Senior functionaries from India and China recently convened in New Delhi, with the objective to attain a mutual understanding on market-opening commitments. Their negotiations are part of a broader effort under the Regional Comprehensive Economic Partnership (RCEP).
Understanding RCEP
RCEP is a suggested regional economic integration arrangement involving the 10 ASEAN countries and six additional free-trade agreement partners that include Australia, New Zealand, Japan, South Korea, China, and India. If successfully enforced, it would emerge as one of the world’s largest free trade blocs, representing 45% of the global population. This union would also command about $21.3 trillion combined GDP and hold sway over 40% of international trade.
Tensions Between India and China
India finds itself at odds with China within the framework of this pact. The major concerns revolve around the proposed openness of markets, a policy vehemently advocated for by China. India, on the other hand, desires to provide significantly less market access in its goods to China than to other participant members such as ASEAN, Japan, and South Korea.
Differing Perspectives on Trade Policies
India is pushing for clearly established rules of origin to maintain tariff differentiation integrity and sanctity. These rules are meant to curtail the influx of Chinese goods, which could gain entry through member countries with lower or no duty levels. For example, Chinese garments have found a way to India via the duty-free route under the South Asia Free Trade Pact and the Duty-Free Quota-Free window from Bangladesh.
| Country | Trade Deficit with India (2018-19) |
|---|---|
| China | $60 billion |
| South Korea | Data Not Available |
| Australia | Data Not Available |
Concerns of the Indian Economy
India had a trade deficit with 11 RCEP members, including China, South Korea and Australia, in 2018-19. To this effect, India proposed to relinquish tariffs for 70-80% of goods for China over an extended duration, with no plans to offer further concessions. The existing trade surplus of China – over $60 billion with India, threatens to destabilise the domestic industry which is grappling with fierce competition from Chinese goods.
Directions of Future Trade Agreements
Looking forward, there are mounting concerns within India’s aluminium and copper industries about China’s presence in RCEP. These anxieties stem from a predicted surge in imports, and an expected widening of the trade deficit, both of which could potentially undermine India’s Make in India initiative. China may also be exploring the idea of a free trade agreement among the ASEAN, China, Japan and South Korea (ASEAN+3), should the RCEP negotiations extend indefinitely.
The South Asia Free Trade Pact (SAFTA)
The South Asian Free Trade Agreement (SAFTA) consists of seven South Asian countries that form the South Asian Association for Regional Cooperation (SAARC): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Implemented on 1st January 2006, SAFTA aimed at reducing tariffs within the regional trade among its seven SAARC members.
