Objectives & Agenda :
To understand the backdrop of RCEP, its need and the implications of RCEP on the global economy. The webinar shall predominantly focus on detailed analysis on the dissenting factors which led India opt out of RCEP and what impact this shall have on other countries along with India. Lastly, the webinar shall conclude with the avenues available with India in relation to RCEP post opting out.
3. Legends used in the Presentation
ASEAN Association of Southeast Asian Nations
FTA Free Trade Agreement
GDP Gross Domestic Product
MEA Ministry of External Affairs
NAFTA North American Free Trade Agreement
PM Prime Minister
RCEP Regional Comprehensive Economic Partnership
US United States of America
4. Presentation Schema
Introduction NAFTA APEC
Objectives of
RCEP
Benefits of RCEP Timeline of RCEP
Member
Countries of RCEP
India’s
Expectation from
RCEP
Major Reasons
for Opting Out
Economic
Slowdown
Balance of Trade
Protection of
Domestic
Manufacturers
Flooding of
Foreign Goods
Tariff Base Year
Anti-dumping
Duty in India and
its Relevance post
RCEB
Official Excerpts
Pros and Cons of
Opting Out
Impact on
Industries if
Opted
Way Forward
5. Introduction
The Regional Comprehensive Economic Partnership (RCEP) is a proposed agreement between
the member states of the ASEAN and its free trade agreement partners
RCEP was introduced during the 19th ASEAN meet held in November 2011. The RCEP
negotiations kick-started during the 21st ASEAN Summit in Cambodia in November 2012
RCEP was instituted to create an integrated market with 16 negotiating countries, making it
easier for products and services of each of these countries to be available across this region
The 16 prospective signatories (including India) accounted for a population of 3.4 billion
people with a total GDP of approximately 30% of the world's GDP
6. NAFTA
The North American Free Trade Agreement (NAFTA) is a treaty entered into by the United States, Canada, and Mexico; it went into
effect on January 1, 1994.
Free trade had existed between the U.S. and Canada since 1989; NAFTA broadened that arrangement.
The three countries became the largest free market in the world- combined economies measured $6 trillion (then) and affected
365 million+ people.
Created to eliminate tariff barriers to agricultural, manufacturing, and services; to remove investment restrictions; and to protect
intellectual property rights.
Small businesses were among those that were expected to benefit the most from the lowering of trade barriers since it would make
doing business in Mexico and Canada less expensive and would reduce the red tape needed to import or export goods.
7. APEC
The idea of APEC was firstly publicly broached by former Prime Minister of Australia Bob Hawke during a speech in Seoul, Korea, on 31 January 1989.
Ten months later, 12 Asia-Pacific economies met in Canberra, Australia, to establish APEC.
The founding members were Australia; Brunei Darussalam; Canada; Indonesia; Japan; Korea; Malaysia; New Zealand; the Philippines; Singapore; Thailand; and the
United States.
China; Hong Kong, China; and Chinese Taipei joined in 1991.
Mexico and Papua New Guinea followed in 1993.
Chile acceded in 1994. And in 1998, Peru; Russia; and Viet Nam joined, taking the full membership to 21.
Primary goal is to support sustainable economic growth and prosperity in the Asia-Pacific region
21 member economies are home to around 2.8 billion people and represent 59% of world GDP and 49% of world trade in 2015.
Growth has soared in the region, with real GDP increasing from USD 19 trillion in 1989 to USD 42 trillion in 2015.
Residents of the region saw their per capita income rise by 74%, lifting millions out of poverty and creating a growing middle class in just over two decades.
