The story so far: The Association of South East Asian Nations (ASEAN), which announced the idea of a Regional Comprehensive Economic Partnership (RCEP) in 2012, is pushing stakeholders to conclude talks by the end of 2019 and take it forward. At the ASEAN summit which ended in Bangkok last Sunday, the Malaysian Prime Minister, Mahathir Mohamad, said he is willing to push through the trade agreement without India “for the time being.” Others said all 16 members must agree on the final RCEP document. India apart, Australia and New Zealand have raised concerns about joining such a partnership.
What is RCEP and why does it matter for the world?
Billed as the world’s biggest trade agreement, the RCEP of 10 ASEAN countries with its six free trade agreement (FTA) partners India, China, Australia, New Zealand, Japan and South Korea could well change the face of global trade as we know it. The RCEP includes countries that make up 45% of the world’s population with 33% of its GDP, and at least 28% of all trade in the world today. If the RCEP is concluded, it will bring stability to an otherwise unpredictable world market.
Why has it taken so long to negotiate?
This week marks the 26th round of negotiations for the RCEP, which are being held amidst high secrecy in Melbourne, Australia (June 22-July 3). So far, seven of the 18 final RCEP agreement chapters have been concluded. Six years later, the main stumbling blocks for the RCEP are the India-China trade relationship, as well as some concerns from Australia and New Zealand on labour and environmental protections.
In May this year, China proposed a plan to conclude the negotiations without the naysayers, i.e. take the ASEAN+3 (China, Japan and South Korea) into the agreement, while leaving space for India, Australia and New Zealand to join later.
For India, there are many reasons to stay in the deal. Apart from giving up the first mover’s advantage, India would give up the chance to frame the grouping’s rules and investment standards if it fails to join the RCEP at this stage. Staying out would also run counter to the Narendra Modi government’s plans to ramp up its engagement with ASEAN countries through the “Act East” policy, as well as its hopes for maritime cooperation in the India-Pacific.
Why is India holding up the deal?
India’s chief concern with the RCEP is the fact that it needs to protect its economy from the flooding of cheap imports from China. Of all the countries in the RCEP, India is the only one not involved in any bilateral or multilateral negotiations for an FTA with China.
Several industry groups have already petitioned the government not to go ahead with the RCEP, including manufacturers of steel and aluminium, copper, pharmaceuticals and textile, which will be the worst hit in such a scenario.
India’s trade deficits have only grown with each country it has an FTA with, and already has deficits with 11 of the 15 other RCEP countries.
India has asked for strict “Rules of Origin” markings on all goods, so they don’t come in through a third country.
In addition, India wants to ensure the free flow of services (manpower) to RCEP countries as well, but has faced an uphill task as most countries tighten their immigration laws.