World Economy

RCEP Accord Dims as India Frets Over Trade Liberalization

RCEP Accord Dims as India Frets Over Trade LiberalizationRCEP Accord Dims as India Frets Over Trade Liberalization

Trade ministers from 16 countries in the Regional Comprehensive Economic Partnership confirmed that they will try to reach a broad agreement by the end of the year during a two-day meeting that ended on Aug. 31.

But if 15 member nations cannot find common ground with India, which is opposed to an overly liberal trade policy, the more than five years of negotiations will likely drag on into 2019, Nikkei reported.

Japan’s Economy, Trade and Industry Minister Hiroshige Seko met separately with Indian Commerce and Industry Minister Suresh Prabhu on Aug. 30 before the RCEP meeting, saying that he wants further discussions regarding bilateral cooperation.

Seko wants to iron out differences with his counterpart, a major hurdle hindering any accord within the RCEP.

India is at odds with the other 15 RCEP members. According to a local newspaper, the country is opposed to a trade liberalization rate of at least 86%.

Currently, for countries with which India does not have bilateral free trade agreements, India’s default trade liberalization rate stands at 74%.

This is extremely low, given that Japan’s is 95% in the Trans-Pacific Partnership—the lowest of any member in the pact.

Meanwhile, the 15 nations are believed to have urged India to allow freer movement of people between RCEP nations, similar to that of the Association of Southeast Asian Nations.

New Delhi is facing strong protectionist sentiment at home, where people think that other countries will benefit more than India from the RCEP.

The National Institution for Transforming India, a government think tank chaired by Indian Prime Minister Narendra Modi, said that past FTAs involving ASEAN, Japan and South Korea only worsened the country’s trade deficit. It also warned that liberalization under the RCEP would prove disastrous to the country as regards China, India’s biggest trading partner.

In 2017, India’s trade deficit with China totaled $59.4 billion, about 40% of the country’s total trade deficit. Removing tariffs under the proposed RCEP agreement would increase imports of Chinese industrial goods, raising India’s current-account deficit and putting further downward pressure on the rupee.

Trade liberalization would be a boon to other RCEP members, but if it remains stuck at the current rate, the economic effects of any agreement will be minimal.

Time is running out before the end of the year. Either the 15 members will have to convince India to buckle, or a compromise must be struck.

The RCEP hopes to hammer out a broad agreement by its next summit in November. There is a sense of urgency, as members feel that any momentum will be lost at the end of the year, when Singapore—a champion of free trade—relinquishes chairmanship of ASEAN.

To date, members have only agreed on four of the 18 areas on the agenda.

After the Aug. 31 meeting, Prabhu hinted that talks may continue into 2019 and beyond, a possible indicator of his country’s resolve.

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