TOPIC:

INDIA’S WITHDRAWAL FROM RCEP: JUSTIFICATIONS & IMPLICATIONS

(Project towards the fulfilment of assessment in the subject of International Trade Law)

Submitted by: Submitted to:

RAJEEV TEKWANI PROF.JHARNA SAHIJWANI

8th SEMESTER (FACULTY OF LAW)

ROLL NO.-A059
2|Page
 TABLE OF CONTENT

Introduction................................................................................................................................4

Chapter I: Decoding Regional Comprehensive Economic Partnership.....................................6

I. Importance of RCEP.......................................................................................................8

II. Stumbling blocks for RCEP............................................................................................9

Chpater II: Reasons for India’s Withdrwal..............................................................................13

I. India’s tryst with FTAs – “Once bitten twice shy”......................................................13

II. Tariff liberalisation........................................................................................................15

III. The fear of Chinese Dragon......................................................................................20

IV. Intellectual Property Protection & Medicine Industry..............................................22

V. Foreign Investment Protection......................................................................................25

Chapter III – Finding Alternatives for rcep..............................................................................28

I. Action Plan needed for Doubling Exports....................................................................29

II. Need for an FTA Strategy.............................................................................................30

III. Mechanism for efficient Regulation of Imports........................................................31

1. International trade practices and policies are constantly evolving and India needs to
keep up, not to be left behind...........................................................................................32

2. Well-crafted FTAs should be seen as part of reform and not undermining domestic
industry or agriculture......................................................................................................32

3. Dairy sector is a case in point....................................................................................33

4. Creative possibilities for negotiations in the industrial sector...................................34

Conclusion................................................................................................................................35
 Abstract

India withdrew from the largest ever free trade agreement, the Regional Comprehensive
Economic Partnership after a multitude of stakeholders, including farmers’ organisations,
trade unions, and industry associations, spoke in one voice on the adverse implications of the
agreement. India has three FTAs with the members of Association of Southeast Asian
Nations, Korea and Japan, which were expected to increase India’s exports. Exports did not
increase as Indian enterprises lack competitiveness, but imports from the partner countries
expanded, leading to the haemorrhaging of domestic manufacturing. The first chapter of the
paper decodes RCEP, emphasises on the important characteristic features of it thereafter
discuss why it has not taken final shape. The second chapter of this paper describes
elaborately the reasons for India’s withdrawal namely the unfeasible trade liberalisation, the
paranoid attitude of the Indian government towards FTAs, etc. The third chapter of this paper
dwells upon finding alternatives for RCEP by making three suggestions namely prepare and
implement an action plan to double exports in the next five years, draw up and implement an
FTA strategy and implement a credible and robust system of regulating imports. The paper is
concluded by analysing the feasibility of this decision of Indian govt.

Keywords – RCEP, Trade Liberalisation, China-India trade imbalance, Access to medicine,

Indian Agriculture, Indian intellectual property regime, TRIPS, RTAs, Negotiation,
Investment Protection.

INTRODUCTION
Since the last decade, regional trade agreements (RTAs) have been on the rise. Be it Trans-
Pacific Partnership (TPP) or Trans-Atlantic Trade and Investment Partnership (TTIP),
member countries have been pushing hard to develop regional trading blocs. Seeing the
accelerated rise in RTAs, developing and emerging economies too have started building and
investing in their own regional trade networks. Regional Comprehensive Economic
Partnership (RCEP) is a prime example of the same, where 16 countries situated closely in a
geographic sense are planning to come together and build a new trade regime.

The US in the past had been party to such multi-lateral trade agreements, but in the last
decade, it proposed a major trading bloc (Trans Pacific Partnership) covering many of the
states in the
pacific region. This trading bloc, however, ignored two major economies, i.e. China and
India, the economies which contribute to ~15% of the global trade.1

To counter this, China endorsed RCEP which plans to cover all the major Asian economies.
RCEP is a proposed trading bloc to link ten ASEAN member states and their free trade
agreement partners, i.e. Australia, China, India, Japan, South Korea and New Zealand. In all,
the proposed trading bloc would include more than 3 billion people, a combined GDP of $17
trillion and about 40% of world trade.2 The negotiation started way back in 2013, but the final
agreement is yet to be achieved. The core of the negotiating agenda includes trade in goods
and services, investments, economic and technical cooperation and dispute settlement. The
materialisation of this FTA would be a powerful vehicle to support the spread of global
production networks and reduce the inefficiencies of multiple Asian trade agreements that
exist presently. The most important part of RCEP has been its flexibility clause which states
that “RCEP will include appropriate forms of flexibility including provision for special and
differential treatment, plus additional flexibility to the least-developed ASEAN Member
States”.3 The rigidity when it comes to laws and policies had been in the past a major reason
for the failure of trading blocs. The RCEP clause tends to take care of that giving a level
playing field to all its participating members.

