ASEAN @50 AND THE RCEP

RCEP

  • Regional Comprehensive Economic Partnership (RCEP) is an initiative to link the ten ASEAN member states and the group’s Free Trade Agreement partners, Australia, China, India, Japan, South Korea and New Zealand.
  • In total, the grouping of 16 nations includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade.
  • RCEP was set up in November 2012 at the ASEAN Summit in Cambodia
  • The latest and 13th round of RCEP negotiations had taken place in New Zealand from 12 to 18 June 2016.
  • If negotiated successfully, RCEP would create the world’s largest trading bloc .
  • The core of the negotiating agenda would cover trade in goods and services, investment, economic and technical cooperation and dispute settlement. The partnership would be a powerful vehicle to support the spread of global production networks and reduce the inefficiencies of multiple Asian trade agreements that exist presently

Significance of RCEP for India

  • The RCEP would enable India to strengthen its trade ties with Australia, China, Japan and South Korea, and should reduce the potential negative impacts of TPP and TTIP on the Indian economy.
  • The RCEP agreement would complement India’s existing free trade agreements with the Association of South East Asian Nations and some of its member countries, as it would deal with Japan and South Korea.
  • It would be the world’s largest trading bloc covering a broad spectrum of issues such as trade in goods, services, investment, competition, intellectual property rights, and other areas of economic and technical cooperation.
  • From India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its act east policy.
  • RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory. The RCEP is expected to harmonize trade-related rules, investment and competition regimes of India with those of other countries of the group. Through domestic policy reforms on these areas, this harmonization of rules and regulations would help Indian companies plug into regional and global value chains and would unlock the true potential of the Indian economy. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
  • India enjoys a comparative advantage in areas such as information and communication technology, IT-enabled services, professional services, healthcare, and education services. In addition to facilitating foreign direct investment, the RCEP will create opportunities for Indian companies to access new markets. This is because the structure of manufacturing in many of these countries is becoming more and more sophisticated, resulting in a “servicification” of manufacturing.
  • India’s skilled workforce will find new avenues(in member countries) of employment as part of trade in services.

 

Challenges In Final Negotiation Of RCEP

Finalizing the RCEP will not be a cakewalk for India and other countries involved in the negotiations as there are a range of issues that could act as spoilers.

  • Huge economic disparities among the negotiating countries are likely to pose a challenge
  • An inevitable source of trust deficit between China and the rest which has the potential to constrain regional economic cooperation is China’s aggressive postures on territorial disputes with Japan and India and with ASEAN member countries on the South China Sea disputes.This can pose as a hurdle in final negotiation of RCEP
  • The existing 5 ASEAN+1 and 23 ratified bilateral FTAs, varying greatly in their terms, pose a significant hurdle to RCEP negotiations.
  • The lack of commonality across FTAs and varying internal policies of countries would prove to be a difficult task to harmonize and consolidate under RCEP.

 

Challenges And Concerns For India From Joining RCEP

For New Delhi, following challenges lie ahead.

  • First, tariff barriers, which have been a matter of discontent in bilateral FTAs, particularly in the case of the ASEAN-India FTA, will be central to the negotiations in the upcoming rounds of RCEP negotiations.
  • Humanitarian aid organisation Médecins Sans Frontières (MSF) has warned India that the country will not remain ‘pharmacy of the developing world’ if the proposals in the Regional Comprehensive Economic Partnership agreement (RCEP) are adopted
  • For India, agreeing to data exclusivity will mean amending the Drugs & Cosmetic Act (FDA law) so that the Indian Drug Regulatory Authority (DRA) is prohibited from registering a more affordable version of a medicine as long as the exclusivity lasts over the clinical trial data.
  • Non-trade issues such as environment and labor are likely to be prickly as well and need greater attention. Many Countries in RCEP want a stricter norms and standards on environment and labor issues while India’s interest lie in liberal environment and labor norms as this makes Indian industry competitive. India therefore should bat for liberal environment and labor norms while negotiating in RCEP.
  • India must take steps to strengthen its Medium, Small and Micro Enterprises (MSME) sector, equipping it not only to survive the free flow of trade, but also to become a set of more competitive players. Higher investments in R&D and achieving international standards in terms of delivery are needed.
  • An internal commerce ministry estimate that signing the 16-country Regional Comprehensive Economic Partnership (RCEP) trade agreement will result in a revenue loss of as much as 1.6% of GDP
  • Finally, a major difficulty for India will be negotiating terms with China. India has to be firm and calculative in terms of taking tough policy decisions, while working tirelessly on capacity building of its domestic industries.

 

Recent Point Of Contention In RCEP Negotiation

  • Recently in the 12thround of RCEP talks The members of the Regional Comprehensive Economic Partnership (RCEP) have, in a sort of ultimatum, asked India to either to consent to eliminate tariffs on most products quickly or leave the talks on the proposed Free Trade Agreement (FTA) that is being negotiated by RCEP itself.
  • A leaked copy of the intellectual property text being discussed at RCEP negotiations shows that Japan and South Korea have made several “alarming” proposals to include intellectual property rules that go beyond what international trade rules – agreed under World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) require. Two of the most worrying proposals in the trade deal is the demand for ‘Data Exclusivity’ and ‘Patent Term Extensions’– both intellectual property obligations that Least Developing Countries (LDCs) were completely exempted from until 2033 according to the WTO TRIPS agreement.
  • The members of RCEP are irked by what they think as India’s obstructionist, defensive and half-hearted approach” that is “delaying” the result of the talks
  • Some member countries, particularly 10- members ASEAN bloc, want India to take a long-term approach and consent to eliminate deities (except in agriculture and industrial goods) on a higher threshold within a decade to help India get the benefit of the opportunities arising out of Global Value Chain.

 What has been the stand of India over negotiations?

The conditions of Indian economy demand that India should take a cautious stand over RCEP. India’s overall stand could be understood as follows:

Regarding goods, India had earlier proposed a three tier tariff reduction plan in tariff, based on whether India has an existing FTA or not. Under this plan, India proposed 80% tariff cuts to 10 ASEAN countries {we have India-ASEAN FTA}; 65% to South Korea and Japan {we have bilateral FTAs with them}; and 42.5% to China, Australia, New Zealand with which we have no FTA in place. But the other countries were pushing for a single tier system. In August 2016, it was reported that India has agreed to the single tier system. If this happens, then the most benefits would be accrued by China which imports more and more Iron ore from India but not other commodities. The loss incurred to economy due to goods must be recovered from services, in which India has apparent advantages.

Regarding Services, India has been seeking greater market access and had been insisting on a single deal which includes goods, services as well as investments. Thus, we think that we can supply skilled professionals and services and thus RCEP can help to create more jobs. For this, there is a need of easier visa regime too. But, trade in services is a major contentious issue in RCEP.

India-ASEAN trade agreement in services was also achieved after great hurdles posed by Philippines which considers India’s skilled manpower threat to its own service industry. Current position is that most countries are reluctant to open up their labor market.

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