India’s Withdrawal from RCEP Negotiations November 15, 2019
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On November 4, 2019 at the ASEAN summit held at Bangkok, India opted out of the negotiations for signing the Regional Comprehensive Economic Partnership (RCEP), a proposed free trade agreement in the Asia-Pacific region with 15 other potential participants previously projected to account for over 30% of the global GDP.
Earlier in the year, India’s offer for relaxation of tariffs on 74% to 86% of traded goods was rejected during negotiation as being conservative against the demanded 92%. Furthermore, rising concerns of prejudice to Indian manufacturing sector has forced India to safeguard its domestic market against high-volume low-cost imports from RCEP signatories, most notably, a number of ‘sensitive’ imports from China including steel and polyester fabrics. Other areas of concern included imports of palm oil from Malaysia and Indonesia, dairy products from Australia and New Zealand along with tea, cardamom and vanilla from other Southeast Asian countries.
India had further called for tightening of the Rules of Origin (ROO) criterion in its apprehension of third-party imports being routed through RCEP states.
The proposal for an auto-trigger mechanism advanced by India for provisional and automatic increase in duties in the event of surge in particular product imports set off by volume or cost ceilings was also shot down by the remainder of the negotiating states.
Additionally, a proposed investor-state dispute settlement (ISDS) mechanism allowed entities from signatory states to initiate action before international arbitral fora against other signatory states for the framing of certain trade regulations apprehended to be against commercial interests. Fearing profit-driven challenges to the scope of domestic legislation, India backed by other negotiating states, vehemently opposed inclusion of the ISDS proposal and it was effectively discarded, with an option to reconsider at a later stage of implementation of the RCEP.
Yet another major ground of dissatisfaction for India was the inability to agree upon the greater market access sought for India’s service professionals – a significant demand considering India accounted for 3.47% of world service exports in 2017, as against only 1.68% of world merchandise exports in the same year.
An ‘early harvest’ approach to sign the proposed RCEP and resolve the remainder of the issues thereafter, was dismissed upfront by India. The reluctance to compromise on outstanding concerns may be further exacerbated by India’s total trade deficit, 64% of which is with RCEP nations. This cautious stance comes in light of criticism of India’s previous free trade commitments. In 2008, India’s FTA utilization rate was estimated to be just under 25%, one of the lowest in Asia.