Regional Comprehensive Economic Partnership RCEP Negotiations

The 19th round of technical-level meetings of the RCEP Trade Negotiating Committee convened in Hyderabad to further discussions on the Regional Comprehensive Economic Partnership (RCEP). RCEP is a proposed Free Trade Agreement (FTA) between the ten ASEAN member states and their six FTA partners: India, China, Japan, South Korea, Australia, and New Zealand. Envisioned as the world's largest free trade agreement upon finalization, RCEP’s guiding principles emphasize parallel negotiations across trade in goods, services, investment, and other areas to achieve a comprehensive and balanced outcome.

The Regional Comprehensive Economic Partnership (RCEP) stands as a testament to the evolving dynamics of global trade and economic cooperation in the Asia-Pacific region. The 19th round of negotiations in Hyderabad represented a critical juncture in a long and complex process aimed at creating what would have been the world's largest free trade area, encompassing nearly half of the global population and a significant portion of the world's GDP. The RCEP negotiations, initiated in 2012, sought to consolidate and expand upon existing free trade agreements between the ten member states of the Association of Southeast Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam – and their six free trade agreement (FTA) partners: Australia, China, India, Japan, South Korea, and New Zealand. This ambitious undertaking aimed to not only reduce tariffs and non-tariff barriers to trade but also to harmonize regulations, promote investment, and foster greater economic integration across the region.

Genesis of RCEP: A Response to Shifting Geopolitical Landscapes

The genesis of RCEP can be traced back to the growing recognition of the need for deeper regional economic integration in the face of rising global uncertainties and the proliferation of bilateral and regional trade agreements. The existing network of FTAs between ASEAN and its partners, while beneficial, was characterized by overlapping and sometimes inconsistent rules and regulations, creating complexities for businesses operating across the region. RCEP was envisioned as a way to streamline these agreements, create a more coherent and predictable trade environment, and unlock new opportunities for economic growth and development.

Moreover, the rise of China as a major economic power and its growing influence in the region played a significant role in shaping the RCEP negotiations. As China's economic footprint expanded, other countries in the region sought to engage with it in a way that would maximize the benefits of its economic dynamism while also mitigating potential risks. RCEP provided a platform for countries to engage with China on a multilateral basis, ensuring that their interests were taken into account and that the agreement was structured in a way that promoted a level playing field.

Key Objectives and Pillars of RCEP

The RCEP negotiations were guided by a set of key objectives, including:

• Reducing Tariffs and Non-Tariff Barriers: A central goal of RCEP was to reduce or eliminate tariffs on a wide range of goods and services traded between member countries. This would make it easier and cheaper for businesses to export and import goods, boosting trade and investment flows. Non-tariff barriers, such as quotas, import licenses, and discriminatory regulations, were also targeted for reduction or elimination.

• Harmonizing Rules of Origin: Rules of origin determine the country of origin of a product for the purpose of applying tariffs and other trade measures. RCEP aimed to harmonize rules of origin across member countries, making it easier for businesses to qualify for preferential treatment under the agreement.

• Promoting Investment: RCEP sought to create a more favorable environment for investment by reducing barriers to foreign investment, protecting investors' rights, and promoting transparency and predictability in investment regulations.

• Facilitating Trade: RCEP aimed to streamline customs procedures, reduce transaction costs, and improve the efficiency of trade logistics. This would make it easier for businesses to trade across borders and reduce delays in the movement of goods.

• Enhancing Economic Cooperation: RCEP included provisions for economic and technical cooperation among member countries, focusing on areas such as small and medium-sized enterprises (SMEs), intellectual property rights, and e-commerce.

The RCEP negotiations were structured around several key pillars, including:

• Trade in Goods: This pillar covered issues such as tariff reductions, rules of origin, and customs procedures.

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• Trade in Services: This pillar covered issues such as market access for service providers, domestic regulation of services, and mutual recognition of qualifications.

• Investment: This pillar covered issues such as investment protection, investment liberalization, and dispute settlement.

• Intellectual Property: This pillar covered issues such as copyright, patents, trademarks, and geographical indications.

• Economic and Technical Cooperation: This pillar covered issues such as capacity building, technology transfer, and SME development.

India's Perspective and Concerns

India's participation in the RCEP negotiations was driven by a complex set of considerations, balancing its desire to integrate more deeply into the regional economy with concerns about the potential impact on its domestic industries and its strategic interests.

On the one hand, India recognized the potential benefits of RCEP in terms of increased trade, investment, and economic growth. RCEP could provide Indian businesses with access to new markets and opportunities in the Asia-Pacific region, boosting exports and creating jobs. It could also help India to attract foreign investment and improve its competitiveness in the global economy.

