India meets big boys at RCEP

Jayshree Sengupta
Senior Fellow,ORF

The recently concluded Second RCEP (Regional Comprehensive Economic Partnership) summit which was held along with the 33rd ASEAN summit in Singapore was attended by Prime Minister Modi. It was an important landmark in the progress towards signing the mega trade treaty. Modi hoped for an early conclusion of the RCEP negotiations which have been going on for six years. The date of completion of negotiations has now been postponed to 2019 in view of the general elections in three of its member states — India, Indonesia and Thailand. 

It is very tempting to join the biggest trade deal in the world involving 16 countries that cover 30 percent of the world's GDP and nearly 50 per cent of the population. It encompasses the whole of ASEAN (Thailand, Singapore, Malaysia, Vietnam, Laos, Brunei, the Philippines, Indonesia, Cambodia, and Myanmar) plus Australia, New Zealand, India, China and South Korea and Japan — countries with whom the ASEAN has Free Trade Agreements. It is also the first trade deal in which China and India are together. India has been hesitating about it in the past because of the complex issues involved in the mega free trade deal. Indeed, India has to tread carefully before signing the RCEP treaty because of the huge tariff cuts it will have to undertake. Besides there are many sticking points in India's case as it wants certain conditions to be in place involving trade in goods and services and around issues involving the Indian pharmaceutical industry.

Over-the-top secrecy

The problem with RCEP is that since 2012, the meetings are conducted within closed doors and no one is allowed in to hear or participate in the proceedings except government officials. This is not the best way to negotiate mega trade deals in which the private sector, NGOs and civil society are not allowed to participate. Certain leaked documents regarding the pharmaceutical sector have been the only source of information regarding Intellectual Property Rights (IPR). The leaked draft shows that the Intellectual Property Rights and investment policy proposal will affect the access to affordable medicines and biomedical innovations across the Asia Pacific region. Japan and South Korea are pushing for provisions that go far beyond international rules (known as TRIPS plus rules) to extend drug corporations' patent terms which will introduce the most damaging form of clinical trial data monopolies. In other words, the two — Japan and South Korea want IP provisions that expand and introduce new monopolies for pharmaceutical corporations including data exclusivity, patent term extension and strict IP enforcement

Further, the stricter levels of IPR enforcement would delay generic drug competition and translate into higher prices for affordable drugs from producer to patient. For developing countries within RCEP, it would mean that most of the population which is without health insurance must pay higher prices for medicines 'out of pocket' and high prices will help keep lifesaving medicines out of reach for the poor. 

In general, RCEP aims to establish an integrated market among its member countries and has a wide ranging scope covering trade in goods and services, competition policy and investment and anti-trust law for foreign companies, economic and technical cooperation, Intellectual property rights and dispute settlement. But the problem is the different levels of development among the members. 

India’s qualms about Oz, China

India remains sceptical about granting market access to highly developed Australia and New Zealand because they do not have a FTA with India and opening up Indian agriculture would be difficult because both are big agricultural products exporters. Similarly stronger objections against signing RCEP have surfaced about granting low tariff access to Chinese products from the Indian textile and steel industries. India has been ready to offer tariff liberalisation on 74 per cent of goods to China, Australia and New Zealand — countries with whom India has not signed bilateral FTAs. The recently concluded meeting in Singapore has declared that all members should have bilateral FTAs with each other soon.

India-China FTA is difficult because China has excess capacity in the manufacturing sector which is financed by state-owned enterprises that gives it financial and infrastructural subsidies. These factors would offer deep competition to the aimed increase in manufacturing under Modi's India's 'Make in India' policy. As around 75 per cent of all Chinese goods will enter the country duty-free if India signs RCEP, it will raise the trade deficit with China to more than the current level of $63 billion. Surprisingly, today, China has become the new standard bearer for free trade. 

Easier with ASEAN, Japan

India will offer tariff relaxation on up to 86 per cent of traded goods to ASEAN, Japan and South Korea as these countries have already signed FTAs with India. All these tariff reduction will lead to much lower revenue collection plus an influx of cheap goods from the ASEAN and China.  

On the services side, India wants freer movement of IT and other skilled professionals and workers among RCEP members. In this context, India has referred to the ASEAN-New Zealand-Australia FTA which allows easier and transparent procedures for the temporary entry for natural persons engaged in the conduct of trade and investment.

Gains on labour side

On the brighter side, RCEP will offer India with opportunity to do more labour intensive manufacturing as multinationals would be attracted to set up manufacturing base in India and RCEP membership will enable them to access this large market. Movement of inputs without tariffs and frictions across borders of 16 countries would make any multinational company established in India doubly competitive. 

Signing the RCEP treaty will enable India to enter the global supply chain as it will be helped by frictionless movement between 16 members which will enable multinational companies to assemble the final products without hassles. It may also encourage regional supply chains involving BIMSTEC countries and ASEAN members in products that the region specialises in like bamboo and wood products, leather goods, garments, silk, handicrafts and jewellery.

The RCEP meeting concluded with three areas in focus: rules regarding e-commerce, competition and investment chapters that are still under negotiation and noted that negotiations of seven chapters have been completed. The moot question is whether it will be beneficial for India to join RCEP? It will depend on India's negotiating ability to get over the sticking points and get a better deal.