Economist decodes India’s decision to withdraw from the RCEP

November 11, 2019: Professor Biswajit Dhar from Jawaharlal Nehru University in Delhi has analysed the Indian government’s decision to withdraw from the RCEP. Highlighting the ongoing disagreement between India and other RCEP countries on market access provisions, the protection and promotion of foreign investment and e-commerce provisions as central to India’s decision to withdraw from the negotiations.

He argues that the RCEP “would have hurt an already stressed economy, which is saddled with a perceptible slow-down in the manufacturing sector coupled with an increasing distressed farming sector.”

India’s concerns about the RCEP reflect its experience of signing free trade agreements with ASEAN, Korea and Japan. Dhar argues that the proposed benefits of these agreements have not materialised. He also suggests that the government’s concern about an influx of Chinese imports is legitimate, arguing that “the logic being that if China was able to establish such a large presence in the Indian market even when its products did not receive preferential tariffs, grant of tariff preferences to China under RCEP could result in rapid expansion of the Chinese footprint.”

Professor Dhar also highlighted the differences in opinion about investment protections. India has developed a Model Text for the Indian Bilateral Investment Treaty, which provides additional safeguards for government policy. This was developed in response to ISDS cases being brought against the country by foreign investors. However, Professor Dhar suggests that these proposals were not taken up in the RCEP, with reports suggesting that disagreement between parties led to ISDS provisions being removed altogether.

Finally, the Indian government was concerned about the e-commerce chapter, which would prevent India from applying tariffs and other regulation to e-commerce transactions and would contradict India’s Draft National E-Commerce Policy. India has chosen to stay out of ongoing discussions on an e-commerce agreement at the WTO because of its concerns about the impact of these rules. Professor Dhar suggests that the inclusion of similar rules in the RCEP would mean that In India “the extent of market opening would have been far more than what the tariff cuts suggest.”

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Watch a video by Focus on the Global South providing analysis about India’s decision to withdraw from the RCEP from Professor Dhar and Ranja Sengupta from the Third World Network here: