Why in News?
Members of the Regional Comprehensive Economic Partnership (RCEP), have finalized an early-harvest “package”
with the aim of concluding trade negotiations by the year-end.
14 www.visionias.in ©Vision IAS
Background
• The RCEP, forged during the 2012 ASEAN summit in Cambodia, was built upon the premise of broadening and deepening engagement among parties and facilitating participation to promote economic development in the region.
• But the negotiations which had begun in 2012 resulted in a stalemate due to various differences among members.
• In the earlier ministerial meetings, India has made it clear that it doesn’t favour an “early harvest”, this means agreements on all the three pillars of negotiations — goods, services and investment — can be implemented only as a package, not one at a time. So even if a consensus is reached early on goods (which is what most nations want), it cannot be enforced in isolation.
• The trade ministers of 16 RCEP members met in Singapore on
30th August 2018 to review the progress of negotiations.
Potential gains for India from joining RCEP
• Benefits related to exports: Apart from various sectors of potential exports growth like processed food, metal manufactures, gems, etc. focusing on trade in services with ASEAN will give India an opportunity to use its competitive strength to become a services export hub for the ASEAN region.
o This assumes even greater importance since our focus has been on products with favourable terms of trade for India, implying that, per-unit foreign exchange realization from these products will be greater than per-unit foreign exchange expenditure on imports of similar products within intra-industry trade pattern.
• FDI gains- RCEP will facilitate India’s integration into sophisticated regional production networks. The arrangement is expected to harmonise the trade-related rules, investment and competition regimes of India with those of other countries in the group. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
• Connection with global value chain- ASEAN has been a great region in establishing international production network (IPN). India can gain from such experience and help in integrating micro and small-and medium-sized enterprises (MSMEs) into regional value chains.
• Better engagements- It can deepen integration among the
member countries. Given that the possibility of India joining the TPP is still a long way off, being a member of the RCEP will help India prepare itself to better engage with mega FTAs in the future.
About RCEP
• The RCEP is billed as an FTA between the 10- member ASEAN bloc and its six FTA partners— India, China, Japan, South Korea, Australia and New Zealand.
• Once concluded, RCEP will create the largest regional trading bloc, making up 25% of GDP,
30% of global trade, and 26% of foreign direct
investment (FDI) flows.
• The RCEP ‘guiding principles and objectives
state that the “negotiations on trade in goods, trade in services, investment and other areas will be conducted in parallel to ensure a comprehensive and balanced outcome.”
o Regional economic integration is an indispensable component of the Act East policy and joining RCEP has a potential to giving a philip to the policy.
If India is out of the RCEP, it would make its exports price uncompetitive since other RCEP members would enjoy preferential access. The ensuing export-losses contributes to foreign exchange shortages and the subsequent extent of depreciation of the rupee.
15 www.visionias.in ©Vision IAS
Potential Challenges for India from RCEP
• India’s trade deficit- India has $104 billion trade deficit with RCEP grouping, which is 64% of India’s total trade deficit of 2017-18. India has already agreed to offer tariff liberalization on 74% of goods from China, Australia and New Zealand, and it could go up to 86% for other RCEP members. This may further increase the deficit.
• Threat from Chinese products- The move may lead to Indian markets being flooded with more Chinese goods, especially in steel and textile sector which may harm the local industry and distort trade.
o India’s SME sector will especially face tough competition from China and it is this sector where future jobs can be created because the top notch manufacturing units in India are going for robotics and automation in a big way.
• Costly legal suits- Inclusion of an Investor State Dispute Settlement mechanism could lead to India getting involved in costly legal suits filed against it by corporates.
• Issue of strict IPR regime- India has to be wary of measures that may lead to losing its right to produce cheap generic drugs due to the enforcement of a strict IPR regime related to patent term extension and data exclusivity.
Way forward
• India should focus on skilling its manpower as the aging countries of Asia would anyway need skilled professionals from India because of its demographic advantage.
• Along with negotiating the much-needed space to its real sectors to gain competitive edge, India will need second-generation reforms of its domestic economic policies, including those that reform its factor markets, to make its trade more competitive. These reforms will help India better access other markets.
• Do a trade deal which will provide the necessary instruments that will ensure the economic viability of small farmers and industries, especially small-scale producers, in the face of relentless import competition.