On the other hand, India had significant concerns about the potential negative impacts of RCEP, particularly on its domestic industries. Indian industries, especially in sectors such as agriculture, manufacturing, and textiles, faced intense competition from other countries in the region, particularly China. India feared that RCEP could lead to a surge in imports from China, undermining its domestic industries and leading to job losses.

India also had concerns about the rules of origin under RCEP. It wanted to ensure that the rules of origin were strict enough to prevent countries from circumventing tariffs by importing goods from non-RCEP countries and then re-exporting them to RCEP countries as originating products.

Furthermore, India was concerned about the lack of progress on its demands for greater market access for its service providers in other RCEP countries. India has a large and competitive services sector, and it saw RCEP as an opportunity to expand its services exports to the region.

Key Issues and Sticking Points in the Negotiations

The RCEP negotiations were complex and challenging, with numerous issues and sticking points that needed to be resolved. Some of the key issues included:

• Tariff Reductions: One of the most contentious issues was the extent to which member countries would reduce tariffs on goods traded between them. Some countries, such as China, pushed for deep tariff cuts, while others, such as India, were more cautious, fearing the impact on their domestic industries.

• Rules of Origin: As mentioned earlier, the rules of origin were a major concern for India. It wanted to ensure that the rules were strict enough to prevent circumvention of tariffs.

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• Services: India sought greater market access for its service providers in other RCEP countries, but some countries were reluctant to open up their services sectors to foreign competition.

• Investment: Some countries wanted to include strong investment protection provisions in RCEP, while others were concerned about the potential impact on their ability to regulate foreign investment in the public interest.

• Intellectual Property: The negotiations on intellectual property were also contentious, with some countries pushing for stronger intellectual property protection, while others were concerned about the impact on access to medicines and other essential goods.

The 19th Round in Hyderabad: Progress and Remaining Challenges

The 19th round of RCEP Trade Negotiating Committee meetings in Hyderabad aimed to address these outstanding issues and move the negotiations forward. While the specific details of the discussions remained confidential, it was understood that the negotiators made some progress in narrowing the gaps between their positions. However, significant challenges remained, and it was clear that further negotiations would be needed to reach a final agreement.

The Hyderabad round, like many before it, involved intense technical discussions among trade officials from the participating countries. These discussions focused on specific provisions of the draft RCEP agreement, including tariff schedules, rules of origin, and investment regulations. The negotiators also sought to address concerns raised by various stakeholders, such as businesses, labor unions, and civil society organizations.

One of the key objectives of the Hyderabad round was to develop a common understanding of the remaining issues and to identify potential solutions that could be acceptable to all parties. The negotiators also worked to refine the draft text of the RCEP agreement, clarifying ambiguities and addressing inconsistencies.

Despite the progress made in Hyderabad, significant challenges remained. The negotiators were still far apart on some key issues, such as tariff reductions and market access for services. It was also unclear whether India's concerns about the rules of origin could be adequately addressed.

Geopolitical Context: RCEP and the US-China Trade War

The RCEP negotiations took place against the backdrop of growing geopolitical tensions in the Asia-Pacific region, particularly the trade war between the United States and China. The US-China trade war, which began in 2018, involved the imposition of tariffs on billions of dollars worth of goods traded between the two countries.

The US-China trade war had a significant impact on the RCEP negotiations. On the one hand, it increased the urgency of reaching an agreement, as RCEP was seen as a way to counter the negative effects of the trade war and to promote regional economic integration. On the other hand, the trade war also complicated the negotiations, as it raised concerns about the potential for trade diversion and the impact on individual countries' economies.

Some countries saw RCEP as an opportunity to diversify their trade relationships and reduce their dependence on the United States and China. Others were concerned that RCEP could be used as a tool to promote China's economic and political influence in the region.

India's Eventual Withdrawal from RCEP

Despite years of negotiations and numerous rounds of meetings, India ultimately decided to withdraw from the RCEP negotiations in November 2019. The decision was based on India's assessment that the agreement, as it was being finalized, did not adequately address its key concerns and that it could have a negative impact on its economy and its strategic interests.

India's withdrawal from RCEP was a major setback for the agreement, as it removed one of the largest and most dynamic economies in the region from the trading bloc. It also raised questions about the future of regional economic integration in the Asia-Pacific.

The reasons for India's withdrawal were multifaceted and complex. As mentioned earlier, India had long-standing concerns about the potential impact of RCEP on its domestic industries, particularly in sectors such as agriculture, manufacturing, and textiles. It feared that RCEP could lead to a surge in imports from China, undermining its domestic industries and leading to job losses.

