India has decided not to join the China-led Regional Comprehensive Economic Partnership (RCEP) to shield domestic industries from unfair competition, wary of possible dumping of goods by China.
The RCEP is a proposed free trade agreement (FTA) of 10 ASEAN member states, China, Japan, South Korea, Australia and New Zealand. India opted out of the deal on 3 November.
The proposed trade pact aims to reduce tariffs and duties between member states to allow free movement of goods and services between them.
With India, the RCEP would have been the world’s largest trading group having 45% of the world’s population.
Indian Prime Minister Narendra Modi cited certain unaddressed core issues, explaining the decision not to join the trade agreement.
The south Asian country had pitched for an auto-trigger mechanism to prevent any sudden and significant import surge from countries like China, a commerce ministry official said.
Another requirement was stricter origin-of-product norms to curb abuse of the FTA, he said.
Additionally, India also wants to change the base year for tariff cuts from 2014 to 2019 which would allow for a level playing field.
“Indian tariff rates are significantly higher than most other RCEP nations. The country would be required to go in for steep cuts if the base year was set at 2014,” the ministry official said.
Under the RCEP, India would have been required to cut or eliminate tariffs on nearly 80% of Chinese imports; 86% on imports from Australia and New Zealand and 90% on imports from Japan, South Korea and the ASEAN countries, he added.
LOCAL INDUSTRIES WELCOME THE DECISION
“This is a good decision. Serious apprehensions and reservations on RCEP have been expressed by a large number of sectors including steel, plastics, copper, automobiles, chemicals, petrochemicals and others,” said Sandip Somany, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).
Most industry players were worried about dumping of goods by China into India, which would overwhelm the local market and reduce opportunities for domestic players, Somany said.
In 2018-19, India’s trade deficit with China stood at $53bn, while its total deficit for the year with all RCEP countries stood at $105bn, based on official data.
“China is the world’s biggest manufacturing hub and they would have got the opportunity to dump their products in India at low prices,” said Praveen Khandelwal, secretary general of Confederation of All India Traders (CAIT).
“The RCEP agreement was not providing Indian exporters with any assurances of access to markets like China while the pact would have opened up India’s markets to Chinese products,” said S C Ralhan, former president of the Federation of Indian Export Organisation (FIEO).
"We should first strengthen the domestic industry and then participate in such agreements," he added.
RCEP SEEN AS DETRIMENTAL TO SMES
In its current form, the RCEP pact could severely impact India’s micro, small and medium enterprises (MSME) sector which would render the Indian government’s “Make in India” initiative ineffective and could potentially lead to huge job losses, the commerce ministry official said.
India’s MSME sector employs a large bulk of India’s workforce.
The RCEP pact would "kill the Indian manmade textile industry", which is largely comprised of MSMEs as underpriced polyester imports from China would have flooded the market, said Ashok Jirawala, president of Federation of Gujarat Weavers’ Welfare Association (FOGWA).
China, which is the world’s second-biggest economy, is currently locked in a 16-month trade war with the US.
The Confederation of India Industry (CII), which had supported the RCEP agreement, said it would continue to engage with the government to ensure that the Indian economy got integrated into the global value chain.
“CII will continue to work for a mutually beneficial trade agreement,” Vikram Kirloskar CII president said in a statement. Trade agreements that were beneficial to Indian interests would help the country integrate faster, he added.
A joint statement by the RCEP countries said that the 15 remaining nations would make efforts to resolve the objections raised by India even as they work towards formalizing the deal by 2020. - ICIS -