Dr Ashwani Mahajan
Since 2012, discussion and 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’s announcement that India will not join 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. 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 a lot of anxiety about whether it should go ahead with the agreement or not. In the recent past, India had raised several concerns in joining RCEP, and sought resolution for the same. However, it seems that those issues and concerns of India have not been resolved. Finally, many those who were strongly opposed to it are feeling deeply relieved with Prime Minister Narendra Modi’s announcement, that India opts out of this agreement.
Allowing duty free import of 80 to 95 percent items
The basic subject matter 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 of 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. We know that 10 ASEAN countries were also included in this agreement. We already have a Free Trade Agreement with 10 ASEAN countries, which was penned in 2011. After this agreement, our trade deficit with ASEAN countries has increased by almost three times. Worst thing in the agreement was that it neither had any exit clause and nor any review clause. Due to this agreement the farmers and industries of the country suffered hugely. About a month ago, the Union Minister of India, 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 for 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 flooding of goods from these countries. This is the reason why India’s industry, dairy and agriculture sectors are happy with India opting out of RCEP.
Dairy and Agriculture have special problems?
We must understand had this pact gone ahead, our small farmers would have confronted with agricultural giants of Australia and New Zealand. Dairy provides livelihood to 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 lurch. Talking about dairy, the price of New Zealand milk powder is hardly rupees 180-190 per kg, 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.
Problems emerging from Investment Agreement
After the Narendra 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 fulfillment 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 problems, action was taken to revoke these agreements. 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.
This decision by Prime Minister Narendra Modi to come out of the RCEP was not easy to take. At the same time, it is equally true that this decision has created a wave of happiness among the people associated with small scale industries, farmers, dairy and manufacturing. Although some people are saying that the way Prime Minister Narendra Modi is known in the world for building new relationships with other countries, the decision to come out of RCEP looks different. 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 country. Leaving aside opposition to dumping of RCEP by a handful of people, all sectors have not only expressed happiness over this decision, they have 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 realize ‘Digital India’ dream of the Prime Minister. In fact the RCEP agreement would have jeopardized many dreams of the Prime Minister, namely, Make in India, doubling farmers’ income, Digital India, making India a manufacturing hub. Now we can move towards these goals more vigorously.
(The author is Associate Professor, Department of Economics, P.G.D.A.V. College (University of Delhi)
Dr Ashwani Mahajan