The Hindu Explains | Why did India stay out of the RCEP deal?

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What were his concerns and is there a possibility of returning to the group later?

The story so far: November 15 the Regional Comprehensive Economic Partnership (RCEP) has been signed by 15 countries led by China, Japan, South Korea, Australia, New Zealand and the ASEAN Group of 10 countries. It is billed as one of the largest free trade agreements (FTAs) in the world, accounting for nearly 30% of global GDP covering 30% of the world’s population. After long negotiations, India left the group last November, saying he wanted to protect his economy from rising trade deficits with a number of RCEP members. India’s decision is still the subject of much debate, and RCEP has left a special window open for India to join at a later date.

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Of the 15 RCEP countries, India had previously signed an FTA with the Association of Southeast Asian Nations (ASEAN), as well as with Japan and South Korea, all three of which are currently under review. “If you look at India’s experience with the free trade agreements already signed with the ASEAN group, South Korea and Japan, you will see that India’s trade deficit with these countries or groups has very sharply increased during this period, ”says R. Ramakumar, NABARD Full Professor at the Tata Institute of Social Sciences, which supports India’s decision to leave RCEP, saying that between 2011 and 2019.“ The trade deficit of India with ASEAN went from around $ 5 billion to around $ 22 billion, [now pegged at $24 billion, according to government reports in August], “he says. Over the past decade, our trade deficit with Japan has fallen from $ 4 billion to about $ 8 billion, he points out, and with South Korea, from about 8 billion to $ 12 billion.

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The trade deficit with China has grown from around $ 4 billion in 2005-06 to nearly $ 50 billion today, even without a trade deal. In fiscal year 2019-2020, India’s trade deficit with China was $ 48.64 billion, which was lower than the trade deficit of $ 53.56 billion in 2018-2019.

Why are trade deficits increasing?

Other experts dispute the FTA argument on two counts. In a 2019 article titled “ India’s Trade Agreements and the Future of Indian Trade Policy, ” Johns Hopkins University professor Pravin Krishna explained that while deficits have increased for the India in all foreign trade, India’s FTAs ​​or PTAs (preferential trade agreements) do not. represent a larger share of the trade deficit than before. “Trade deficits with India’s bilateral partners accounted for 12.6% of the overall trade deficit in 2007. In 2017, they were 7.5% considerably lower,” the document said. Another explanation for the growing trade deficits comes from the slowdown in India’s GDP since 2016 and the decline in the manufacturing sector. In addition, says Amitendu Palit, senior researcher at the Institute for South Asian Studies at the National University of Singapore, FTAs ​​are not the only reason imports from RCEP countries, especially China , increase. “If you look at China, 75% of China’s inputs on machinery, bulk drugs, chemicals and other equipment are [goods] which are not available in India in sufficient quantities or at competitive prices. Some argue that imports from China would have been inundated if India had entered RCEP, but haven’t they already inundated the country? Mr. Palit asks.

How has the COVID-19 pandemic changed the debate?

The COVID-19 pandemic has left the global economy in a state of disarray. For the first time in 60 years, almost all of the countries in the RCEP grouping are facing a recession. Fears of individual losses, combined with the global trend against globalization, are pushing countries to form smaller trade coalitions outside the World Trade Organization. In addition, travel between countries is limited by the spread of the virus, which further promotes local or regional trade and travel bubbles. As the world’s second-largest economy and one of the few to post GDP growth this year, China offers potential investment to RCEP countries, which was another incentive for them to close the deal on time, without delaying it at some point after the pandemic. . On the other hand, India’s tensions with China over the PLA’s (People’s Liberation Army) attacks on the real line of control this year, and the continuing standoff between their armies have hardened its position. on the RCEP, and officials say the events of the pandemic “confirmed” India’s stance on not being part of the consortium.

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Who wants India?

Several RCEP countries are still hoping India will reconsider its decision to stay away. For Japan and Australia, the large size of the Indian economy and its weight in the negotiations would constitute a valuable counterpoint to China within the group. It is for this reason that Japan led the drafting of the special statement on India, which would waive the mandatory 18-month waiting period if India formally applied to join the group. For the ASEAN countries that led the RCEP negotiations, India’s presence would give weight to the centrality of the ASEAN grouping in the region. The importance of attracting India to the deal was underscored when the leaders of the ten ASEAN countries visited India as the main Republic Day guests in 2018. For China too , having India in the RCEP tent would not only open up India’s market access for Beijing, but would also provide one more forum on which to cooperate without including the United States (US), their biggest rival.

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Finally, the question arises as to how the Quad (Quadrilateral Safety Dialogue) would work on economic issues, particularly in terms of securing supply chains, with We go out of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), and India’s exit from RCEP.

Has RCEP responded to India’s concerns?

India’s concerns on Chinese products flooding the Indian market through other markets under RCEP, without clear guidelines on rules of origin, find a clear mention and an entire chapter dedicated to it in the final 20-chapter RCEP text, despite the fact that India is no longer in the grouping. There is also a chapter on the authorization of trade in services (Chapter 8), in particular financial services, telecommunications and professional services, which was another key request from India during the seven years it has continued to negotiate the RCEP. In addition, there is a summary of the objections of various RCEP members to different parts of the agreement, which are expected to be resolved over the next several years as the treaty goes through the ratification processes in the region. Even so, the Indian government says there is no way to rethink the decision to stay out of RCEP. India has skipped all the group’s meetings over the past year.

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The next big question is whether India will accept the invitation of RCEP countries to be an “observer” at their meetings. Asked this week, the spokesperson for the Ministry of External Affairs, Anurag Srivastava, refused to answer directly. “Our position regarding RCEP membership is well known. We have expressed our position not to join RCEP, as some of the important issues of central interest remain unresolved, ”he said. On November 16, External Affairs Minister S. Jaishankar declared that the “mantra of an open and globalized economy” was being used to justify unfair trade and production practices against India. “The past trade agreements have had the effect of deindustrializing certain sectors. The consequences of future commitments would lock us into global commitments, many of which are not to our advantage, ”he said. Without directly mentioning the RCEP, the Minister said that India did not plan to use the special window at the moment and that, rather than suffering from trade deficits resulting from various FTAs ​​signed by India, India would prefer to do so. go it alone, or as he said, “have the courage to think about the problem for ourselves.”

(With contributions from Ananth Krishnan)

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