Japan not in the mood to join RCEP if India doesn't come on board

Japan is not considering signing a Chinese-backed regional trade pact without India, the top Japanese negotiator said Friday, ahead of a series of diplomatic exchanges in the coming weeks that include a visit to Delhi by Prime Minister Shinzo Abe.

India announced this month it was withdrawing from the Regional Comprehensive Economic Partnership, citing the deal’s potential impact on the livelihoods of its most vulnerable citizens. China said that the 15 remaining countries decided to move forward first and India was welcome to join RCEP whenever it’s ready.

“We aren’t thinking about that at all yet,” Deputy Minister for Economy, Trade and Industry Hideki Makihara, said in an interview with Bloomberg. “All we are thinking of is negotiations including India.”

Abe has sought to beef up ties with India across a range of fields to balance China’s regional dominance. Japanese and Indian foreign and defense ministers hold their first joint meeting in a so-called ‘two plus two’ format this weekend. Both countries are also part of four-way security talks with Australia and the US called the Quad, a move that Beijing has complained could stoke a new Cold War.

Japan Seeks to Keep India in China-Backed Regional Trade Pact

“It is meaningful from the economic, political and potentially the national security point of view,” Makihara said of the inclusion of the world’s largest democracy in the pact. “Japan will continue to try to persuade India to join.”

Trade Minister Hiroshi Kajiyama will accompany Abe on next month’s trip to India, Makihara said.

The other countries taking part in the RCEP talks are Australia, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand and Vietnam.

China has sought to accelerate the RCEP deal as it faces slowing growth from a trade war with the U.S. An agreement would further integrate Asia’s economies with China just as President Donald Trump’s administration urges nations in the region to shun Chinese infrastructure loans and 5G telecommunications technology.

Why India opted out of the RCEP agreement: Explained in six charts

India decided to walk out of the biggest regional trade partnership the world could have seen. The Regional Comprehensive Economic Partnership could have given — possibly it still can — almost unrestricted access of each other’s markets to the members.

Some experts, in addition to the government, have maintained that the reason for the walkout is India’s adverse trade balance. However, many critics view this as a protectionist step.

The data shows India has been protecting its domestic interests for long. The average tariff on imports into India, according to the World

Trade Organization, went up between 2010 and 2015. Most of it was due to farm products (Chart 1).

The (weighted) average tariff applicable to most favoured nations to sell their goods in India is highest among the 10 Asian peers (Chart 2), at 7.6 per cent. This is not strictly comparable with WTO data. Moreover, India only has about 3 per cent of tariff lines at zero duty, lowest among its peers, and lower compared to Vietnam’s 32 per cent (Chart 3).

The data also shows trade growth has largely been independent of trade deals: India's share of trade with NAFTA countries has grown as fast as its share with North-East Asian countries, and ASEAN, as well (Chart 4). While India does not trade preferentially with any of the NAFTA members, it does, with two members of NEA and with ASEAN.

In terms of acting against dumping of cheap and excess goods, India has become more proactive in recent times. More dumping cases now reach their conclusion (Chart 5). But, on the flip side, members of the probable RCEP lead in dumping goods into India (Chart 6).

RCEP: By opting out of it, India shows that now it fears the world

India, which has for some years now been raising walls against the rest of the world, appears to have definitively turned its back on freer trade. Fifteen of the 16 countries involved in negotiations agreed on November 4 to sign up to the giant trade agreement known as the Regional Comprehensive Economic Partnership (RCEP). Only India, after months of uncertainty, chose to hold back for the foreseeable future.

The decision wasn’t free of acrimony. The Chinese claimed that India had raised new demands at the last minute; the Indians insisted that they were simply holding out for the same concessions they always had. These include special protections from cheap Chinese imports and a tighter integration of services trade into the agreement.

India’s concerns are not entirely unreasonable. Of the 16 economies in the RCEP process, China stands out. Many of its domestic policies are trade-distorting. That means its participation in free-trade agreements needs to be constrained institutionally. It should always have been treated differently from the others.

