India is in a tight spot at the trade negotiations for the Regional Comprehensive Economic Partnership (RCEP) as Japan and China are pushing for either common tariff for all member countries in 10 years’ time or to make the initial tariff liberalization more ambitious.
India may face mounting pressure to increase its tariff liberalization proposal in the next round of negotiation in Auckland between 12-18 June.
In the last round in Perth in April, there was discussion on four papers on goods submitted by China, Japan, Australia and New Zealand on the level of ambition, said a government official speaking under condition of anonymity.
“Japan is saying as we progress, in 10 years’ time, there should not be any deviation and there should be common concessions. Other countries want to increase the ambition level but retain the principle of deviation. China is saying limited deviation should be allowed but with a 20-year phase-out period for 80-85% tariff liberalization. We are in a difficult position as our industry is not ready for any of this,” he added.
India at present has proposed to follow a three-tier system of tariff liberalization based on whether it has a free trade agreement (FTA) with the country or not. Among its free trade partners also, it made separate offers to the Association of Southeast Asian Nations (Asean) on the one hand and Japan and South Korea on the other hand.
In tier-I, which includes the members of Asean countries, India has offered 80% tariff liberalization. Out of it, 65% elimination of tariff will come into force immediately as the agreement comes into force and another 15% tariff elimination will happen over a period of 10 years.
In tier-II, India has offered a 65% tariff elimination to South Korea and Japan with whom it has FTAs, while these two countries will give 80% tariff elimination.
In tier-III, India will offer 42.5% to China, Australia and New Zealand, while each of these countries will offer India 42.5%, 80% and 65%, respectively.
However, the official said there is no progress on services negotiations where India has taken an aggressive stand. “We have submitted our paper on services. Japan, South Korea, New Zealand, Australia are willing to discuss our proposal. But what will be the elements in it we don’t know,” he added.
On rules of origin, which decides whether a product is actually produced in the exporting country or not, countries are opposed to India’s stringent proposal.
While India is insisting on a change of product classification plus 40% value addition as a criteria in deciding whether a product is produced in a country or not, other countries are asking for lower value addition limits and either change in product classification or value addition as a criteria. While a lower value addition makes it easier for exporting countries, it may flood the markets of the importing country. Here also, Indian industry is insisting on higher value addition.
The official said the way negotiations are progressing, it looks difficult that the trade deal could be sealed this year.
Ram Upendra Das, professor at the Research and Information System for Developing Countries, said Japan, which is also a member of Trans-Pacific Partnership (TPP), has also proposed to take country-specific and product-specific commitments with a tariff liberalization period ranging up to 25 years. “On rules or origin also there are twin and, in some cases, triple criteria under TPP. So Indian negotiators should not feel the pressure and flag these points during the talks,” he added.
Started in May 2013, RCEP comprises the 10 economies of the Asean region (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and six of its free trade partners (Australia, China, India, Japan, New Zealand and South Korea).
The grouping envisages regional economic integration, leading to the creation of the largest regional trading bloc in the world, accounting for nearly 45% of the world’s population with a combined gross domestic product of $21.3 trillion.
The regional economic pact aims to cover trade in goods and services, investment, economic and technical cooperation, competition and intellectual property. India’s interests lie mostly in services, the removal of technical barriers to trade such as those taken under sanitary and phyto-sanitary measures, and trade in goods like pharmaceuticals and textiles.