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RCEP: 5 reasons why India stayed away from world's largest trade deal

To ensure that no domestic industry in any of the 16 RCEP countries suffers due to malpractices, India had proposed an auto trigger mechanism which has not been accepted

The 15-nation group of the world's largest free trade deal - Regional Comprehensive Economic Partnership (RCEP) agreement signed on November 15 - has made it clear that they are missing India, the only country among the original negotiators of RCEP that is not part of the agreement at the moment.

In a joint declaration, the 10 members of the Association of Southeast Asian Nations (ASEAN) and Australia, China, Japan, Korea and New Zealand have stated that RCEP agreement is open for accession by India and signatory states will commence negotiations once India makes a written request. Whether the country will make that move and be part of a free-trade agreement that already covers an almost 30 per cent market of the world's population (2.2 billion people) and about 30 per cent ($26.2 trillion) of the global GDP, is not known yet. But, the concerns that made it pull out from RCEP last year are quite clear. Any decision to join RCEP will depend on how other countries address India's concerns. The issues are the following:  

  • Threat of circumvention of Rules of Origin due to Tariff Differential  

Countries can take advantage of tariff differential given to another country in tariff lines not offered to it. For example, once India becomes an RCEP member, China may use lower tariffs than India's offers to Vietnam or Malaysia for dumping its products in India.

  • Request for Change in Base rate of Customs Duty from 01.01.2014 to 2019  

Even if RCEP is signed now, after legal ratification from all countries it will become operational in 2022. Therefore, customs duties of 2014 will get applied in 2022, when the market dynamics will have changed significantly.  Its implications can be like this: Suppose India has become a big success in electronics and mobile phone manufacturing because of the increase in tariffs introduced in recent years. India will have to reverse its tariff rates to 2014 level once it joins RCEP. This will take away the current competitiveness of India's electronics industry.

  • Request for tariff lines in Auto Trigger Safeguard Mechanism (ATSM) along with review clause at a periodicity of three years

India's past experience with FTAs has not been very positive as it had led to huge import surges leading to injury to the domestic industry. To ensure that no domestic industry in any of the 16 RCEP countries suffers due to malpractices, India had proposed an auto trigger mechanism which has not been accepted.  

  • Exclusion from Most Favoured Nation (MFN) obligations in Investment Chapter  

MFN status is often given for strategic interests. India did not want to give away the rights to give concessions to its strategic allies or for geopolitical reasons and hand out the same preferential treatment to all RCEP countries, especially China with which India has border disputes.

  • Carve out of sensitive sectors from Ratchet obligations in Investment Chapter

Under this head, any benefit that India may give to a third country for investments would automatically be applicable to RCEP countries. This was not acceptable as benefits given to France, the USA, Sri Lanka or Nepal will have to be offered to Chinese investments too.

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