Even so, India’s decision is a disappointing window into how much has changed in New Delhi since it became one of the initial movers of the RCEP process seven years ago under then-Prime Minister Manmohan Singh. Even Singh’s Indian National Congress party now opposes RCEP. With his departure from the political stage, there are few official voices left in favor of openness.

India now lacks both ambition and imagination; it fears the world rather than embracing it. In retrospect, it’s the two decades of optimism after the 1991 reforms that seem exceptional. Talking points released to media by the ruling Bharatiya Janata Party stressed the “pro-Indian industry” steps that the government of Prime Minister Narendra Modi had taken since 2014 -- a long list, in fact, of tariffs and barriers.

Almost comically, the press release described India’s long history of trade skepticism as “the days when Indian negotiators caved into pressures from the global powers on trade issues.” Trade negotiators around the world will be hard-pressed to recognize this description.

Indian officials who till a few weeks ago were warning that staying out of RCEP would only “isolate” India are today arguing that the agreement is against India’s national interest. What they actually mean is that Indian sectoral interests have successfully captured its government. Prime Minister Modi, speaking at the summit, insisted that his decision on RCEP would have to meet the test that Mahatma Gandhi specified for policy: It must improve the lives of the poorest. The reality is that, for a country like India, freer trade, cheaper goods and more reliable prices do indeed improve the lives of the poorest. Those hurt are the industrial blocs that seek protection from competition.

In effect, Modi’s decision is an admission that even the prospect of joining a massive regional trade agreement isn’t incentive enough for New Delhi to launch deep, competitiveness-enhancing economic reforms. If Indian industry were to enjoy more flexible land and labor markets, less red tape, and more access to capital, it could certainly manage to insert itself into the global value chains that will henceforth be dominated by RCEP.

But the political will to make those reforms is absent. The government has simply calculated that it’s easier to sell a departure from RCEP as “courageous” than to manage the politics surrounding domestic reform. The “national interest” doesn’t come into it at all.

The prime minister, speaking at the summit, insisted India was still committed to trade, but that “global economic and trade scenarios have changed” since 2012. It’s hard to tell if he means anything other than that more nations are skeptical of trade than they were a few years ago. Of course, India -- which will need to develop an export industry if it is ever to grow beyond lower-middle-income status -- should not be among those countries.

But Modi could also have been reflecting on where President Donald Trump’s abandonment of the Trans-Pacific Partnership has left Asia. An India uncomfortable with China’s trading power no longer has a U.S.-backed option to consider. The TPP still exists under a new name, without the U.S.; RCEP, without India. The “Indo-Pacific” as an economic geography is losing ever more meaning.

For India, meanwhile, the questions that existed about its development path yesterday are still valid today. How do its politicians intend to provide jobs to its hundreds of millions of deprived young people unless they produce goods for the world, and not just each other?

RCEP had dangers, yes. Trade always does. But India is hardly in a position not to take risks. Governments can try to shut out the world. Unless they can also shut down Indians’ aspirations, however, isolationism will eventually backfire on them.

Xi pledges wider market access, says world must 'knock down walls'

President Xi Jinping on Tuesday pledged to further open China's economy, declaring the world must "knock down walls" as he opened an annual trade fair in Shanghai.

Xi addressed an audience including French President Emmanuel Macron at the import exhibition, staged annually by China to show its willingness to free up its vast domestic markets in the face of criticism that they are too cosseted by Beijing.

The world community must "continue to knock down walls instead of building walls, resolutely oppose protectionism and unilateralism, (and) continuously reduce trade barriers", Xi said.

The speech was light on specifics, however, and thus unlikely to mollify foreign critics who accuse China of a range of protectionist measures and failing to deliver on reform promises.

With China and the US working to lock in a partial trade deal announced last month, Xi steered clear of their tariff war in his remarks.