1
Trends in international trade, World Trade Report 2013, https://www.wto.org/english/res_e/booksp_e/wtr13-
2b_e.pdf , accessed 1 February 2020.
2
Dipanjan Roy Chaudhray, RCEP member countries split over deal for India, The Economic Times
https://economictimes.indiatimes.com/news/politics-and-nation/rcep-member-countries-split-over-deal-for,
accessed 1 February 2020.
3
Jayant Menon, The challenge facing Asia’s Regional Comprehensive Economic Partnership, East Asia Forum.
 CHAPTER I: DECODING REGIONAL COMPREHENSIVE
ECONOMIC PARTNERSHIP

In 2011, the leaders of the Association of South East Asian Nations (ASEAN) took the
decision to establish the Regional Comprehensive Economic Partnership (RCEP), for which
the ASEAN members agreed to engage with their partner countries with which the group had
already concluded a free trade agreement (FTA). 4 Importantly, ASEAN leaders decided that
the process for establishing the RCEP should be driven by the members of the grouping. The
process, according to the ASEAN leaders was to be guided by the ASEAN Charter, which
underlined the need to “maintain the centrality and proactive role of ASEAN as the primary
driving force in its relations and cooperation with its external partners in a regional
architecture that is open, transparent, and inclusive” .5

RCEP was conceived of within the broad framework of “open regionalism”, which, as stated
in the “General Principles” agreed by the leaders, was to have “an open accession clause to
enable participation of any of the ASEAN FTA partners ... as well as any other external
economic partners”. This meant that the membership of RCEP was kept open and was not
confined to only a few select countries. Such a model of integration has the advantage of
being more robust and inclusive through the inclusion of a large number of countries.
However, a year later, the ASEAN leaders’ decision to launch the negotiations for the RCEP
restricted the scope of participation to the grouping’s existing FTA partners, all of which lay
in ASEAN’s immediate neighbourhood. The “Guiding Principles and Objectives for
Negotiating the Regional Comprehensive Economic Partnership”, stated that RCEP would be
guided by the principle of broadening and deepening “engagement with significant
improvements over the existing ASEAN+1 FTAs”, while recognising “ASEAN Centrality in
the emerging regional economic architecture”.

The “Guiding Principles” thus reflected the motivation of the ASEAN members to bring all
its FTA partners under one umbrella agreement and also the intent of the grouping to play a
determining role in the process of economic integration that RCEP was expected to bring
about. More importantly, the “Guiding Principles” recognised the “interests of ASEAN’s
FTA

4
ASEAN Framework for Regional Comprehensive Economic Partnership, Nineteenth ASEAN Summit, Bali,
Indonesia, 14-19 November, http://asean.org/?static_post=aseanframework-for-regional-comprehensive-
economic-partnership, accessed 1 February 2020.
5
Article 1, section 15, ASEAN Charter.
Partners in supporting and contributing to economic integration, equitable economic
development and strengthening economic cooperation among the participating countries”. 6
This statement marks out RCEP as a significantly different regional economic architecture
from the other regional economic arrangements that are either in place or are being
negotiated. While the architects of RCEP introduced a development dimension in the
negotiating mandate, all other regional economic agreements are hinged on the singular
objective of opening up of markets. This challenging objective notwithstanding, the
negotiating mandate for the RCEP stated that the aim would be to conclude the negotiations
by the end of 2015. As an economic formation in the East Asian region7 , RCEP brings to the
fore collective strength of some of the largest economies in the world.

6
Id.
7
Towards an East Asian Community, East Asia Vision Group Report, 2001.
 I. Importance of RCEP
The size of the total GDP and population of the RCEP member countries is extremely large.
Therefore, the RCEP market has a lot of potential for providing opportunities for further
development of the private sectors of member countries. Size, however, is not the only reason
for the immense potential of the RCEP negotiation.

