India to press for moderate tariff liberalization, hybrid template
India, China and South Korea have proposed initial tariff liberalization in 40% of the traded goods
New Delhi: Member countries of the regional comprehensive economic partnership (RCEP) grouping will aim to reach a consensus on an initial level of market liberalization in goods and finalize the modalities in services negotiations in the seventh round of negotiations in Thailand starting on Monday.
In goods, India will press for deviation in tariff liberalization above the initial offer, while in services, India will propose a way out in the form of a hybrid approach to be followed instead of the currently discussed positive or negative list based approach.
While India, China and South Korea have proposed initial tariff liberalization in 40% of the traded goods, Japan and the Association of Southeast Asian Nations (Asean) have been demanding up to 80% of tariff liberalization, while the ambition levels shown by Australia is nearly 90%.
With the Narendra Modi government aiming to make India a manufacturing powerhouse with its Make In India campaign and criticism that the previously signed free trade agreements (FTAs) have not benefited Indian companies, India is insisting on keeping ambitions low under the RCEP negotiations.
While China joining India and South Korea to keep the initial offer at a modest 40% have calmed India’s nerves, there is uncertainty about China sticking to that stand.
“India, China and South Korea will be meeting on Monday to finalize the joint strategy on goods. That meeting will be critical. Both South Korea and India will be trying to get China on board. We hope China continues to hold the same position as last meeting,” a commerce ministry official said, speaking on condition of anonymity.
“It will be difficult for India to raise the offer beyond 40%. If South Korea, China have developed a different view since the last meeting, we will have to take a fresh call. Then, we may have to rework our strategy,” the official added. He said there will be pressure on all countries to finalize the initial offer in this round as the chair is planning to come out with a consolidated text on the way ahead, which needs to be presented to the ministers during their meeting in April in Malaysia.
While Japan has gone a step ahead and put their initial offer of tariff lines on the table, nobody has seen it because offers are shared among countries who have shared their offers, the official said. Japan had given a proposal towards the end of the Delhi round in December that there should be different ambitions for FTA and non-FTA partners within the RCEP.
India has proposed deviation as a way out, under which it can offer tariff cuts on certain items to all except some countries with whom it may have sensitivity.
“Though Australia, New Zealand are opposing our proposal, we have been its strongest proponent saying deviation is crucial for us. We have made it clear that if you want a moderate ambition, then we need to have deviation. But the problem is, the way negotiations are we cannot have a very large deviation between two countries,” the official added.
In services, India is insisting on following a positive list based approach under which it will list sectors in which it is ready to take liberalization commitments, while many countries like Japan and Australia are in favour of negative list based approach where all sectors will be open for commitments except a few sensitive sectors.
As a way out, India has proposed a hybrid model, under which market access will be provided on a positive list based approach while national treatment commitment will be taken on a negative list based approach.
“We are not pushing for a negative list approach in services because we don’t have regulation in many services sectors. If you are saying in these 10 sectors we will not negotiate, you must be very sure that you have regulations in all other sectors,” the official said. The government has set up a committee of secretaries which is currently working on setting sectoral regulations in services such as healthcare, education and legal.
T.S. Vishwanath, principal adviser at APJ-SLG Law Offices, said this round of RCEP negotiations will be crucial as member countries will discuss hardcore numbers for the first time. “After the end of this round, we will have a fair idea where RCEP is heading and how quickly it could finish negotiations,” 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 such as pharmaceuticals and textiles.
While RCEP members are keen to finalize an agreement in goods to begin with, India insists on negotiations in goods and services moving in tandem—given the nation’s bad experience while negotiating the Asean free trade agreement, where it lost its bargaining power for a strong services agreement by concluding the goods agreement first. However, the RCEP trade deal is crucial for India since it is not part of the other two mega-regional trade deals that are under negotiation—the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Both are led by the US.
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