• The government must take into account the deeper strategic pitfalls of slowing down India’s RCEP
engagement, i.e., giving China further space in the regional trade and security architecture
Members of the Regional Comprehensive Economic Partnership (RCEP), have finalized an early-harvest “package”
with the aim of concluding trade negotiations by the year-end.
14 www.visionias.in ©Vision IAS
Background
• The RCEP, forged during the 2012 ASEAN summit in Cambodia, was built upon the premise of broadening and deepening engagement among parties and facilitating participation to promote economic development in the region.
• But the negotiations which had begun in 2012 resulted in a stalemate due to various differences among members.
• In the earlier ministerial meetings, India has made it clear that it doesn’t favour an “early harvest”, this means agreements on all the three pillars of negotiations — goods, services and investment — can be implemented only as a package, not one at a time. So even if a consensus is reached early on goods (which is what most nations want), it cannot be enforced in isolation.
• The trade ministers of 16 RCEP members met in Singapore on
30th August 2018 to review the progress of negotiations.
Potential gains for India from joining RCEP
• Benefits related to exports: Apart from various sectors of potential exports growth like processed food, metal manufactures, gems, etc. focusing on trade in services with ASEAN will give India an opportunity to use its competitive strength to become a services export hub for the ASEAN region.
o This assumes even greater importance since our focus has been on products with favourable terms of trade for India, implying that, per-unit foreign exchange realization from these products will be greater than per-unit foreign exchange expenditure on imports of similar products within intra-industry trade pattern.
• FDI gains- RCEP will facilitate India’s integration into sophisticated regional production networks. The arrangement is expected to harmonise the trade-related rules, investment and competition regimes of India with those of other countries in the group. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
• Connection with global value chain- ASEAN has been a great region in establishing international production network (IPN). India can gain from such experience and help in integrating micro and small-and medium-sized enterprises (MSMEs) into regional value chains.
• Better engagements- It can deepen integration among the
member countries. Given that the possibility of India joining the TPP is still a long way off, being a member of the RCEP will help India prepare itself to better engage with mega FTAs in the future.
About RCEP
• The RCEP is billed as an FTA between the 10- member ASEAN bloc and its six FTA partners— India, China, Japan, South Korea, Australia and New Zealand.
• Once concluded, RCEP will create the largest regional trading bloc, making up 25% of GDP,
30% of global trade, and 26% of foreign direct
investment (FDI) flows.
• The RCEP ‘guiding principles and objectives
state that the “negotiations on trade in goods, trade in services, investment and other areas will be conducted in parallel to ensure a comprehensive and balanced outcome.”
o Regional economic integration is an indispensable component of the Act East policy and joining RCEP has a potential to giving a philip to the policy.
If India is out of the RCEP, it would make its exports price uncompetitive since other RCEP members would enjoy preferential access. The ensuing export-losses contributes to foreign exchange shortages and the subsequent extent of depreciation of the rupee.
15 www.visionias.in ©Vision IAS
Potential Challenges for India from RCEP
• India’s trade deficit- India has $104 billion trade deficit with RCEP grouping, which is 64% of India’s total trade deficit of 2017-18. India has already agreed to offer tariff liberalization on 74% of goods from China, Australia and New Zealand, and it could go up to 86% for other RCEP members. This may further increase the deficit.
• Threat from Chinese products- The move may lead to Indian markets being flooded with more Chinese goods, especially in steel and textile sector which may harm the local industry and distort trade.
o India’s SME sector will especially face tough competition from China and it is this sector where future jobs can be created because the top notch manufacturing units in India are going for robotics and automation in a big way.
• Costly legal suits- Inclusion of an Investor State Dispute Settlement mechanism could lead to India getting involved in costly legal suits filed against it by corporates.
• Issue of strict IPR regime- India has to be wary of measures that may lead to losing its right to produce cheap generic drugs due to the enforcement of a strict IPR regime related to patent term extension and data exclusivity.
Way forward
• India should focus on skilling its manpower as the aging countries of Asia would anyway need skilled professionals from India because of its demographic advantage.
• Along with negotiating the much-needed space to its real sectors to gain competitive edge, India will need second-generation reforms of its domestic economic policies, including those that reform its factor markets, to make its trade more competitive. These reforms will help India better access other markets.
• Do a trade deal which will provide the necessary instruments that will ensure the economic viability of small farmers and industries, especially small-scale producers, in the face of relentless import competition.
• The government must take into account the deeper strategic pitfalls of slowing down India’s RCEP
engagement, i.e., giving China further space in the regional trade and security architecture
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