Opting out of RCEP, A Bold and Wise Move

Since 2012, negotiations had been going on for a new free trade agreement in the name of Regional Comprehensive Economic Partnership (RCEP), which included 10 ASEAN countries, Japan, South Korea, New Zealand, Australia and China. With Prime Minister Narendra Modi announcing that India will not join the RCEP, at its Summit in Bangkok, this process has come to a halt. This agreement was not only comprehensive by name, but in fact it was in essence, a comprehensive agreement, covering different issues, even beyond trade, namely, investment, agriculture, dairy, manufacturing, e-commerce, data and so on. Not only farmers and people engaged in dairy had been opposing this agreement, almost whole manufacturing sector including steel, chemicals, telecom, automobile, bicycle, textile were up in arm against this proposed mega deal. Due to widespread opposition to this proposed agreement, the government was in anxiety about whether it should go ahead with the agreement or not. In the recent past, India had raised several concerns over joining RCEP, and sought resolution of the same. However, it seems that those issues and concerns of India have not been accommodated. Finally, many of those who were strongly opposed to it, are feeling relieved with PM Modi’s announcement to opt out of this agreement.

The basic problem of this agreement was allowing duty-free import of goods, including dairy, agriculture and manufactured products. Doctrine behind Free Trade Agreements (FTAs) is making import goods free by abolishing import duties. Significantly, in RCEP it was proposed to ultimately reduce the import duty to zero on 80 percent of goods from China and 90 to 95 percent of goods from other countries. 10 ASEAN countries were also included in this agreement. We already have a Free Trade Agreement with 10 ASEAN countries, which was agreed in 2011. After this agreement, our trade deficit with ASEAN countries has increased by almost three times. The worst thing about the agreement was that it neither had any exit clause and nor any review clause. Due to this, the farmers and industries of the country suffered hugely. About a month ago, the Union Minister of India, Shri Piyush Goyal, succeeded in persuading the ASEAN countries for review of this agreement. which would provide relief to those adversely affected and would be highly beneficial to India. On the other hand, a similar free trade agreement with Japan and South Korea was reached during the UPA rule itself. Due to this, our trade deficit with Japan and South Korea has increased by nearly two and a half to three times. Overall, our trade deficit with the RCEP countries is approximately $105 billion. Had India gone ahead with this pact, country would have been subject to further dumping of goods from these countries. That is why India’s industry, dairy and agriculture sectors are happy with India opting out of RCEP.

We must understand had India signed this pact, our small farmers would have been confronted with agricultural giants such as Australia and New Zealand. India’s diary industry provides livelihood to about 10 crore farmers and non-farmers, while the entire dairy production of New Zealand (which they export worldwide) comes from only 11.5 thousand dairies and they account for 30 percent of the total dairy exports of the world. Japan gives support of $33.8 billion ($14,136 per farmer) to protect farmers producing rice, wheat, cotton, sugar and dairy in Japan, while in India this assistance is negligible. Therefore, it would be wrong if we think that our farmers would have got access to trade in other countries with RCEP. But the import of cheap agricultural products into India, would have left Indian farmers in dire straights. Talking about dairy, the price of milk powder in New Zealand is hardly Rs. 180-190 per kg, whereas in India it is 290 per kg. In this case, dairy products from New Zealand at zero import duty would have broken the backbone of India’s dairy industry.

After Modi Government came to power in 2014, it faced problem from investment agreements entered into by the UPA Government. This was because the investors started suing the Indian government, for non-fulfilment of one or the other clause of those agreements. They claimed compensation from Indian government. In many cases, foreign companies were also successful in receiving heavy compensation. In order to get rid of these agreements, action was taken to revoke them. But the irony was that, after this RCEP agreement the country would have again fallen into the same trap. Not only this, the possibility of cap on royalty and technical fees by foreign companies, which present government is contemplating would also have ended after this agreement. This problem will also overcome after coming out of the RCEP agreement.

The decision by Modi to opt out of RCEP was not an easy one to take. At the same time, it is equally important that this decision has assuaged the people involved in small scale industries, farmers, dairy and manufacturing sectors. Although some people say that the way PM Modi is known in the world for building new relationships with other countries, the decision to opt out of RCEP may have looked odd. But the Prime Minister has also given a message to the world that in making relations with the world, we need not sacrifice the interests of the countrymen. The Prime Minister has clarified that India is a New India today, and he is not ready to sacrifice the aspirations of his countrymen. Ignoring a handful of people opposed to the dumping of RCEP, all sectors have not only expressed happiness over the decision, they have also explicitly appreciated this move.

While the old agreement with ASEAN countries has started to be reviewed, the demand for review of agreement with Japan and South Korea has also started gaining momentum. That is, now it can become the government’s priority to fix the old agreements, instead of entering into new agreements. We have to understand that the exercise to allow free flow of data, was being attempted in RCEP. Significantly, this gives India the opportunity to force foreign payment companies, e-commerce companies and social media companies to keep their data in India. It will also serve to realise Digital India dream of the Prime Minister. In fact, the RCEP agreement would have shattered many dreams of the Prime Minister, namely, Make in India, doubling farmers’ income, Digital India, Make in India, and making India a manufacturing hub. Now we can pursue these goals more vigorously.