India and the RCEP: Singapore Meetings and Beyond

The much awaited Singapore meetings of the trade ministers of member countries of the Regional Comprehensive Economic Partnership (RCEP) ended on 31 August 2018. India has not withdrawn from the RCEP and the trade agreement remains inconclusive even after 23 rounds of negotiations.

The RCEP negotiations for deeper integration among the ASEAN and its six FTA partners began in 2012 and were expected to be finalised first in 2015 and then in 2017. Successive deadlines were missed to a large extent on account of India’s demand for simultaneous negotiations of ‘goods and services trade’ liberalization as also its offer of tariff concessions lower than the other members, and differentiated in terms of number of tariff lines and time schedule for its FTA and non FTA partners, especially China. Thus far the ASEAN member states that have undertaken only limited domestic services sector liberalization have been resistant to India’s pressure for simultaneous negotiations. This, however, seems to have changed in the recently concluded Singapore meetings.

India’s concerns on goods and services liberalization have been taken on board. As regards goods trade liberalization, countries that do not have trade agreement have been allowed to undertake bilateral negotiations on tariff concessions in a certain range. India may use this concession in its negotiations with China for a differential tariff liberalization schedule vis a vis the other RCEP members. Member countries have also accepted India’s long standing demand of movement of professionals (mode 4) under services sector liberalization. Also much to India’s satisfaction the RCEP conclusion remains postponed.

While Indian hopes are pinned on the negotiations being dragged till end 2019, other members have emphasised on a ‘set of deliverables’ by November 2018 when the heads of the government are scheduled to meet and prior to that intensive negotiations are scheduled at the Auckland ministerial in October 2018.

Another aspect that has found little focus, but is significant is the investment component of the trade agreement. In the Singapore meetings, the RCEP member countries agreed to easier terms of investment liberalization particularly with regard to the ISDS (Investor State Dispute Settlement) clause. India finds this a favourable development as it allows for differential application among member economies. Simultaneously, this has led to positive expectations on possible increase in foreign direct investment inflows in India from member countries that include some of the largest global investors. While India may have much to rejoice about delayed conclusion of the RCEP as also a more relaxed set of rules on goods and investment liberalization, these do not necessarily ensure that India would actually benefit in terms of increased exports and/ or attract higher levels of FDI.

During a recent field visit supported by the Kalinga International Foundation (KIF) to Malaysia and Indonesia, a noteworthy sentiment shared across the spectrum of media houses, policy officials and business chambers was that India remains largely ‘terra incognito’ in the business psyche of these economies. Not only is India’s share small in these economies’ overall trade and investment, the idea of perceiving India as a possible investment opportunity has yet to gain firm ground. Trade, even though on a positive trajectory with these countries, continues to be in favour of the two countries and also constitutes a small share in their total trade. It was emphasized during the course of bilateral discussions that trade increase would happen if India were to bring quality products and enhance brand identification among the local population.

Therefore, even though the recently concluded RCEP negotiations while giving Indian negotiators reason to take pride in their diplomatic skills as also India’s attractiveness as a market, it cannot be the basis for India to consider this a success in the RCEP context. In fact the RCEP should be understood by India as a means to better integrate itself in the regional value chains. This will not happen if India continues to fight shy of exposure to competition and participation in preferential trade agreements as an equal partner. Trade enhancement and investment inflows will not happen even under liberalized norms till India opens up to competition and improves its business environment.

Although a move up of 30 ranks in the Doing Business Index (DBI) is commendable, India continues to be at the 100th position in the overall ranking among 190 countries. This is despite an improved performance in almost all sub-components of the DBI. Further, India has a below 100 rank in all but a few sub-components. For instance, in the ‘starting a business in India’ sub-component, India ranks below China, Mexico and even Bangladesh. Finally, India must capitalize on the delay in finalising the RCEP and upgrade its manufacturing sector competitiveness and doing business environment.

Professor Amita Batra is Professor of Economics, Centre for South Asian Studies, School of International Studies, Jawaharlal Nehru University, New Delhi

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