India decides to opt out of RCEP, says key concerns not addressed

Key issues include inadequate protection against import surge and insufficient differential with China.

RCEP Agreement explained: Why India chose to walk away
NEW DELHI: India won’t join the Regional Comprehensive Economic Partnership (RCEP) because concerns about getting swamped by imports under the agreement — putting its domestic industry and agriculture at risk — haven’t been assuaged. The RCEP, which includes China and the Association of Southeast Asian Nations (Asean), aims to cover about a third of the world economy and half its population.

“The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP,” Prime Minister Narendra Modi said in his address at the RCEP summit in Bangkok, according to a tweet by official broadcaster Prasar Bharati. “It also does not address satisfactorily India's outstanding issues and concerns. In such a situation, it is not possible for India to join RCEP Agreement.”

Commerce and industry minister Piyush Goyal said the decision not to join RCEP will boost ‘Make in India’ as he lauded Prime Minister Narendra Modi for his “bold and courageous decision to not join RCEP, since it was against our economic interests and national priorities”.



India runs a large trade deficit with RCEP countries and was looking for specific protection for its industry and farmers from a surge in imports, especially from China. The decision comes amid rising opposition at home with leading political parties stepping up attacks on the RCEP.

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Door on Negotiations not Shut, Says Former Niti VC Panagariya
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A joint statement by the RCEP countries said that the 15 remaining nations will begin formal work towards inking the pact in 2020 while still making efforts to resolve India’s objections. The 15 countries are the 10 Asean nations, China, Japan, South Korea, Australia and New Zealand. “India’s final decision will depend on satisfactory resolution of these issues,” said a statement issued in Bangkok late on Monday.

Professor of economics at Columbia University and former Niti Aayog vice chairman Arvind Panagariya said India hasn’t shut the door on the RCEP.

“I have always maintained that India should bargain hard in RCEP negotiations though with the intention to eventually join it,” he told ET. “India’s current stance is consistent with this prescription. There is room on the Indian side to give up on some of its current demands, but there is also room for India to win concessions on other demands. Statements by other 15 RCEP countries on India's position have been conciliatory and neither side has closed the door on further negotiations. So we must stay tuned!”

A Ministry of External Affairs (MEA) official said the move was the right step.

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“India conveyed its decision not to join the RCEP agreement,” MEA (east) secretary Vijay Thakur Singh told a press conference in Bangkok after the RCEP summit. “In the given circumstances, we believe not joining the agreement is the right decision.”

A trade expert who did not want to be identified welcomed the decision.

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“The move has given enough elbow room to India to be able to bilaterally resolve its issues with other countries,” he said. “The onus is now on other members. If they are unable to resolve our concerns, we will be out of it.”

CONCERNS, OPPOSITION
Domestic industry and dairy farmers had strong reservations about the trade pact. India’s trade deficit with the RCEP nations is $105 billion, of which China alone accounts for $54 billion. The main worry is over Chinese manufactured goods and dairy products from New Zealand flooding Indian markets, hurting domestic interests. The trade agreement was also seen as being detrimental to the government’s Make in India initiative.

India was looking for specific rules of origin to ensure the trade pact wasn’t abused by non-partner countries and an auto-trigger mechanism to protect it from a surge in imports.

Ecommerce and trade remedies were among other key areas of concern that failed to find satisfactory redressal. New Delhi had proposed different levels of tariff concessions for China to safeguard its domestic industry from cheap imports.

On the other hand, India didn’t get any credible assurance on market access and non-tariff barriers, official sources said. India was also worried about keeping 2014 as the base year for tariff reductions.

India had been consistent about raising these issues right from the start of RCEP negotiations, they said. Many of India’s earlier trade agreements had been lopsided and hurt domestic industry, they said.

“Poor negotiations under previous governments of free trade agreements (FTAs) caused harm to Indian industry and led to a distorted trade balance,” said one of them, adding that India was already reviewing its trade pacts with South Korea and Asean.

The sources said the previous United Progressive Alliance had also agreed to explore an India-China FTA in 2007 and join RCEP negotiations with China in 2011-12, blaming it for the lopsided deals. The impact of these decisions had resulted in India's trade deficit with RCEP nations increasing from $7 billion in 2004 to $78 billion in 2014, they said, adding that the domestic industry was still reeling under the impact of these decisions.

India made a strong case at RCEP for an outcome favourable to all countries and all sectors.

“When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer,” Modi said. “Therefore, neither the talisman of Gandhiji nor my own conscience permit me to join RCEP.”

He also said that in the last seven years of RCEP negotiations, many things, including the global economic and trade scenarios had changed, and that could not be overlooked.

The prime minister told the leaders at the summit that India had been proactively, constructively and meaningfully engaged in the RCEP negotiations since inception and had worked for the “cherished objective of striking balance, in the spirit of give and take.”

The Confederation of Indian Industry (CII) said it will continue to support and work with the government of India in its endeavor to integrate with the global economy through mutually beneficial trade agreements.

“CII appreciates government of India’s stance on addressing all outstanding issues before joining RCEP,” CII president Vikram Kirloskar said in a release. “CII welcomes the RCEP leaders’ joint statement acknowledging India’s very legitimate concerns and we urge all countries to work with India to resolve them. We sincerely hope that these issues will be resolved soon to the mutual satisfaction of all RCEP countries.”
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