8. Objectives of RCEP
To enhance trade and investment related activities as well as to contribute for minimising development gap
among the parties
To achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement
among the ASEAN Member States and ASEAN’s FTA partners
Focus on trade in goods and services, investment, intellectual property, dispute settlement, e-commerce,
small and medium enterprises, and economic cooperation
9. Benefits of RCEP
Lowering tariffs for goods and services amongst member nations
Open up trade in services and updates to dispute settlement
Gaining preferential access to new markets for goods and services
Ease regulatory hurdles in regional trade
Improve investor protection
Export access to agriculture and allied activities
10. Timeline of RCEP
March 2, 2019: A ministerial meeting of RCEP trade ministers held in Cambodia. The ministers agreed to intensify
engagement for the remainder of the year (including by convening more inter-sessional meetings)
May 24, 2019: Senior officials held inter-sessional meetings in Bangkok, Thailand to iron out issues pertaining to the
goods and services sector
July 3, 2019: The 26th round was held in Melbourne, Australia for the purpose of further negotiations and
discussions
July 22 to 31, 2019: There was an additional 27th round held on Zhengzhou, China
August 2-3, 2019: A ministerial meeting of RCEP trade ministers was held in Beijing, China
October 31 to Nov 3, 2019: 3rd RCEP summit was held in Thailand with 35th ASEAN summit
November 4, 2019: India opts out of RCEP
25 rounds of negotiations were held during 2012 to 2018 including 1st RCEP summit in Nov, 2017 (Philippines)
and 2nd in Nov, 2018 (Singapore)
11. Member Countries of RCEP
• Malaysia
• Philippines
• Singapore
• Thailand
• Indonesia
• Brunei
• Vietnam
• Laos
• Myanmar
• Cambodia
China
Japan South Korea
Australia New Zealand
ASEAN Countries
12. India’s Expectation from RCEP
India refused to join the RCEP
as the pact did not address
satisfactorily India's
outstanding issues and
concerns
India was looking for specific
rules of origin (explained in
subsequent slide) to ensure
the trade pact wasn’t abused
by non-partner countries
India didn’t get any credible
assurance on market access
and non-tariff barriers
13. Rules of Origin
Rules of origin, at its most basic, specify the rules by which a product is considered to be “made in” a country
for the purpose of customs clearance
India insisted stringent rules of origin of the goods traded with the RCEP countries
It was perceived as a strong instrument to curb the free flow of foreign goods into the domestic market
Strict rules of origin in RCEP would have provided a safety wall to domestic producers against cheap goods
14. Major Reasons for Opting Out
Economic
Slowdown
Balance of
Trade
Protection of
Domestic
Manufacturers
Flooding of
Foreign Goods
Tariff Base
Year
Though a section of Indian industry felt that being part of RCEP would have allowed the country to tap into a
huge market, following obstacles were considered to opt out of the RCEP agreement despite being actively
engaged in 7 year long negotiations:
15. Economic Slowdown
• India's GDP growth rate has been slowing
down
• The GDP growth figures have been
downtrend since the demonetisation and
roll out of GST removing the tailwind that
had supported the growth earlier
• As the economy is reeling under pressure
and the Government is grappling to deal
with the domestic economic situation, a
massive free trade pact like RCEP would
have exposed the Indian businesses and
agriculture to unequal competition from
countries
5.50%
6.40%
7.40%
8.00% 8.20%
7.20%
6.80%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
PERCENTAGE
YEAR
GDP Growth rate
16. Balance of Trade
India has massive trade deficits with almost all economic giants of the world as a result of earlier trade
agreements
India’s trade deficit with the RCEP nations is $105 billion, of which China alone accounts for $54
billion
A free trade agreement like RCEP would have increased the trade deficit further
At present, India ships 20.51% of all its exports to the RCEP countries and receives 33.64% of all
imports from them
Widening trade deficit would empty foreign exchange reserve of India at a faster rate
A depleting foreign reserve is least desirable for a developing economy
17. Trade Deficit of India with RCEP Countries for
2018-19
-400,000
-350,000
-300,000
-250,000
-200,000
-150,000
-100,000
-50,000
-
50,000
RS.inCrores
Countries
Trade Deficit (Surplus)
Trade Deficit (Surplus)
Year Trade Deficit (Surplus)
China -3,74,790
Japan -55,268
Thailand -20,874
Singapore -32,977
Brunei -3,729
Cambodia 1,073
Indonesia -74,277
Laos 268
Myanmar 4,784
Philippines 8,127
Vietnam -4,876
Malaysia -30,388
South Korea -84,377
Australia -67,078
New Zealand -1,742
Rs. in Crores
18. Protection of Domestic Manufacturers
Domestic industry
and dairy farmers
had strong
reservations
about the trade
pact
The main worry
was over Chinese
manufactured
goods and dairy
products from
New Zealand
flooding Indian
markets, hurting
domestic interests
India was looking
for more
protection of its
domestic industry
and agricultural
sector from the
surge of imports
under the deal,
especially from
China
Since the deal
could not offer
any such specific
protection, India
decided to not join
it to protect the
national interest,
protect the poor
and stop unfair
imports
The trade
agreement was
also seen as being
detrimental to the
Government’s
“Make in India”
initiative
19. Flooding of Foreign Goods
India wanted to include auto-trigger mechanism which initiates the auto-trigger of safeguard duties on
imports when the imports reaches a reaching a certain threshold in order to protect local industries, which
was not heard by the RCEP member countries
China needs greater access to Indian market to sustain its manufacturing
industries considering the US-China trade war
China has already covered most markets under RCEP
The flooding of such foreign goods will have a huge impact on the confidence
of the domestic manufacturers and will inevitably lead to the discontinuance
of operations
Further, India wanted exemption from ratchet mechanism which means that if a country signs a trade
agreement with another country where it liberalises tariffs on import and export of products, it cannot go
back on them and bring in measures that are more restrictive, which was not incorporated in final pact
20. Auto-Trigger Mechanisms
India wanted
to accord
protection to
local industry
in case of
flood of
imports once
duties are
eliminated or
reduced for
RCEP
members
(especially
China)
Generally
takes longer
time to
impose
safeguard
duties when
there is surge
in imports as
procedures to
be followed
By the time,
the duties are
in place it can
cause lot of
damage in the
local market
The auto-
trigger
mechanisms
could
provisionally
raise duties
automatically
the moment
imports
increases
beyond a
given level
This
mechanism
was not part
of earlier
agreements
like FTA, etc.
