RCEP - Tariff Wars

Why in news?

The ministerial level meeting for RCEP, scheduled currently is expected to see tough negotiations on tariff duties. 

What is the background?

• Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the members of ASEAN and the six other countries - Australia, China, India, Japan, South Korea and New Zealand.
• RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
• The agreement is scheduled to be finalized by the end of 2017.
• RCEP is viewed as an alternative to the Trans-Pacific Partnership.

What are the problems?

• Rigid stands of other nations demanding India to remove import duties on more than 92% of all goods (both agricultural & industrial) is presently making negotiations unsustainable.
• This would mean almost entirely dismantling the wall protecting Indian industry and farmers from indiscriminate competition.
• Considering the disastrous consequences of such a move & the rigidity of others, India would find it difficult to reach a compromise and risks being isolated.

What are India’s concerns?

• While New Delhi was willing to eliminate tariffs on a considerable number of items on a country to country basis, it is being pressured into treating all members equally, along with almost complete tariff elimination.
• For a country like India, with a large ‘sensitive agricultural setup’ and labour-intensive industrial sector, bending to such exorbitant demands is impossible to meet.
• China Fear - The biggest of worry is the unhindered flow of goods from China with which India already has an annual trade deficit of over $50 billion.
• A Free Trade Agreement (FTA) with no duties on most products could increase this deficit significantly.

How has the negotiations progressed thus far?

• The gradual cornering of India by RCEP partner countries is reflected in the how the negotiations have progressed.
• 1^st Proposal - India initially proposed a three-tier system for tariff elimination that was country specific.
• The proposal vouched a reduction of - 42.5% of tariff lines for China, New Zealand and Australia, 65% for South Korea and Japan and 80% for ASEAN.
• This was rejected by all members including the ASEAN.
• 2^nd Proposal - India was then forced to give up its initial proposal in favour of a single offer for all with only a small caveat for addressing its vulnerabilities with minimum deviations.  
• Over the past year, New Delhi has indicated to RCEP members that it could offer to eliminate tariffs on about 70-75% of items for all members with certain minor deviations.
• These too failed to satisfy the RCEP members & an increased market access for items like wheat and dairy was demanded.

What does India stand to gain for RCEP?

• India’s expected gains in goods from the RCEP pact are not significant, given the fact that the existing tariffs in member countries are already relatively low.
• While India’s gains in RCEP are to mainly come from services liberalisation, including easier work visa norms, the offers in that area have been almost non-existent.
• Moreover, many RCEP members are now insisting on inclusion of substantial commitments in the area of e-commerce and investment facilitation — the two areas where India wants to preserve its sovereign right for policymaking.

What are India’s options?

• A free trade pact between the RCEP countries accounting for 45% of the world population and over $21 trillion of GDP does seem attractive, but not at the price India is being asked to pay.
• India should not run the risk of putting the future of its industry and farmers at stake while getting almost nothing in return.
• There is a world of wisdom in exiting while there is still time rather than signing a bad deal.

Source: Businessline