Strategic challenges from RCEP: India does not have to worry much about RCEP ..We can focus on Bilateral treaties
Trade and treaties are an important aspect of global practices. The credit to US hegemony goes to some of her economic policies, trade and treaties. The downfall of the US can also go to them if things don’t improve from here on.
Most of the trade and businesses around the world goes through what are called as Regional Treaty Agreements (RTAs) or what is also popularly referred as Free trade agreements (FTAs). Then there are Bilateral treaties. The United States has historically pursued FTAs to open markets for U.S. goods, services, and agriculture. In the US context that applies to other countries too, FTAs are more extensive than earlier bilateral agreements, including the near complete elimination of tariffs among the parties, and a broad range of commitments beyond tariffs and are considered as powerful trade treaties.
There are two more categories termed as MultiLateral Treaties of which WTO is an example. The other is Plurilateral of which Trade in Services agreement (TISA) is an example.
The relationship between regional trade agreements (RTAs) and the broader multilateral system (i.e., the WTO) is complex. While permitted by WTO rules, RTAs are technically a violation of a fundamental principle of the WTO, the most-favored nation (MFN) concept. MFN requires WTO adherents to treat all other members uniformly in their trade policies. RTAs, however, are explicitly discriminatory, committing participants to treat trade partners inside the agreement differently than those outside, except for certain provisions that may be applied on an MFN basis. The WTO agreements allow an exception for RTAs on the theory that such agreements, subject to certain rules, may further WTO goals of increasing trade and economic openness and could eventually facilitate a multilateral agreement.
There are questions over the degree to which RTAs adhere to these criteria, particularly regarding notification and coverage. Estimates suggest roughly 100 RTAs are in force but not notified to the WTO. In addition, there is considerable variation in the scope and extent of liberalization in existing RTAs.
The rise of “mega-regional” RTA negotiations, such as the Regional Comprehensive Economic Partnership (RCEP) involving multiple countries of considerable economic significance, has added another layer of complexity.
This massive accord – RCEP- brings together the ten member nations of ASEAN along with China, Japan, South Korea, Australia, and New Zealand. India was originally part of the pact but decided to drop out in 2019. RCEP members account for roughly 30% of global trade and GDP, making it the largest free trade agreement (FTA) in the world. RCEP will reduce tariffs and other barriers and establish rules in roughly 20 trade and investment-related areas.
India’s position and general concerns:-
Prime Minister Modi has stated that India’s withdrawal was the result of “core concerns” with RCEP, and external affairs Subrahmanyam Jaishankar said that no agreement was better than a bad agreement. India’s main concerns with the agreement revolved around e-commerce sections and trade imbalances, particularly in agricultural and industrial trade. India pushed for a provision on “data localization” within the e-commerce section, which would require that any data collected on citizens of a certain country remain in that country unless approval is granted for its removal. Opponents to the proposition argued that the provision would hinder the function of e-commerce and provide opportunities for governments to mishandle data.
Bottlenecks in RCEP:
RCEP also includes limited provisions on services, investment, and standards. In each of these areas, the rules are relatively weak. RCEP members used a mix of positive and negative lists for services, with CPTPP members opting for the more ambitious latter format. The section on intellectual property was stronger than expected, and the digital copyright rules go beyond what was included in the CPTPP. The agreement does not include labor or environmental chapters. RCEP contains an investor-state dispute settlement provision, but it will not be operational unless members decide to activate it in three years when they revisit the provision. RCEP also includes a competition chapter; however, unlike the CPTPP, it does not include disciplines on state-owned enterprises.
One of the main points of conflict in negotiations revolved around e-commerce, and the resulting sections on it were lackluster in content. E-commerce and digital trade are of increasing importance in Asia as it already leads in many indicators of global readiness, such as mobile phone use and online shopping. Many hoped RCEP would include provisions that would decrease barriers for e-commerce and create coherent rules throughout the region. However, the agreement fails to include prohibitions on data localization or barriers to cross-border data flows.
India also had major concerns over trade imbalances as it had trade deficits with 11 of the 15 nations involved in RCEP. Fearing that the deal could result in a flood of manufacturing and agricultural products into their market, India was unwilling to remove tariffs on many sensitive industries, such as dairy. India would have had to significantly decrease its tariff and non-tariff barriers, which currently cover up 90 percent of imports depending on country of origin, if it were to proceed with joining RCEP.
Long before RCEP, FTAs already existed among most RCEP members. The ASEAN FTA and the ASEAN Economic Community had already opened trade and investment between the ASEAN members. China, Japan, South Korea, Australia, and New Zealand already have FTAs in place with the ASEAN block. While this does not mean that RCEP is superfluous, it does suggest that a large portion of the trade liberalization that is viable among the 15 members has already been reaped.
RCEP will be the first FTA between some members, for example Japan and South Korea. But the amount of additional market opening that will take place between, for instance, Indonesia and Vietnam, where trade agreements are already in place, is negligible.will
One distinguished feature of RCEP is that it will allow SMEs also to participate in trade. Second like many others, RCEP also leaves scope for all items to be covered.
In other words, while RCEP appears to be a good grand agreement for regional cooperation in trade, the benefits will not be commensurate and the challenges will be far and many. It will also lead towards more legal appeals as countries will find it difficult to stop the discriminatory practices adopted by some.
RCEP does take on additional significance for its geostrategic overtones. It will buttress perceptions about China solidifying its preeminence in East Asia at a time when the role and influence of the US is perceived – after four years of the Trump administration – to be in decline.
When the US was still a participant in the (then) Trans-Pacific Partnership (TPP), the TPP and RCEP were often positioned as competing economic and strategic blocks, one led by the US and one led by China. But with RCEP now signed – while the US has long since dropped out of TPP – at least some will read it as a “victory” for Chinese preeminence in East Asia and a marker of the further diminution of US influence.
It should be noted that so far the USA has offered an umbrella to many small and developing countries besides large for trade and businesses. These can be seen as her way of being the number one superpower.
In recent years China has stealthily used economics to replace the USA and seems right on her way. If that happens Many countries will be dependent on China further so as to keep their economies running. A recent example was seen when China imposed and banned Australian beef and other items to send her a message. With the uncertainties keeping the USA engaged China has pushed for RCEP and has strengthened her position. It must be also noted that in no trade treaty or agreement China has compromised her own vested interests and has always maintained a higher hand.
By staying away India has taken a wise decision. RCEP is not going to reap much benefits as expected and will also take time to understand the real complexities coming out of it. Though that is not a very strong logic to stay put India can compensate by focusing on bilateral trade treaties which are more effective in maintaining relationships as well as trade deficits with immediate controls.
RCEP has been touted as a big event bringing 15 nations together. The presence of some big nations makes it more attractive and appealing. However trade between nations under trade agreements have become quite complex issues as nations try to dump cheap goods to others taking benefits out of them. Under WTO many countries have been at the wrong end. Besides RCEP can also be seen as an extension of China’s global domination policy where economy plays a major role.
1. US Congressional report
2. Heinrich Foundation
Dr Asheesh Shah