Originally Published 2015-01-06 00:00:00 Published on Jan 06, 2015
In the light of the fact that India is not a member of the Trans-Pacific Partnership, it is important for the country to forge a deal in RCEP. In the current scenario, there have been increasing attempts by Indo-Pacific region members to voice growing concerns regarding Non Tariff barriers hindering trade prospects in the regional bloc.
RCEP: The best way forward for Modi's 'Act East' Policy

In the current era of globalisation, there is a growing realisation that no country can tread the course of growth and development in isolation with the others. There is a growing economic dependency among nations. The production structure has evolved over time into integrated production networks where creation of value is spread across different parts of the world. Countries across the globe are in a rush to harness maximum gains from trade by negotiating mutually beneficial bilateral or multilateral agreements. In the backdrop of passive movement of World Trade Organisation led multilateralism, the countries across the world are pro- actively engaging in plurilateral agreements to carve economic benefits from various deals and are making continuous efforts to reduce existing geo-political tensions that pose a threat to the potential economic gains arising from the agreements.

Of late, India has also shown an active engagement in Regional Trading Arrangements (RTAs). It has recently signed a Free Trade Agreement in services and investment with 10 member countries of ASEAN, where an agreement in trade in goods preceded an agreement in services trade. Currently India is a member of the Regional Comprehensive Economic Partnership (RCEP), which includes 10 ASEAN members and its six FTA partners, namely, Australia, China, India, Japan, Korea and New Zealand.

The regional bloc RCEP accounts for almost 33 percent of World's GDP and approximately 45 percent of world's population. The negotiations for the partnership focussing on trade in goods and services, investment, economic and technical cooperation and legal and institutional issues began in 2013 and was planned to be concluded by 2015. But the objective of concluding the negotiations by 2015 seems unachievable given the inability of the sixteen nations to reach an agreement in the sixth round of negotiations held at New Delhi from December 1 to 5, 2014. India, South Korea and China offering a reduction of 40 percent of tariff lines against the other members demanding an 80 percent reduction, Japan pushing for stronger Intellectual property rights such as patents, India's concern for its widening trade deficit with China are some issues acting as impediments to the movement of talks. Given the comprehensive nature of partnership and the different levels of development of the member countries, reaching a conclusion would not be an easy.

On the conclusion of RCEP, the regional bloc would emerge as the one of the largest trading blocs as the bloc accounts for 40 percent of the world trade. Apart from seeking reduction in tariffs, the partnership also aims at reducing the non tariff barriers such sanitary and phyto-sanitary measures and Technical Barriers to Trade. Besides working on enhancing trade in goods and services and deepening investments, the comprehensive partnership has working groups focussing on competition, intellectual property rights, and legal and institutional issues like labour standards. Hence the RCEP would confer on the member countries not only the gains from trade in goods, services and better investment opportunities but also give a boost to overall development to the region.

India in the RCEP negotiations

India has made an initial offer to reduce the tariffs on 40 percent of the product lines and has agreed to reduce tariffs further in the future. The country has already reduced the tariffs on 79 percent of the product lines for ASEAN members under the India-ASEAN Free Trade Agreement but is hesitant to open its market up to same extent to the remaining five countries including China. Also India is seeking to strike a deal in services trade simultaneous to the agreement on trade in goods after its experience of negotiating a deal in services trade with ASEAN. Besides the extent of tariff reduction there are contradicting views within the country on whether it should agree to a positive or negative list on services.

Given the trade deficit of approximately USD 40 billion that India has with the Chinese manufacturing giant, India's hesitance in opening its market at once, to China and its new partners, New Zealand and Australia, with which India has not entered into any agreement before is not unreasonable. It is being widely propagated that the country's demand for time to reduce tariffs further for Australia, China, Japan and New Zealand should be just seen as a cautious move and shall not be taken to signal its refrain from liberalising.

However, in light of the fact that India is not a member of the Trans-Pacific Partnership, it is important for the country to forge a deal in RCEP. In the current scenario, there have been increasing attempts by the members of the Indo-Pacific region to establish peace and reduce geo-political tensions and voicing of growing concerns regarding Non Tariff barriers hindering the trade prospects in the regional bloc. Also the potential benefits like larger markets for India's services, increased participation in the Global Value Chains and its linkage effects on both India's secondary and tertiary sector, particularly on service sector as Global Value Chains make an extensive use of services highlight the importance of RCEP's conclusion for India. Thus till the next round of RCEP negotiations scheduled in February 2015, the country should make best possible use of the time to decide the most appropriate permutation and combination of offers it can make to derive the largest benefits. If the country is able to strike an agreement in services along with the one in goods, not only it would be able to counterbalance the deal in goods in the view of its slow growing industry, but also would be enabled to enjoy the gains from having comparative advantage in services which it missed in its FTA with ASEAN. The country is justified and should continue pushing for a simultaneous deal in services.

Indian policy makers are making constant attempts to revive the manufacturing sector in India and to make the Indian industry more competitive. If these efforts materialise and a deal in services is also achieved, it would be a win-win situation for the country. Also with the a larger integration in the global production network India's say in WTO is expected to increase and India would have a stronger voice in negotiating conditions for trade in services via Mode 4 i.e. through movement of persons, the potential of which yet remains largely untapped.

(The writers are with Observer Research Foundation, Delhi)

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Kangkanika Neog

Kangkanika Neog

Kangkanika Neog Programme Associate Council on Energy Environment and Water (CEEW)

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