India has decided not to pull out from a big Asia-Pacific trade treaty, but on a few conditions

  • A group of ministers, led by commerce minister Suresh Prabhu, have decided to stay within the Regional Comprehensive Economic Partnership.
  • The treaty - which covers all 10 ASEAN countries along with India, China, New Zealand, Australian, Japan and South Korea - requires signatories to eliminate tariffs with each other.
  • However, India has proposed to cut tariffs on only 74% of the goods that it trades with China.
It is no secret that India wants to play a more central role in Southeast Asia, based on its Act East Policy, and now its made a decisive step in direction by choosing to stay within the the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement comprising 16 countries in the Asia Pacific region.

The decision follows months of speculation over whether or not the Indian government should pull out from the treaty.

The treaty requires all signatories to eliminate tariffs with each other. It covers all 10 countries in the Association of Southeast Asian Nations (ASEAN) along with India, China, Australia, Japan, South Korea and New Zealand. Together, the 16 countries account for nearly 30% of global trade and 45% of the world’s population. If ratified by all members, the treaty will lead to the creation of the world’s largest trade bloc.

In April 2018, a research note published by NITI Aayog, the government’s think tank, criticised the free trade agreement, saying that India would be forced to grant more market access to China, with which it already has a huge trade deficit, if it were to sign. And as a result, the flood of Chinese imports, especially in most segments where China boosts superior manufacturing capacity, would erode the competitiveness of Indian producers. Conversely, India’s exports would have limited traction in China.

The conditions for staying

As criticism of the RCEP mounted, the government set up a special group of ministers, led by trade minister Suresh Prabhu, to assess the implications of signing the treaty. The committee decided that India will stay in the treaty, but on a few conditions.

It won’t be able to eliminate all tariffs with countries with which it does not already have a bilateral free trade agreement, namely China, Australia and New Zealand.

A government official told Mint that India would only be able to cut tariffs on 74% of goods that it trades with these countries. Additionally, any tariff elimination on more than 86% of goods traded with a specific country will have to be discussed individually with that country’s government. India has currently agreed to waive tariffs on 86% of goods with all 10 ASEAN countries along with Japan and Korea. However, most nations are clamouring for a 92% elimination.

India will set forth the conditions at the upcoming meeting of the RCEP in Singapore on 30 and 31 August. Negotiations on the treaty have been going on since 2012 and were expected to conclude by the end of this year. However, this will likely be pushed to 2019 as a number of issues are resolved including exclusion of the metals sector from the treaty and access for skilled professionals.