By Devanshee Dave
On Monday, Hanoi (Vietnam) became the focal point for the ministerial meeting of RCEP Nations. The RCEP (Regional Comprehensive Economic Partnership) is a trade pact between sixteen nations including ten Association of South-east Asian Nations (ASEAN) nations and six Free Trade Agreement (FTA) partners- China, Australia, India, Japan, South Korea and New Zealand. This pact is an attempt to foster free trade agreement for goods, services and economic and technical co-operation ensuring minimal national trade policy interference
The sixteen countries that are a part of this pact account for more than a quarter of the worlds economy amounting to $75 trillion. The RCEP looks to create a free trade area by connecting 3.5 billion people (45 percent of the worlds population). By way of capturing $21.3 trillion (nearly 30% of the worlds GDP), it will also become the largest concordat.
The strain on India to reduce tariffs
The main focus of this agreement is to reduce import tariffs on a maximum number of goods. In the wake of this agreement, India is being expected to cut import duty to zero on more than 90% of goods. Many other nations have agreed to cut down tariffs but this step poses a serious threat to India.
It is feared that China may start dumping its products in Indias domestic market. Apart from China, countries like Australia and New Zealand continue to pressurise India regarding tariffs, even though it has formally agreed to provide concession on over 80% of goods as per foreign trade agreements entered into with most ASEAN countries.
China looms threateningly
India already stands at a bilateral trade deficit amounting to $53 billion in 2015-16 (previously $1.1 billion in 2001-02) against China. More reduction in tariffs will increase the amount of trade deficit. Heavy industries like steel and textile will have to face negative outcomes as China will not relinquish the chance to take over India’s market.
The RCEP is very important for China, as it is excluded from the Trans-Pacific Partnership (TPP). Further, Japan, South Korea, and Australia are geographically advantageous for its ambitions. India has already taken a tough stance against Chinas One Belt One Road (OBOR) project. China will continue to back the RCEP, whether India likes it or not. It is important to note that two chapters of the pact have already been concluded and China will push for a positive outcome before the year ends.
Degradation in labour environment
The destabilising of a conducive labour environment is another severe threat of the RCEP, which is rigid in terms of labour rights and does not emphasise on sustainable employment. It may end up fostering the exploitation of workers and no avenue to fight for their rights.
The RCEP favours foreign companies with unscrupulous Investor-State-Dispute-Settlement Mechanism (ISDS), giving them the unbridled power to challenge government policies and judicial decisions. In one such instance, Philippines has had to pay US$ 58 million to a foreign company. Such a huge amount creates an additional burden on the already crippling finances in the developing world.
Furthermore, the agricultural industry in India will have to compete against foreign crops that will lead to excessive competition in the domestic agricultural market. At present, farmers are facing torrid times and suicides are rampant. Politically, this will affect the current government as the RCEP would most probably clash with the 2019 Lok Sabha elections.
Rocky road ahead
Not conforming to RCEPs terms may prove risky for Indias efforts to become a member of the NSG (Nuclear Suppliers Group). China may oppose this proposal for the second time as well since India has not agreed to Chinas proposed Silk Road project. India could also opt out of signing certain provisions agreed upon by other countries but not preferred by her.
The only benefit available to India under this agreement is a free cross-border trade. Nevertheless, India has already signed Free Trade Agreements with the ASEAN, Japan, and South Korea. In addition to that, Prime Minister Narendra Modi has proposed a new Asia-African Growth Corridor (AAGC) with Japan. This initiative will benefit many nations and create a new path for Indian trade (in addition to competing against Chinas OBOR project).
These options give leeway to India and provide an option to back out of RCEP. The upcoming RCEP ministerial meeting is going to be held in the Philippines in September this year, by which time India can decide between opting out or negotiating terms to be a part of this agreement.
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