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India is getting increasingly isolated at the Regional Comprehensive Economic Partnership (RCEP) negotiations, with domestic industry lobbies mounting pressure on the government against any tariff concessions to their rivals in the 16-member grouping. Trade ministers of the grouping will meet on 13 July in Malaysia to align positions and accelerate talks to close a deal as scheduled by year end.

“We are facing a lot of opposition from domestic industries, especially from the steel industry, against opening up the sector for competition. Our domestic steel price is $50 (per tonne) more than international prices. How is this acceptable? We are telling the steel industry don’t say the entire steel sector should be out of RCEP. We are asking them to give us a few tariff lines where we can negotiate. But they are adamant. We have to give somewhere to get somewhere else. If India will become too conservative and protective, we will be out of the race. Ultimately, it is going to be a call taken by the Prime Minister’s Office," a government official said on condition of anonymity.

Sanak Mishra, secretary general and executive head of Indian Steel Association, said he is convinced steel should not be part of negotiations in RCEP or any other future free trade agreement (FTA). “India is a steel non-mature economy. If we open up for steel imports, then we will become an import dependent country for next 30 years. India has capacity and capability to produce steel for its own consumption. We should only import steel which we cannot produce here which is only 7% of our domestic consumption. We will keep up the pressure on the government not to include steel in RCEP negotiations," he added.

The textile industry also fears high imports of finished products from China as a result of RCEP. D.K. Nair, secretary general at the Confederation of Indian Textile Industry, said his association is not opposed to RCEP, but it should not be a route for China to export finished products to India. “We are asking that the rules of origin need to be finalized in such a manner that the raw material used should be either from the exporting country or the importing country, but not from a third country," he added.

Siddhartha Rajagopal, executive director at the Cotton Textiles Export Promotion Council, said while India may gain in cotton textiles, in synthetic textiles, where the big bets are, the country may lose out. “We are already running a high trade deficit with China. We need to draft the rules of origin carefully," 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. Asean is short for the Association of Southeast Asian Nations.

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.

India has proposed an initial offer of 40% tariff liberalization, which other members of the grouping consider too small. With the Narendra Modi government aiming to make India a manufacturing powerhouse with its “Make in India" campaign and criticism that the previously signed FTAs have not benefited Indian companies, India is insisting on keeping ambitions low under the RCEP negotiations. At the same time, it does not want to lose out on the opportunity as 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.

So far, China and South Korea have been supporting India showing low level of ambition, mainly because of their rivalry with Japan. But India apprehends their positions will drift apart as talks progress. India is also facing pressure from other members led by Japan to agree to have a chapter on e-commerce trade among member countries, which it has so far resisted.

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