It was a stark contrast to his keynote last year at the height of the trade confrontation, when Xi took a swipe at the Trump administration, decrying "protectionism", "isolationism" and "the law of the jungle", while not specifically naming the United States.

Speaking after Xi, Macron complained that the US-China trade war "only creates losers" and was weighing on global growth.

He said he hoped the world's two largest economies can reach an agreement that also will "preserve the interests" of other trade partners, starting with the European Union.

Without directly naming US President Donald Trump, Macron decried "unilateral action, the use of tariffs as a weapon, (and) survival of the fittest".

But the French leader also said China's market opening "must be speeded up and made more transparent".

Xi told delegates he hoped a China-backed proposed regional trade deal could be signed soon, a day after it was dealt a blow by India's withdrawal.

At a summit in Bangkok, India expressed concerns that its economy would be flooded by cheap Chinese goods as a result of the Regional Comprehensive Economic Partnership (RCEP).

RCEP was meant to account for 30 per cent of global gross domestic product and loop in half of the world's people, but also notably excludes the United States.

"I hope the agreement will be signed and entered into force at an early date," Xi said in Shanghai.

He said China would be "happy" to reach free-trade agreements with other countries, adding that officials would speed up negotiations on an investment accord with the European Union as well as a pact with Japan and South Korea.

RCEP nations target final 10-day window to close talks by October 22

Countries negotiating the proposed Regional Comprehensive Economic Partnership (RCEP) have now decided on a final 10-day window to bilaterally sort out pending differences in the mega trade deal, after which the leaders of the 16 nations will step in.

With last week’s ministerial meet proving inconclusive, a decision on crucial trade differences in 14 areas — if not resolved — will be taken by Prime Minister Narendra Modi when he attends the 3rd RCEP leaders’ summit next month.

“All issues not closed by October 22 will be taken up by the leaders when they meet on November 4 in Bangkok,” a source in the know said.

Beginning Monday, India has started talks with other nations on an “automatic trigger safeguard mechanism” that ensures higher tariffs will kick in once imports reach a threshold while also pushing to finalise the levels of tariff reduction it will allow for other RCEP members. Beijing had earlier rebuffed the plan to impose an import ceiling for its exports — the first time New Delhi is attempting such a mechanism in any trade deal.

Earlier, India had agreed to reduce tariffs on 74 per cent of traded goods for China. While developed nations have demanded New Delhi open up at least 90 per cent of all items, China has refused to open up “commensurate to India’s demands”, an official said.

Currently, it is broadly accepted the RCEP will lead to tariffs being eliminated on 28 per cent of the traded goods to begin with. This will be followed by 35 per cent of all products being eliminated in phases.

Between the lines

Officials are also pushing to secure exceptions for India on trade issues, sources said. Prime among these is New Delhi’s opposition to demands of other nations on securing trade concessions provided by India in the domestic space. Known as “ratchet” in trade terminology, the concept implies that any policy changes will be automatically committed under the RCEP agreement to all members after a fixed period.

While India had communicated its intention to allow sectoral concessions in the services and investments segments, richer nations have continued pushing for similar concessions in goods trade as well.

Talks have faltered on providing MFN (most favoured nation) status to all partners. This promises that India will provide investment- or services-related concessions given to a trading partner under a bilateral treaty automatically to RCEP members without any time gap.

New Delhi may not extend MFN benefits to other RCEP nations on certain items. India has also sought to extend the date for duty cuts from the initially planned 2014 to 2019, because it has raised customs duties on more than 3,500 products since 2014, sources said.

The RCEP is India’s most ambitious trade pact, currently under negotiation. Based on India’s existing free-trade agreement (FTA) with the 10-nation Asean bloc, the RCEP will include all the nations with which Asean has trade deals — New Zealand, Australia, China, India, Japan, and South Korea.

So far, there have been 29 rounds of negotiations, apart from multiple minister-level meets.

