proposed by China and Japan, ASEAN pitched for the RCEP to assume leadership of the group and respond to the evolution of the China-Japan-Korea (CJK) FTA and Trans Pacific Partnership (TPP).
In August 2012, the 16 Economic Ministers endorsed the Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership. The RCEP negotiations were launched by Leaders from 10 ASEAN Member States (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) and six ASEAN FTA partners (Australia, People’s Republic of China, India, Japan, Republic of Korea, and New Zealand) during the 21st ASEAN Summit in Phnom Penh, Cambodia in November 2012.
The objective of launching RCEP negotiations is to achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement among the ASEAN Member States and ASEAN’s FTA partners. The negotiations commenced in early 2013.
The RCEP negotiation includes: trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs) and other issues.
The Regional Comprehensive Economic Partnership (RCEP) is a proposed mega-regional Free Trade Agreement (FTA) between 16 Asia-Pacific countries including the 10-member ASEAN countries, China, Japan, India, South Korea, Australia and New Zealand.
RCEP has the potential to deliver significant opportunities for businesses in the East Asia region, given the fact that the 16 RCEP participating countries account for almost half of the world’s population; contribute about 30 per cent of global GDP and over a quarter of world exports. RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
A unique importance of the ambitious RCEP formation is that it contains the three biggest economies of Asia – China, India and Japan. The trade arrangement has big future potential as it holds the two of the fastest growing largest economies – China and India. The RCEP, when realized will become the largest trade bloc in terms of population with nearly 3.5 billion people.
Interestingly, the RCEP’s trade agenda is quite broad as well as deep compared to large number of other trade arrangements.
Formation of the RCEP is not easy because of several economic and political hurdles.
There are huge economic dissimilarities between the trading members. China is highly industrialized and is a trade powerhouse. India has more development objectives while connecting with trade. Japan and South Korea are innovation economies that excelled the world. Other ASEAN economies have long history of running FTAs though they are small in size.
Similarly, there are differences about the extent of trade liberalization. China wants more commodities and higher tariff cuts. India on the other hand, prefers some restrictions as the country’s industrial sector is trying to rise under schemes like Make in India. Overall, most of the partners have a notion that China may dominate the RCEP because of its huge economy and well competitive industrial sector advantages.
Politically, there is less synergy between the RCEP members in the context of unresolved territorial dispute of China with other members – Japan, China and some other East Asian economies.
Joining the RCEP is important for India since it is not part of the other proposed large Regional Trade Agreements like the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment partnership (TTIP).
Trade Deficit with China:-India has a trade deficit with ASEAN as well as with other partner countries of RCEP. China alone accounts for 60% of the trade deficit. According to NITI Aayog, at a time of growing protectionism and US’s stance towards China, opening India’s market for China may not be a smart move and can backfire. India’s trade with China is much skewed and lowering tariffs could lead to unrestricted imports into India with very limited access for Indian exports into the Chinese market.
Impact on Agriculture and allied Activities:-Agriculture and allied sector in India has already been facing adverse effects due to India-ASEAN FTA despite of the relative high protection, and a tariff-coverage of 73-80%. Under RCEP, if tariff cuts are materialised they will cover 80-92% of products, and hence there will be adverse impact on Indian farmers due to heating up of competition. Further, there are concerns that New Zealand’s export-oriented dairy products will negatively impact India’s growing dairy sector, which is largely small-scale.
Impact on Manufacturing: – There are concerns that RCEP will have adverse impact on Indian manufacturing sector while competing with cheaper products from ASEAN and China. According to civil society representatives, reduction of import duties to promote global value chain will lead to mass layoffs, low wages and exploitation of labour. Further, Japan and South Korea has asked India to eliminate export restrictions on minerals and raw materials. This may threaten domestic raw material availability for industrialisation and encourage over-mining. Indian experts opine that this would lead to a new form of neo-colonialism.
Issues related to Intellectual Property Rights and Health Sector: – There are allegations that Japan and South Korea have been advocating for ‘TRIPS Plus’ IP protection regimes in the RCEP. The provisions include patent term extensions, seizure of suspected IP-infringing medicines in trans-shipment and damages for patent infringement determined according to the value assessed by the patent owner. If these proposals are agreed upon, then it could adversely affect the generic medicine sector in India, by undermining provisions in Indian Patents Act. A strong IPR regime based on patent term regime and data exclusivity will hinder India’s cheap supply of drugs, specially related to HIV/AIDS to developing countries, especially in Africa.
Impact on E-commerce: – The e-commerce rules in RCEP impose binding rules that will mandate India to give away data to large multinational companies. Critics opine that this would have privacy and security issues for not only individuals but also the government. Further, critics speculate that wholesale duty-free import of goods by e-commerce giants like Alibaba in China will threaten local products developed by SMEs and domestic job creation in those segments.
Demand for labour movement: – At RCEP negotiations, India has demanded for both Mode 3 (investments) and Mode 4 (movement of people) with a RCEP business visa for professionals. However, RCEP countries like Australia and Singapore have been unwilling to accommodate India’s demands to liberalise their services regime and allow freer mobility of Indian workers
India seems to have resisted the pressure to agree to specific commitments in goods, services, and investment and other areas in Hanoi. But a push for negotiations to be concluded by this year seems to have been agreed, even if not in very specific terms. Conclusion this year will be highly premature. India needs to assess its own choices and weigh the impact on its whole policy space vis-a-vis the narrow base of the advantages that RCEP may offer.
Despite these concerns, the government must take into account the deeper strategic pitfalls of either slowing down India’s RCEP engagement or walking out of the talks at this stage. Doing so would cut India out of the rules-making process for the RCEP and give China further space in the regional trade and security architecture. At a time when the U.S. has broken from the global concord on multilateral trade agreements, an Indian walkout would endanger the united message that RCEP countries, which represent 30% of the global GDP, would wish to send out. It would also be a sharp departure from India’s “Act East” slogan and its extended outreach to ASEAN.