bilaterals.org | All you need to know about Regional Comprehensive Economic Partnership (RCEP)

Xaam | 14 September 2016

All you need to know about Regional Comprehensive Economic Partnership (RCEP)

Three important mega regional’s are currently under negotiation: the Regional Comprehensive Economic Partnership of Asia and the Pacific (RCEP), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP).

It is expected that these agreements, once concluded and implemented, will set the stage for a new generation of global trade and investment rules.

In this article we will explain What is RCEP ,what will be its significance for India and what are the point of contention among countries in RCEP.

What is RCEP?

Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the six states with which include India, China, Australia, Japan, South Korea and New zealand.
In total, the grouping of 16 nations includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade.
If negotiated successfully, RCEP would create the world’s largest trading bloc and have major implications for Asian countries and the world economy.

Key features of the RCEP

The RCEP seeks to achieve a modern and comprehensive trade agreement among members. The core of the negotiating agenda would cover trade in goods and services, investment, economic and technical cooperation and dispute settlement. The partnership would be a powerful vehicle to support the spread of global production networks and reduce the inefficiencies of multiple Asian trade agreements that exist presently.
At the launch of negotiations in 2012, the leaders of each relevant country endorsed the “Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership.”

The key points of this document are as follows:

(A) Scope of negotiations

RCEP will cover trade in goods, trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issues.
As expected, ASEAN will be in the “driver’s seat” of this multilateral trade arrangement (though the idea was initially given by Japan), and has been repeatedly endorsed by India.
The joint statement issued at the end of the first round of negotiations also reiterated “ASEAN Centrality” in the emerging regional economic architecture.

(B) Commitment levels

The RCEP will have broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs, while recognizing the individual and diverse circumstances of the participating countries.

(C) Negotiations for trade in goods

Negotiations should aim to achieve the high level of tariff liberalization, through building upon the existing liberalization levels between participating countries.

(D) Negotiations for trade in services

The RCEP will be comprehensive, of high-quality and consistent with WTO rules and all service sectors will be subject to negotiations.

(E) Negotiations for investment

Negotiations will cover the 4 pillars of promotion, protection, facilitation and liberalization.

(F) Participating countries

Participants will be ASEAN members and FTA Partners. After the completion of the negotiations, countries other than the 16 states may join.

Significance of RCEP for India

India is not a party to two important regional economic blocs: The Asia-Pacific Economic Cooperation and the Trans-Pacific Partnership. New Delhi fears the TPP, although years away from reality, could mean losing some textile and drugs exports to countries like Vietnam, which has embraced both the TPP and the RCEP.
TPP is set to change the landscape of global trade. For India, it is most likely to affect sectors like leather goods, plastics, chemicals, textiles and clothing.
The RCEP would enable India to strengthen its trade ties with Australia, China, Japan and South Korea, and should reduce the potential negative impacts of TPP and TTIP on the Indian economy.
The RCEP agreement would complement India’s existing free trade agreements with the Association of SouthEast Asian Nations and some of its member countries, as it would deals with Japan and South Korea.
It would be the world’s largest trading bloc covering a broad spectrum of issues such as trade in goods, services, investment, competition, intellectual property rights, and other areas of economic and technical cooperation.
From India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its act east policy.
RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory. The RCEP is expected to harmonize trade-related rules, investment and competition regimes of India with those of other countries of the group. Through domestic policy reforms on these areas, this harmonization of rules and regulations would help Indian companies plug into regional and global value chains and would unlock the true potential of the Indian economy. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
India enjoys a comparative advantage in areas such as information and communication technology, IT-enabled services, professional services, healthcare, and education services. In addition to facilitating foreign direct investment, the RCEP will create opportunities for Indian companies to access new markets. This is because the structure of manufacturing in many of these countries is becoming more and more sophisticated, resulting in a “servicification” of manufacturing.

Challenges in Final negotiation of RCEP

Finalizing the RCEP will not be a cakewalk for India and other countries involved in the negotiations as there are a range of issues that could act as spoilers.

Huge economic disparities among the negotiating countries are likely to pose a challenge
An inevitable source of trust deficit between China and the restwhich has the potential to constrain regional economic cooperation is China’s aggressive postures on territorial disputes with Japan and India and with ASEAN member countries on the South China Sea disputes.This can pose as a hurdle in final negotiation of RCEP
The existing 5 ASEAN+1 and 23 ratified bilateral FTAs, varying greatly in their terms, pose a significant hurdle to RCEP negotiations.
The lack of commonality across FTAs and varying internal policies of countries would prove to be a difficult task to harmonize and consolidate under RCEP.

Challenges and concerns for India from Joining RCEP

For New Delhi, following challenges lie ahead.

First, tariff barriers, which have been a matter of discontent in bilateral FTAs, particularly in the case of the ASEAN-India FTA, will be central to the negotiations in the upcoming rounds of RCEP negotiations.
Non-trade issues such as environment and labor are likely to be prickly as well and need greater attention. Many Countries in RCEP want a stricter norms and standards on environment and labor issues while India’s interest lie in liberal environment and labor norms as this makes Indian industry competitive. India therefore should bat for liberal environment and labor norms while negotiating in RCEP.
India must take steps to strengthen its Medium, Small and Micro Enterprises (MSME) sector, equipping it not only to survive the free flow of trade, but also to become a set of more competitive players. Higher investments in R&D and achieving international standards in terms of delivery are needed.
An internal commerce ministry estimate that signing the 16-country Regional Comprehensive Economic Partnership (RCEP) trade agreement will result in a revenue loss of as much as 1.6% of GDP
Finally, a major difficulty for India will be negotiating terms with China. India has to be firm and calculative in terms of taking tough policy decisions, while working tirelessly on capacity building of its domestic industries.

Recent point of contention in RCEP negotiation

Recently in the 12thround of RCEP talks The members of the Regional Comprehensive Economic Partnership (RCEP) have, in a sort of ultimatum, asked India to either to consent to eliminate tariffs on most products quickly or leave the talks on the proposed Free Trade Agreement (FTA) that is being negotiated by RCEP itself.
The members of RCEP are irked by what they think as India’s obstructionist, defensive and half-hearted approach” that is “delaying” the result of the talks
Some member countries, particularly 10- members ASEAN bloc, want India to take a long-term approach and consent to eliminate deities (except in agriculture and industrial goods) on a higher threshold within a decade to help India get the benefit of the opportunities arising out of Global Value Chain.