Will avoid joining agreements which are ‘FTAs by stealth with China’: India on RCEP

Indian trade officials have defended the country’s decision on not joining the Regional Comprehensive Economic Partnership (RCEP) agreement even as 15 nations signed the dotted line on November 15 to take one of the biggest trade pacts forward.

The signing comes a year after Prime Minister Narendra Modi formally announced the country’s exit from the mega FTA after seven years of negotiations.

Negotiators of the Commerce and Industry Ministry — which is in charge of the country’s trade mandate — refuted allegations that India raised last minute issues to scuttle the trade pact. Officials said that India raised several issues consistently during the parleys to seek a balanced outcome for all RCEP FTA members.

Trade negotiators in New Delhi have maintained that India would continue to avoid any trade pact that involves preferential duty market access with China, with whom it has had a spike in border issues.

Commerce Ministry officials shared six specific terms that it disagreed with during the RCEP FTA talks.

Here are the issues that objected to during the RCEP FTA meeting.

1. Circumvention of Rules of Origin by China

Commerce Ministry officials maintain that there was a constant threat of circumvention of minimum value addition norms called Rules of Origin by China. India was convinced that China would push cheap goods indirectly into India by shipping it via RCEP members like Vietnam or Malaysia, thereby bypassing Rules of Origin norms.

2: Request for change in base rate of customs duty from 2014 to 2019

Indian trade officials maintain that multiple requests were made to change the base year for customs duty rate cut from 2014 to 2019. India maintains that RCEP trade will be operational from 2022, once the member countries individually ratify the pact. When that happens, the applicable duties will have to be rejigged to levels seen in 2014.

India has raised duties on over 3,000 goods in the past six years and hence recalibrating its duties to 2014 levels in 2022 — the first year of RCEP FTA — would harm sunrise sectors like electronics and mobile manufacturing, officials maintained.

3: Request for tariff lines in auto trigger safeguard mechanism

Sources in the Commerce Ministry pointed out that India wanted an automatic mechanism by which it could impose safeguard duties in case of import surge from RCEP FTA members. Officials said that there is always a risk of sudden surge in imports from FTA partners and hence an automatic trigger safeguard mechanism was needed to protect Indian industries.

4: Exclusion from Most Favoured Nation (MFN) obligations in investments

India wanted an exclusion from the Most Favoured Nation (MFN) clause related to investment commitments under RCEP. India has maintained that this gives MFN benefits on investments only to strategic partners like the US or France or friendly nations like Sri Lanka and Nepal. India was not ready to offer MFN benefits on investments to RCEP members like China.

5: Carve-out of sensitive sectors from ratchet obligations in investment

India would have had to mandatorily offer investment related benefits that it gives under other FTA partners to RCEP members. India opposed this condition known as ratchet obligation in the RCEP FTA.

6: Carve-out of local policy measures should be applicable only in top two levels of government

Under RCEP FTA, investment related commitments would have to be adhered to even by local governments like municipal corporations. India demanded a carve-out by agreeing to investment commitments in the top two levels of government at the Centre and state.