India should not sign this trade deal

A comprehensive agreement was made for organising trade between different countries through the World Trade Organisation (WTO), which came into existence on 1 January 1995.

Published: 05th February 2019 04:00 AM  |   Last Updated: 05th February 2019 03:28 AM   |  A+A-

A comprehensive agreement was made for organising trade between different countries through the World Trade Organisation (WTO), which came into existence on 1 January 1995. Besides other things, it was decided to reduce tariffs and eliminate non-tariff barriers to encourage trade between countries.
While this agreement still exists, many nations are entering into bilateral and plurilateral Free Trade Agreements (FTAs) amongst themselves. An FTA means an agreement to carry out trade at zero or very low tariff between countries. India has also signed FTAs with countries such as Sri Lanka, Japan and South Korea. The government often claims these FTAs help improve diplomatic ties, though we might incur some economic losses.

However, the government is inching towards a new FTA that neither has any visible diplomatic gain nor provides any economic benefit to the country. The agreement in question is the Regional Comprehensive Economic Partnership (RCEP). The negotiations were launched in November 2012. It is a proposed FTA involving 16 countries—the 10 ASEAN nations along with Japan, South Korea, Australia, New Zealand, India and China. These nations have 45 per cent of the world’s population and make up 39 per cent of the world’s GDP. If signed, it would be the largest FTA in the post-WTO period and RCEP would be the world’s largest economic bloc.

The experience of India with FTAs has not been very encouraging, especially in this region. In 2009 India entered into a FTA with ASEAN. It was expected that our exports would increase and we would be able to reduce our trade deficit. However, the reverse happened. Our trade deficit with ASEAN countries has increased from $7.7 billion in 2009-10 to $13 billion in 2017-18. There has been a significant increase in imports from countries like Malaysia and Indonesia. Similar has been the experience with Japan and South Korea, with whom our trade deficit has more than doubled, after the signing of FTAs. If we look at the trade deficit with RCEP countries, in 2017-18 it was $104 billion—64 per cent of India’s total trade deficit of $162 billion. So there is general consensus that India does not stand to gain anything in goods trade through RCEP.

Further, imports from these countries and especially from China will increase enormously—though it is being claimed that even after signing RCEP, a separate agreement will be made with China. However, the fact is that whereas import duty would be made zero on 90 to 92 per cent of items coming from ASEAN countries, import duty would be made zero for 74 per cent of the products coming from China, which is the current offer of the Indian government in RCEP. At present nearly half our trade deficit is from China. After RCEP, Chinese products may flood the country. The government, now trying to stop Chinese imports by raising tariffs, imposing non-tariff barriers and anti-dumping duties, may find it difficult to practice these measures after RCEP. And dairy, meat and agricultural imports from New Zealand and Australia may rise, causing losses to Indian farmers. So the government’s aim of doubling farmers’ incomes will not be achievable.

The only possible argument in support of RCEP is that we may get some favour from member countries with respect to concession in trade in services, where India is said to have ‘aggressive interest’. But here too, our experience has not been encouraging. While India has an open-door policy for professionals coming from ASEAN nations, many of them continue to block our professionals.

Further indications are that Japan and South Korea are proposing intellectual property provisions referred to as TRIPS-plus, which go far beyond the obligations under the WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The proposed provisions seek to extend pharma corporations’ patent terms beyond the usual 20 years and also require data exclusivity that limits competition. These will hit our access to affordable medicines.

In the intellectual property chapter, any agreement that constrains our farmers’ ability to produce, preserve, exchange and sell seeds needs to be categorically rejected. If India makes any agreement like the International Union of New Plant Varieties (UPOV) 1991 (that favours multinationals and is against farmers’ interests), it will kill the livelihood of our farmers.

The investment agreement is yet another danger emanating from RCEP. Our nation has had the experience of dealing with such agreements, signed with many countries, and ultimately decided to end or renegotiate 89 such agreements after the Modi government came to power. Bringing up a new problem for itself through this FTA is not advisable.

In the last four-and-a-half years, the Modi government has been aspiring to make India a manufacturing hub through its ‘Make in India’ policy, improve the lives of rural people, provide healthcare and medicines to all, apart from many employment generation and skill development programmes.

It is clear that the proposed RCEP would be detrimental to all these aspirations. Then why should we sign it?  India had set up an informal group of ministers (GoM) under Minister of Commerce Suresh Prabhu, but there is growing opposition to RCEP from within and outside the government. The government has also outsourced studies with regard to the possible impact of this agreement. However, the fact that the government would continue to engage with RCEP is itself worrying.

Ashwani Mahajan
Associate Professor, PGDAV College, University of Delhi
Email: ashwanimahajan@rediffmail.com

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