RCEP negotiations: Will industry benefit?

The 20th Round of negotiations for the 16-nation Regional Comprehensive Economic Partnership (RCEP) Agreement started in Seoul, Korea early this week. The original objective was to have the RCEP in place by the end of this year so that countries could benefit. But the demise of the Trans Pacific Partnership (TPP) due to the US pull out early this year has slowed down the speed of negotiations for the RCEP as well.

The urgency to complete the negotiations is missing.  RCEP member countries include the 10 countries of ASEAN, Japan, South Korea, China, Australia, New Zealand and India. The question is whether the delay in finalising the agreement is beneficial for business in India? To answer this question, there is a need to look at the benefits Indian industry has garnered following the various free trade agreements that have already been signed and are in operation.

The important trade agreements that were signed between 2009 and 2011 are the India-ASEAN agreements, the Japan-India Comprehensive Economic Partnership Agreement and South Korea-India Comprehensive Economic Partnership Agreement. These agreements that were the fall out of India’s ‘Look East’ and now ‘Act East’ policy have not been very fruitful for industry in terms of market access.

The reasons are many. But the specific issues that have stopped Indian companies from accessing these markets include lack of understanding on how the FTAs may be used effectively, inverted duty structures that have made some products uncompetitive, strict standards and regulations in these markets that have to be complied and finally the lack of comfort among Indian companies to move from traditional markets in the West to new markets in the East. Therefore, the RCEP negotiations need to be handled with care if India wants to get into the agreement to gain market access. As long as the objective is only geo-political and not economic then the current interest and participation by industry in these negotiations is enough.

But if industry in India views these negotiations as being critical to remain competitive in the region there is an urgent need for providing some strategic inputs to the negotiators. The three main areas where the manufacturing sector needs to provide inputs will be on tariff preferences to be provided and requested from other trade partners, rules of origin (RoO) that help countries get tariff preferences when their goods access other member country markets and finally the need for greater transparency and harmonisation in standards and regulations on products across the 16 participating countries.

There will also be a need for better understanding on how the negotiations on rules that cover issues such as anti-dumping and subsidies are negotiated. On tariffs, industry may want to move away from the very limited objective of barring imports to studying how some strategic opening can build competitiveness, as well, for industry in India. The idea should be to ensure that India, without doubt, has to follow a strict standards regime to stop low-cost substandard imports.

It would not be enough to have a strict standards regime alone but also have a strong compliance mechanism that is also applicable to the domestic industry.  On issues such as rules of origin, industry needs to work on the whole production cycles on provide inputs to the negotiators to bring home a useful RoO criteria for industry sectors with export interests.

One area where India is focused its attention for the present in the RCEP is on obtaining a fairly healthy offer from other countries in the area of services. But given the aversion of other member countries to movement of professionals the negotiations are not moving fast enough for India.

New Delhi is making it evident to other member countries that a lack of progress in services could hamper progress in the area of goods as well. India is seeking to balance the gains and losses between the goods and services negotiations.  Industry can help the Government by providing some important inputs for the services negotiations. It is important for industry to realize that 50 per cent of any manufactured goods consist of the services element and, therefore, a strong services outcome is very important for India’s economic growth.

RCEP negotiations have the required ingredients for delivering a very strong benefit for industry in India. But there is an urgent need for industry to provide some substantial inputs across the board rather than tinker with some incremental inputs in select sectors.

Source: The Pioneer