Lessons from RCEP negotiations

The conflicting viewpoints on RCEP bring out the need for evidence-based policy-making and information sharing

Prime Minister Narendra Modi announced India’s decision to opt out of the Regional Comprehensive Economic Partnership (RCEP) negotiations recently, adding the agreement would not serve the country’s interests. The RCEP agreement was being negotiated amongst ASEAN+6, that is, the 10 member countries of ASEAN plus Australia, China, India, Japan, New Zealand and South Korea since 2013. The 16 RCEP countries account for nearly 40 per cent of global GDP, almost half the world’s population and a third of the global trade in goods and services. Even without India, RCEP would be a mega-regional trade agreement, second only to the EU-US trade agreement (the Transatlantic Trade and Investment Partnership or TTIP), if that were ever negotiated.

Media reports suggest that the absence of a safeguard mechanism against a surge in imports from China, inadequate coverage of India’s interests in services and unsatisfactory treatment of NTMS (non-tariff measures) in the agreement being negotiated were among the main reasons for India to pull out of the negotiations. While these may be legitimate grounds, policy-makers, regulators, negotiators and the people of India would all be better served if there were comprehensive impact assessment studies and analysis of the costs and benefits to the country from negotiating trade agreements like the RCEP and if this information were shared publicly.

Unfortunately, there is little in the public domain that suggests that such meaningful analyses were undertaken. Large segments of India’s manufacturing and agriculture sectors have consistently spoken against joining the agreement arguing that import competition emanating from the tariff liberalisation under RCEP would affect them adversely. Have there been rigorous impact assessment studies or anecdotal information from stakeholder consultations documenting such effects? If yes, why have these not been shared with the public or made available online? This absence of information-sharing is among the most confounding aspects of all trade agreements, including the RCEP. Each member government claims that such agreements enhance the economic welfare of its citizens. Still, citizens are deprived of the opportunity to independently assess the costs and benefits of these agreements.

The uncomfortable truth is that trade negotiations are held in complete secrecy and India’s terms of engagement in these agreements remain unknown. An objective assessment of the claims made by India’s farmers and industry has thus become extremely difficult, especially in the absence of quality impact assessment studies. Let alone experts of Indian-origin abroad, there is no dearth of expertise on the subject even within the country — the many think-tanks, academic/policy institutes and universities house scholars and researchers adept at the skillset required — to undertake such studies. Then why was such work not commissioned or the findings kept under wraps?

Successful trade negotiations require in-depth knowledge and information. The new trade agreements are not just about tariff liberalisation but also cover a host of non-tariff issues like services regulation, standards, investment, government procurement, competition policy, intellectual property and safeguard mechanisms, to name a few. The European Commission routinely engages in sustainability impact assessments (SIAS) of all major trade agreements that it seeks to negotiate. These studies assess the economic, social and environmental costs and benefits to the EU from the likely agreement, based on rigorous quantitative and qualitative analysis as well as feedback received from stakeholders, and covers both tariff and non-tariff issues in great detail. The reports are available online and inform public debates and policy-making.

India needs to go down this route of evidence-based policy-making and information sharing. There have been enough statements in the media about the increase in India’s trade deficit following our agreements with ASEAN, Japan and South Korea. What we need are state-of-the-art SIA studies that can objectively examine such blanket statements. Recently, the EU has begun to analyse data on the utilisation of tariff preferences to examine which of its agreements are effective and to address the challenges in the ineffective agreements. India’s agreements with its partners in East Asia have generated enough data to examine the effectiveness of these agreements and to learn from past mistakes, if any, to both inform subsequent trade negotiations with other partners and to address challenges at home that prevent India’s exporting firms from utilising negotiated preferences. The government must organise studies to analyse this data and make findings from such work public.

While the fear of import competition may be genuine, all sectors of the Indian economy are inherently uncompetitive for domestic political-economy reasons. Economic theory tells us that preferential tariff liberalisation leads to trade creation, wherein efficient partner country suppliers displace inefficient home country suppliers; and preferential deep integration, that is, addressing non-tariff issues, leads to both home and partner countries gaining unambiguously. While there may be costs from joining the RCEP and India may not be ready yet, there are also gains to be had, especially in the low-growth and protectionist economic scenario at home and abroad. The government needs to do its homework before deciding which path to take and most importantly, keep people informed.