India to rethink RCEP engagement if China denies market access

Source: Financial Express

5th August, 2019

 

Even without the deal, India’s merchandise trade deficit with the RCEP grouping hit $105 billion in FY19 (60% of its total deficit)

RCEP, Regional Comprehensive Economic Partnership, india market access, asean, RCEP india focus, manufacturing sector, export india, NITI Aayog, ASEANLast year, a government panel under then commerce and industry minister Suresh Prabhu had decided to continue to remain engaged in RCEP negotiations but not to sweeten offer for goods trade further.

India will rethink its engagement with the 16-nation Regional Comprehensive Economic Partnership (RCEP) grouping and may even be forced to pull out of the mega trade deal if negotiations are sought to be concluded hurriedly without addressing its concerns on its massive trade imbalance with other members, especially China, sources told FE.

 

Even without the deal, India’s merchandise trade deficit with the RCEP grouping hit $105 billion in FY19 (60% of its total deficit). China alone contributed as much as $53.6 billion. New Delhi will now link meaningful market access from Beijing in key sectors — including IT, pharma and agriculture — to its endorsement of an RCEP deal.

In his meeting with Wang Shouwen, vice-minister in China’s ministry of commerce, on Friday on the sidelines of the RCEP ministerial meeting in Beijing, commerce secretary Anup Wadhawan already flagged India’s concerns about trade deficit and inadequate market access to our firms in China.

Commerce and industry minister Piyush Goyal skipped the ministerial, purportedly to attend the extended Parliament session, and Wadhawan represented India. Many potential members, including China, want the RCEP deal to be concluded by November this year. As for India, several bumps remain.

In their meetings with Goyal late last month, several industries, including steel, pharma, textiles and electronics, criticised India’s trade agreements with Asean, Japan and South Korea in the past decade on grounds that the country’s trade deficit with these nations just widened after these pacts had come into force and there was only limited gains for them. If, on top of this, a free trade agreement with China is effected through the RCEP (of which Beijing is a key member), cheap Chinese products will flood our market.

An escalating trade war between the US and China has just reinforced the dumping fears, as Beijing seeks to divert supplies away from its biggest destination—the US–to hedge risks. This, Indian industry feels, is among the main reasons as to why China has been hurrying up to conclude RCEP negotiations. What has added, in great measures, to New Delhi’s discomfiture is Beijing’s lack of meaningful action in removing non-tariff barriers for Indian companies in critical sectors such as IT and pharma where they have achieved global competitiveness, despite repeated assurances by it in recent years.

Top IT companies such as TCS, Wipro, Infosys, Tech Mahindra and HCL last week told the government that China remained a difficult market for them to do business in. Also, while several RCEP members want India to commit more in liberalising its goods trade, they remain reluctant to accede to India’s interest and allow free movement of professionals.

Not just trade deficit, the prospect of potential loss in customs revenue has the government worried as well. According to a 2016 estimate by the finance ministry, India could lose tax revenue of `75,733 crore a year if it scraps tariff on merchandise imports entirely, if it were to emulate the zero-duty model over a period of time. Some recent reports have suggested a loss of around `60,000 crore a year.
Goyal met as many as 500 industry executives in a series of meetings in a span of two weeks in July to seek their inputs.

Last year, a government panel under then commerce and industry minister Suresh Prabhu had decided to continue to remain engaged in RCEP negotiations but not to sweeten offer for goods trade further.

A joint statement after the just-concluded RCEP ministerial meeting in Beijing suggested that over two-thirds of market access negotiations have reached satisfactory outcomes but admitted divergence on several issues. A top industry executive, who had participated in the meeting with Goyal, said: “If companies like TCS, Infosys and Wipro, which are globally-competitive, have been struggling in China, what hope is there for our SMEs or other companies? In fact, it’s not about competitiveness.

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