and India
feared that
RCEP too will
open up
floodgates for
imports
This was a
take off from
existing trade
agreements
where anti-
dumping,
safeguard duty
mechanism
and
circumvention
duties require
domestic
industry to
prove injury
to the
business
21. Ratchet Mechanisms
More Chinese imports would mean stiff competition for Indian manufacturers and domestic traders
The reason for seeking for exemption of ratchet mechanisms is that India fears Chinese imports flooding the
country especially through other RECP members
Thus, it wants to increase the tariffs specifically on imports in future
India intending for an exemption on ratchet obligations would mean that India wants to bring in restrictive
measures in future, if required
22. Tariff Base Year
India opposed to the proposal
that 2013 be treated as the
base year for reducing tariffs,
effectively implying that
member countries should slash
import duties
on products to the level that
existed in 2013
India was pushing for 2019 as the base
year, given that import duties on many
products have gone up in the last six
years, which was not welcomed by the
member nations
23. Average Tariff Rates
48.60% 48.60% 48.60%
50.80%
48.00%
48.50%
49.00%
49.50%
50.00%
50.50%
51.00%
2012 2013 2014 2015 2016 2017 2018 2019 2020
Percentage
Year
Average Tariff Rate
24. Anti-dumping Duty
An anti-dumping duty is a
protectionist tariff that a
domestic government
imposes on foreign
imports when priced
below fair market value
Dumping is a process
where a company exports
a product at a price lower
than the price it normally
charges in its own home
market
For protection, many
countries impose stiff
duties on products they
believe are being dumped
in their national market,
undercutting local
businesses and markets
25. Anti-dumping Measures in Force (Cumulative)
0
20
40
60
80
100
120
NUMBER
COUNTRY
Measures in Force (Cumulative)
2015 2016 2017 2018
Country 2015 2016 2017 2018
Australia 56 54 65 64
China 92 93 87 106
Indonesia 32 25 27 28
Japan 4 6 7 9
Korea 32 27 31 37
Malaysia 18 22 22 16
New Zealand 8 7 4 3
Philippines 1 1 2 2
Singapore 0 0 0 0
Thailand 34 39 45 45
Viet Nam 4 4 7 7
26. Relevance of Anti-dumping Duty Post India Opting
Out of RCEP
As India has opted out of
RCEP, free flow of
imports to India would
reduce
There would be less
instances of evasion of
anti-dumping duty
through mis-
classification of products
Infusion of cheap and
sub-standard products
would lessen
Boost to local
manufacturers and fill-
up for domestic traders
27. Official Excerpts
Honourable PM Narendra
Modi, in his speech at the
RCEP Summit said:
“…Neither the Talisman of Gandhiji nor my own conscience permits
me to join RCEP. The present form of the RCEP agreement does not
fully reflect the basic spirit and the agreed guiding principles of RCEP.
It also does not address satisfactorily India's outstanding issues and
concerns in such a situation. In such a situation, it is not possible for
India to join RCEP Agreement“.
Secretary (East), MEA,
Vijay Thakur Singh at a
press conference in
Bangkok said:
“...India conveyed its decision at the summit not to join the RCEP
agreement. This reflects both assessment of the current global
situation as well as of the fairness and balance of the agreement.
India had significant issues of core interest that remained
unresolved. In the given circumstances, we believe not joining the
agreement is the right decision. We would continue to persevere in
strengthening our trade, investment and people-to-people relations
with this region”.
28. Pros and Cons of Opting Out
Advantages
• Prevention of further widening of trade
deficit
• Protection of local and domestic
manufacturers
• Instigating confidence among small
manufacturers
• Promotion of “Make in India” mission
Disadvantages
• Loss of access to export markets
• Reduction in Foreign Direct Investments
(FDI)
• Losing the opportunity to create synergy
among RCEP countries
• Applicability of high tariff rates
29. Impact on Industries if Opted
Potential Gainers Potential Losers
Service sector which
includes
• Information Technology
• Software Development
• Telecommunications
• Social Infrastructure
• Agriculture sector
• Domestic
manufacturing
• Small scale industries
• Dairy Products
• Automobile sector
30. Way Forward
The 15 remaining
RCEP nations
(excluding India)
will begin formal
work towards
signing the pact in
2020
A joint statement
was released on
Nov 4th, 2019
which stated that
RCEP members
will make efforts
to resolve India’s
objections
Though India has
rejected the RCEP
agreement, it can
still opt for it on
satisfactory
resolution of the
objections raised
Opting out of the
RCEP agreement
paves way to a
trade deal with
the US which was
hinted by Mr.
Donald Trump,
Honourable
President of US
during the visit of
Honourable PM
Narendra Modi