BJP discusses RCEP deal with stakeholders, will submit report to govt

As India prepares for the final phase of negotiations on the RCEP (Regional Comprehensive Economic Partnership) free-trade agreement, the Bharatiya Janata Party (BJP) on Monday held a consultation with sundry stakeholders on the issue.

Party sources said it was a first-of-its-kind exercise by the BJP. The meeting, with nearly 20 stakeholders, was held at the BJP national headquarters in the national capital. From the BJP, its national general secretary (organisation) B L Santhosh and spokesperson on economic affairs Gopal Agarwal attended.

Representatives of the PHD Chamber of Commerce, exporters, activists and experts attended the meeting. Swadeshi Jagran Manch, the Rashtriya Swayamsevak-affiliated think thank on economic affairs, also attended the meeting. The BJP will now submit its report on the meeting to the government.

The BJP’s effort comes in the wake of Commerce and Industry Minister Piyush Goyal set to attend the eighth RCEP ministerial meeting in Bangkok from October 10 to 12. On Friday, Home Minister Amit Shah, External Affairs Minister S Jaishankar, Finance Minister Nirmala Sitharaman, Goyal and Minister of State for Commerce and Industry Hardeep Singh Puri had met here to discuss RCEP.

Sources said the meeting on Monday had those who voiced concerns about the fallout of the trade deal on Indian domestic industry, particularly on agriculture and dairy industries, while some others said it could benefit Indian industry by making it more competitive and help exports.

In recent days, Swadeshi Jagran Manch’s Ashwani Mahajan has cautioned against New Delhi joining RCEP, which could have “disastrous impact” on Indian manufacturing, dairy and agriculture. The Manch has warned joining the trade deal would cause job losses to the tune of 50 million in rural areas, and Prime Minister Narendra Modi’s promise of doubling farmers' incomes will remain a pipe dream. "Indian dairy farmers' income will actually be halved. India's $100 billion dairy industry is a prized market for New Zealand and Australia," Mahajan has said.

China would want India to be one of the countries to sign RCEP: Economist

China would want India to be one of the countries to sign the Regional Comprehensive Economic Partnership (RCEP), a free-trade pact among 16 nations, instead of staying out, said Song Hong, deputy director general and senior fellow at the Beijing-based Chinese Academy of Social Sciences. For this, China could create a bilateral mechanism with India to generate support for the treaty, he said.

Negotiations on the RCEP between the ten Asean members and the six partner countries of India, China, Australia, New Zealand, Japan and South Korea are in advanced stages and are expected to conclude by November. It will create the world’s largest trading bloc. The major differences at this stage are between India and China. India runs an annual trade deficit against China, estimated at close to $58 billion in 2018, having risen by about 12 per cent in just one year.

Song, an economist, is in New Delhi as part of the RCEP Track 1.5 Meeting organised by the Indian Ministry of Commerce and Industry to drum up goodwill for the RCEP. “A joint commission between the two nations negotiated independently of the others might be a useful measure.” His comments are significant given his standing in the Chinese Communist Party which gives him an influential voice in the trade negotiations of the country.

He made the comments at a session on “China, India and RCEP”, hosted by Research and Information System for Developing Countries (RIS), a New Delhi–based autonomous policy research institute, on Saturday.

The academician said the commission could explore areas of non-tariff barriers that India has often pointed out as having hurt imports to China. New Delhi has repeatedly raised concerns with Beijing about the lack of market access.

The Director General of RIS, Sachin Chaturvedi, said the formation of a joint commission to address these issues would be welcome. “It will give Indian negotiators a win-win platform in signing the trade deal. There are genuine concerns since China did offer special and differential access to the USA on several products at certain periods, a treatment it can certainly reciprocate for India.”

