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Question
India’s participation in the mega-trade agreement, Regional Comprehensive Economic Partnership (RCEP), has long been debated. Discuss India's concerns for joining the agreement. Why India wants strict rules of origin to be included under this agreement?
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Solution
Approach: - Give a brief introduction about RECP.
- Mention India’s Concerns for joining the agreement
- Provide reasons why India want strict rules of origin to be included
- Provide Conclusion based on arguments provided.
The Regional Comprehensive Economic Partnership (RCEP) is an ASEAN-centered proposal for a regional free trade area. It includes the ten ASEAN member states and those countries which have existing FTAs with ASEAN — Australia, China, India, Japan, Republic of Korea and New Zealand. RCEP aims to boost trade by eliminating most of tariff and non-tariff barriers.
Importance of RCEP for India - The RCEP will provide a boost to India’s Act East policy and will also influence the economic stature of India among the other South Asian countries.
- India’s trade with the RCEP group of countries as a percentage of its total trade has increased over the past decade.
- The greater economic integration with the countries of SouthEast Asia and East Asia achieved through RCEP, India will have access to vast regional markets of these countries thereby helping its economy.
- India can leverage advantage in areas such as ICT, IT-enabled services, healthcare, and education services. RCEP would help in expanding into these markets along attracting greater FDI into these areas.
India’s Concerns for joining the agreement: - India’s trade deficits with nations have always widened after signing free-trade-agreements (FTAs) with them, citing the cases with ASEAN, Japan, Korea, and Singapore, most of which are RCEP nations.
- It has also been pointed out that India’s vulnerable agriculture and dairy sectors, which are not in a position to compete with Australia and New Zealand, will be exposed to the vagaries of global trade.
- Indian manufacturing is not competitive enough to face the vagaries of a free trade regime.
- Even after 27 years of liberalisation, inefficiency prevails due to a host of unimplemented reforms in the product and factor markets.
- On the factor side, labour market reforms are incomplete. Labour productivity in manufacturing is still one of the lowest in the world with spatially fragmented labour laws are escalating the costs of doing business.
- Given this, Indian industry is hardly in a position to compete in the level-playing ground in a free-trade region.
- India apprehends that, given its $60-billion trade deficit with China, the RCEP demand to reduce tariffs on 90 per cent of the traded goods to zero will have a disastrous effect on its already struggling MSME sector.
- India is especially apprehensive about Chinese goods swamping its market, forcing domestic producers to cut production or shut down.
- India has expressed its reservations over inclusion of e-commerce in the RCEP talks.
- The RCEP draft is opposed to data localisation, while India fears the monopoly power of digital giants which includes the likes of Tencent and Alibaba.
- India has been insisting that any adoption of an agreement on trade in goods cannot be adopted without simultaneously adopting agreements on services and investments and any agreement on trade in goods without simultaneous agreement on services trade and investment will only harm India's interests.
India’s demand for strict rules of origin: - India wants strict rules of origin to prevent Chinese goods from flooding the country through member countries that may have lower or no duty levels.
- Chinese garments are making their way into India through the duty-free route under the South Asia Free Trade Pact and the Duty-Free Quota-Free window from Bangladesh. The Chinese are already taking advantage of our liberal rules of origin with neighbouring least developed countries including Bangladesh
- Rules of origin help to ensure integrity and sanctity of tariff differentiation.
Way Forward
RCEP as mega trade deal will improve the trade among the member countries but concern of India like opening up of service sector and strict rule of origin should also be addressed.
- Give a brief introduction about RECP.
- Mention India’s Concerns for joining the agreement
- Provide reasons why India want strict rules of origin to be included
- Provide Conclusion based on arguments provided.
Importance of RCEP for India
- The RCEP will provide a boost to India’s Act East policy and will also influence the economic stature of India among the other South Asian countries.
- India’s trade with the RCEP group of countries as a percentage of its total trade has increased over the past decade.
- The greater economic integration with the countries of SouthEast Asia and East Asia achieved through RCEP, India will have access to vast regional markets of these countries thereby helping its economy.
- India can leverage advantage in areas such as ICT, IT-enabled services, healthcare, and education services. RCEP would help in expanding into these markets along attracting greater FDI into these areas.
- India’s trade deficits with nations have always widened after signing free-trade-agreements (FTAs) with them, citing the cases with ASEAN, Japan, Korea, and Singapore, most of which are RCEP nations.
- It has also been pointed out that India’s vulnerable agriculture and dairy sectors, which are not in a position to compete with Australia and New Zealand, will be exposed to the vagaries of global trade.
- Indian manufacturing is not competitive enough to face the vagaries of a free trade regime.
- Even after 27 years of liberalisation, inefficiency prevails due to a host of unimplemented reforms in the product and factor markets.
- On the factor side, labour market reforms are incomplete. Labour productivity in manufacturing is still one of the lowest in the world with spatially fragmented labour laws are escalating the costs of doing business.
- Given this, Indian industry is hardly in a position to compete in the level-playing ground in a free-trade region.
- India apprehends that, given its $60-billion trade deficit with China, the RCEP demand to reduce tariffs on 90 per cent of the traded goods to zero will have a disastrous effect on its already struggling MSME sector.
- India is especially apprehensive about Chinese goods swamping its market, forcing domestic producers to cut production or shut down.
- India has expressed its reservations over inclusion of e-commerce in the RCEP talks.
- The RCEP draft is opposed to data localisation, while India fears the monopoly power of digital giants which includes the likes of Tencent and Alibaba.
- India has been insisting that any adoption of an agreement on trade in goods cannot be adopted without simultaneously adopting agreements on services and investments and any agreement on trade in goods without simultaneous agreement on services trade and investment will only harm India's interests.
- India wants strict rules of origin to prevent Chinese goods from flooding the country through member countries that may have lower or no duty levels.
- Chinese garments are making their way into India through the duty-free route under the South Asia Free Trade Pact and the Duty-Free Quota-Free window from Bangladesh. The Chinese are already taking advantage of our liberal rules of origin with neighbouring least developed countries including Bangladesh
- Rules of origin help to ensure integrity and sanctity of tariff differentiation.
RCEP as mega trade deal will improve the trade among the member countries but concern of India like opening up of service sector and strict rule of origin should also be addressed.
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