India was also concerned about the rules of origin under RCEP. It wanted to ensure that the rules were strict enough to prevent countries from circumventing tariffs by importing goods from non-RCEP countries and then re-exporting them to RCEP countries as originating products.

Furthermore, India was dissatisfied with the lack of progress on its demands for greater market access for its service providers in other RCEP countries. India has a large and competitive services sector, and it saw RCEP as an opportunity to expand its services exports to the region.

In addition to these economic concerns, India also had strategic concerns about RCEP. It was wary of China's growing economic and political influence in the region and it feared that RCEP could be used as a tool to promote China's interests at the expense of other countries.

India's decision to withdraw from RCEP was met with disappointment by many of the other participating countries, who had hoped that the agreement would create a more integrated and prosperous regional economy. However, India's decision was also seen as a reflection of its growing assertiveness on the world stage and its determination to protect its own interests.

RCEP After India's Departure

Despite India's withdrawal, the remaining 15 RCEP countries continued to negotiate the agreement, and they eventually signed it in November 2020. The RCEP agreement came into effect on January 1, 2022, after it was ratified by a sufficient number of participating countries.

The RCEP agreement, as it was finally signed, includes provisions on trade in goods, trade in services, investment, intellectual property, economic and technical cooperation, and dispute settlement. It aims to reduce tariffs and non-tariff barriers to trade, promote investment, and enhance economic cooperation among the participating countries.

The RCEP agreement is expected to have a significant impact on the regional economy, boosting trade, investment, and economic growth. It is also expected to strengthen regional supply chains and to promote greater economic integration in the Asia-Pacific.

India's Act East Policy and RCEP

India's decision to withdraw from RCEP also has implications for its Act East Policy, which is a strategic initiative aimed at strengthening India's ties with the countries of Southeast Asia. The Act East Policy, which was launched in 2014, seeks to promote economic, political, and security cooperation between India and ASEAN.

RCEP was seen as an important component of the Act East Policy, as it would have provided India with a platform to engage more deeply with the ASEAN countries and to promote regional economic integration. However, with India's withdrawal from RCEP, the Act East Policy may need to be recalibrated to take into account the changing regional landscape.

India may need to explore alternative ways to engage with the ASEAN countries and to promote regional economic integration, such as through bilateral trade agreements or through other regional initiatives.

China's Belt and Road Initiative (BRI) and RCEP

China's Belt and Road Initiative (BRI) is a massive infrastructure development project that aims to connect China with the rest of Asia, Africa, and Europe through a network of roads, railways, ports, and other infrastructure projects. The BRI is a key component of China's foreign policy and it is seen as a way to promote its economic and political influence around the world.

The RCEP agreement is seen by some as complementary to the BRI, as it would facilitate trade and investment flows between China and other countries in the region, making it easier for Chinese companies to participate in BRI projects. However, others are concerned that RCEP could be used as a tool to promote China's economic and political dominance in the region, undermining the interests of other countries.

India's decision to withdraw from RCEP may be seen as a way to counter China's growing influence in the region and to protect its own strategic interests.

Historical Precedents and Lessons Learned

India's experience with RCEP is not unique. It has a history of engaging in regional trade agreements, with mixed results. Previous FTA negotiations involving India have yielded both successes and challenges. Some FTAs have led to increased trade and investment, while others have faced implementation issues and non-tariff barriers.

For example, India has FTAs with ASEAN, South Korea, and Japan, among others. These agreements have generally led to increased trade between India and its partners, but they have also faced challenges in terms of implementation and enforcement. Non-tariff barriers, such as sanitary and phytosanitary measures, have often hindered trade flows.

India's experience with these previous FTAs provides valuable lessons for future trade negotiations. It highlights the importance of carefully assessing the potential impacts of trade agreements on domestic industries and of ensuring that the agreements include provisions to address non-tariff barriers and other implementation challenges.

The Future of Regional Economic Integration in Asia

The future of regional economic integration in Asia remains uncertain. While the RCEP agreement is a significant step forward, it is not a panacea. There are still many challenges to overcome, including the diverse interests and priorities of participating countries, the rise of protectionism, and the growing geopolitical tensions in the region.

India's decision to withdraw from RCEP has created a void in the regional economic landscape. It remains to be seen whether India will rejoin RCEP in the future or whether it will pursue alternative strategies for engaging with the region.

One possibility is that India will focus on strengthening its bilateral trade relationships with individual countries in the region. It may also seek to participate in other regional initiatives, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is a free trade agreement that includes 11 countries in the Asia-Pacific region.

Ultimately, the future of regional economic integration in Asia will depend on the willingness of countries to cooperate and to address the challenges that lie ahead. It will also depend on the ability of countries to balance their economic interests with their strategic concerns.