On Saturday, Business Standard had reported India is finalising a list of products on which it would want to retain import tariffs despite RCEP’s commitment to largely eliminate duties on trade between the signatory countries. All of the goods on the proposed list are imports from China on which India wants space for differential tariff reduction. Harsha Vardhana Singh, former deputy director general at the World Trade Organization, said India has been keen to also get a simultaneous list of items from China, goods on which it will allow easier imports. “But it has made no progress so far”, he said.

In the session, Song Hong drew parallels for India with the way China moved into the global trade chain in the nineties of the last century. He said India cannot develop expertise in end-to-end production but must enter the global value chain.

“Exports of components is the best,” he advised and said this can only happen if India integrates itself into the Factory Asia, a term which S&P has recently used to describe the continent.

He said of late as the cost of production has risen in China, companies moved out from the coasts to the Western regions and are also moving out of the country. For India to host those “massive enterprises” he suggested reforms in land, labour and capital markets to create a competitive environment for the domestic industry at par with what the other Asian countries have begun to offer.

Any agreement on RCEP deal to be based on national interests: Piyush Goyal

Any agreement on the proposed Regional Comprehensive Economic Partnership (RCEP) deal would be based on national interests, Commerce and Industry Minister Piyush Goyal said on Wednesday. He, however, warned that while the government would strive to protect the interests of a majority of industries, the overall discussion could not be hijacked by one or two sectors.

“As long as India's domestic industry and our national interests are protected, the faster it (the RCEP) is done, the better for India,” Goyal said. “Any agreement that India finalises will ensure that indiscriminate imports don't come in, while major opportunities for exports and job creation are reserved,” he added.

The RCEP is a proposed pact between the 10-nation Association of the Southeast Asian Nations (Asean) bloc and six of their free trade agreement (FTA) partners — New Zealand, Australia, China, India, Japan, and South Korea. Delegates from RCEP nations will be in New Delhi on September 14-15 to discuss ideas to move forward on the deal. Most of the members, led by the Asean bloc, have been pushing hard for finalising the deal by 2019-end.

Industry divided

Stressing that most industries were in favour of the deal, Goyal said some of the opponents had not understood the details of the RCEP yet. “Not everybody is opposing the RCEP. We are literally vertically split, with half the industry saying it should be brought quickly," Goyal said.

This includes the pharmaceutical sector which has argued for greater access to Chinese markets to give it a much-needed leg-up. China imports about $25 billion worth of medicines, of which India's share is only $200 million.

Cotton textile exporters have also requested a speedy conclusion to the negotiations, citing an 8 per cent duty that hinders their chances of exporting to China, Goyal added.

Goyal had told leaders from Asean in July that India’s domestic industry was not convinced that the proposed RCEP deal would create a “win-win situation for all” by ensuring balanced outcomes for both goods and services.

chart

A report on the RCEP, commissioned by the Confederation of Indian Industry and submitted to the government, has recommended that products — the trade of which is dominated by China — should not be included for tariff reductions under the RCEP. Many ministries, including agriculture, steel, chemicals and MSME, among others, have also opposed the deal.

Harnessing FTAs

“Looking at the past examples of other countries which have used FTAs very efficiently and effectively, my own sense is that we can also use these extremely well," Goyal said. He added the government was also looking at domestic measures to ensure the industry was competitive and could take advantage of the concessions allowed to them under the FTAs.

These measures include mega sessions with exporters that teach how to use FTAs properly. According to a study by the NITI Aayog, the utilisation rate of trade deals by Indian exporters is very low (between 5 and 25 per cent). Goyal also trained his guns on companies that have not taken advantage of the deals either due to lack of knowledge or effort, or due to the “comfort of a protected domestic market”.

The minister squarely blamed the earlier governments for not being able to negotiate better trade deals for India, which has led to a situation where the industry has not been able to benefit from FTAs. The Asean-India FTA did not have an automatic review mechanism built into it, Goyal said.

“After almost 10 years of implementation, imports have grown faster than exports. Indian industry also had to suffer from the circumvention of rules of origin, across products,” T V Narendran, CEO & managing director of Tata Steel, said.