||RCEP Brings Challenges and Opportunities: CII President||
The crucial RCEP Leaders' Summit is all set to take an important political call on the RCEP negotiations on Monday 4th November at Bangkok. Prime Minister Narendra is scheduled to attend this meeting and put forward India's concerns with regards to ongoing RCEP negotiations. Never in the past has any trade agreement attracted so much attention from such a wide-spectrum of stakeholders in India, said CII in a Press Release issued here.
“Prime Minister Narendra Modi has rightly said that India wants win-win outcome from RCEP negotiations. He also reiterated India's consistent demand of according equal importance to all three major subjects of negotiations – goods, services and investment. CII supports the stance articulated by the Hon'ble Prime Minister” said Mr Vikram Kirloskar, President, CII, commenting on the important trade deal.
“A large section of Indian Industry has expressed serious concerns about joining RCEP on the basis of a very genuine reasons, especially pertaining to China and CII is thankful to the Government for taking these on board while negotiating the trade agreement. However, any decision of joining an agreement of this size and magnitude must not be based on our concerns with regards to just one country. FTAs must be considered from their long term impact, both on our domestic market and the access it provides. Some of our industry may be domestically focused today, but in ten years would want the access to this most vibrant region of 15 other countries that RCEP provides”, said the CII President.
The 16-member RCEP has the potential to become one of the largest (and economically dynamic) trading blocks of the world, even bigger than the European Union. In 2017, RCEP countries contained 47.6 percent of global population, contributed 31.6 percent of global GDP and 30.8 percent of global trade, stated the CII release.
India has had mixed experience of deriving benefits from its past FTAs, as compared to the way some other countries like South Korea, Chile, Mexico and now Vietnam have utilised these for their economic benefit. The missing link in the entire debate on FTAs in India is the importance of FDI. Unfortunately, in India we have always done the impact analysis of FTAs in terms of export and import and that too bilaterally but never realised how these countries used FTAs to successfully get integrated into the global value chains, CII went on to say.
India's integration into value chain continues to be low. There are various factors for this. One of them is that its preferential agreements are not deep enough vis-à-vis other agreements of its FTA partners. The future momentum for regional integration in Asia-Pacific will draw considerable strength from the conclusion of negotiations for RCEP and the growth of regional value chains facilitated by RCEP through cross-border flows of trade, investment and people, CII said.
“The general perception is that the importance of India is more as a consumer of final product markets. But as RCEP progresses and favourable tariffs and Rules of Origin (ROOs) kick-in, India should become a major hub for coordinating regional value chains through itself – both as a major market for final products and as a location for third-country exports, primarily to the Middle East, Africa and Europe” Mr Kirloskar said.
---------------------------------------------
Confederation of Indian Industry
Cost of not being part of RCEP for India
I. Introduction
The RCEP negotiations have entered a crucial phase as Trade Ministers are scheduled to meet on 1st November, which would be followed by RCEP Leaders' Summit on 4th November at Bangkok. The summit is important because this is where the RCEP Heads of States would meet to take an important political call about the future course of action.
For Indian Industry China continues to be a major concern in the RCEP. A large section of Indian Industry is very negative about RCEP and want India to either withdraw from the proposed trading block or give minimal tariff concessions to China with longer phasing out period. The Indian government is fully aware and sensitive to Indian Industry concerns with China. In the RCEP negotiations, India has demanded significant deviation both in terms of lower tariff lines coverage and longer phasing-out period with regards to China.
While Members have made significant progress on chapter on tariff reduction modalities, it will take some more time to agree on a final text, which would satisfy all 16 countries. In services, India has some offensive interest but seems not getting market access what it initially aspired for as ASEAN as a group is opposed to India's demands.
Clearly, India is under tremendous pressure to come on board. Further, Indian Industry, not having meaningfully articulated its offensive interests, is proving to be a major handicap for Indian negotiators in RCEP negotiations. Even with China, we failed to use RCEP as an opportunity to seek market access given that bilaterally getting concession from China always proves difficult.
Given the prevailing situation and continued negative sentiments amongst the Indian Industry members on RCEP, the missing element is opportunity or India to get integrated into the regional value chain.
II. RCEP: Possible Gains and Losses
• Globally the trend has been towards preferential trade agreements and economic integration within a region. This leads to a large volume of trade happening within a trading block or between preferential trading partners. The EU is the most successful example of deepening intra-regional trade. Currently, intra-EU trade as a percentage of region's total trade is about 65%. Similarly, trade within the ASEAN block constitutes around 25% of total ASEAN's trade.
The 16-member RCEP has the potential to become one of the largest (and economically dynamic) trading blocks in recent times. Once it enters into force the RCEP promises to be one of the largest trading blocks in the world. In 2017, RCEP countries contained 47.6 percent of global population, contributed 31.6 percent of global GDP and 30.8 percent of global trade. In absolute numbers, RCEP countries traded around USD 5.1 trillion in 2017 with intra RCEP trade at around USD 2.3 trillion (which is 45 percent of its Global Trade).
Trade within RCEP nations is expected to increase once the agreement is signed. By being part of the block, India will get an opportunity to tap large and vibrant economies and grow its exports. Not being part of the block is tantamount to not having an even footing in terms of preferential access and losing export competitiveness. This will only harm India's export and investment flow in the future.
III. Opportunity to get Integrated into the Regional Value Chain
Preferential and Comprehensive agreements also facilitate investments and foster the growth of value chains. NAFTA helped facilitate American investment in Mexico and created a value chain across sectors within North America. ASEAN FTAs with China, Japan and Korea and India's FTAs with Korea, Japan and Singapore facilitated investments that helped in developing value chains across many sectors.
India's integration into value chain continues to be low. There are various factors for this. One of them is that its preferential agreements are not deep enough vis-à-vis other agreements of its FTA partners. Being part of RCEP can change this. The future momentum for regional integration in Asia-Pacific will draw considerable strength from the conclusion of negotiations for RCEP and the growth of regional value chains facilitated by RCEP through cross-border flows of trade, investment and people.
The scope for reconfiguration of existing value chains and growth of new ones is considerable because of two reasons. The first is the high heterogeneity among RCEP member economies and their respective proficiencies in GVCs. While several members display high backward linkages with GVCs, quite a few others show the opposite characteristic of strong forward linkages. Some countries, such as Korea, Malaysia and Philippines are interesting examples of high proficiency of both linkages, and therefore greater overall presence in GVCs, whereas economies like New Zealand and India, are relatively lower in both linkages, and overall lower presence in GVCs.
The general perception is that the importance of India is more as consumers of final product markets. But as RCEP progresses and favourable tariffs and Rules of Origin (ROOs) kick-in, India might become a major hub for coordinating regional value chains through itself – both as a major market for final markets and as a location for thirdcountry exports, primarily to the Middle East, Africa and Europe. The differing value chain presences of other RCEP member economies, primarily those from around the Mekong delta region (Cambodia, Lao, Myanmar, Vietnam and Thailand) might be Leading from the above two points, not being part of the RCEP will cut India off from the RCEP region in terms of preferential access. It will also hinder investments from many RCEP countries and thus stymie its efforts to increase its integration into regional and global chains.