First, the RCEP involves both China and India, which are leading players among the
emerging global powers. China’s economic development has slowed down, as the GDP
growth rate reached 6.6% in 2018, down by 0.2% as compared to the previous year.9
However, the size and potential of the Chinese economy is still significant, and its power is
partially converted into political leverage, especially in neighbouring areas. According to the
Global Economic Prospects (GEP) report released in early 2019, India is also expected to
develop its economy, even though it experienced the slowest GDP growth rate among the
previous five quarters in the third quarter of 2018.10 The inclusion of these top-two emerging
powers is an important advantage for the RCEP as a trade deal.

Second, the RCEP is a trial to attempt region-wide economic integration, as opposed to the
bundle of bilateral economic ties between ASEAN and the six countries, each of which
already has either a bilateral free trade agreement (FTA) or an economic partnership
agreement (EPA) with ASEAN.11 In other words, the RCEP negotiation is focusing on setting
common rules on economic activities based on the existing six FTAs/EPAs. To converge
diverse FTAs/EPAs into one economic agreement, however, is extremely challenging.

Third, the RCEP is an opportunity to try an ASEAN-centred economic integration scheme.

From ASEAN’s point of view, the RCEP is an important step to maintaining ASEAN
centrality amidst the changing regional circumstances in East Asia. However, the negotiation
process has been significantly complicated by various claims from the six external countries.
Japan, one of the external powers relative to ASEAN, demonstrated its ability to assume a
leading role in

9
“China’s GDP growth slows to 28-year low in 2018”, Nikkei Asian Review, 21 January 2019,
https://asia.nikkei.com/Economy/China-s-GDP-growth-slows-to-28-year-low-in-2018, accessed 1 February
2020.
10
The World Bank, “Global Economic Prospects: Darkening Skies”, January 2019.
11
Badri Narayanan et al, Tariff liberalisation in the RCEP trade agreement and impact on India's automobile
industry: An applied general equilibrium analysis, Econstor, ARTNeT.
promoting the RCEP negotiation, especially after the US withdrawal from the TPP. However,
the ASEAN countries’ initiative will determine the trajectory of the negotiation process,
while the other countries respect the leading role of ASEAN.

Finally, the RCEP is increasing its importance as a scheme to retain and foster the liberal
economic order in Asia and the rest of the world. The international liberal order, based on the
belief that a free and open economy is ideal for economic development, has determined the
basic mindset of political elites in East Asia and the Asia-Pacific after the end of the Cold
War, which revealed the prominence of the capitalist market economy model and the defeat
of the socialist model for economic development.12 During the post-Cold War period, the
political elites of the Western powers, especially the United States, intentionally established
the capitalist market economy model as a global standard, thus leading the political elites of
East Asia and the Asia-Pacific to base their behaviours and mindsets on the liberal economic
order

Now, the liberal economic order is facing many serious challenges, such as the growing
protectionism of the United States under the Trump administration, the expanding influence
of the state capitalism model due to the economic success of China, and the escalation of the
Sino- American economic war.13 The US withdrawal from the TPP in January 2017 greatly
impacted the political elites in East Asia and the Asia-Pacific. Subsequently, the
Comprehensive and Progressive TPP agreement (CPTPP) was signed and came into effect in
2018. However, many people are still worried about how effective the TPP will be without
the huge US market. Due to these factors, the importance of the RCEP as a way to foster the
liberal economic order has, ironically, been further taken notice of.

II. Stumbling blocks for RCEP

The RCEP negotiation is not finalised yet, even though the member countries have
announced their desire to do so several times in the past. Especially in 2018, after the US
withdrawal from the TPP, expectation for the completion of the RCEP negotiation had
grown, and member countries announced that it would be done within the year14. Singapore,
the chair country of

12
Peeyush Jain and Prateek Jain, RCEP: Implications for Indian Trade & Economy, Contemporary Concerns
Study
Report,https://tejas.iimb.ac.in/articles/RCEP_Implications_for_Indian_Trade_&_Economy_Tejas_Dec_2017.pd
f, accessed 5 February 2020.
13
Chad P. Bown and Douglas A. Irwin, Trump’s Assault on the Global Trading System and Why Decoupling
From China Will Change Everything, Foreign Affairs, https://www.foreignaffairs.com/articles/asia/2019-08-
12/trumps-assault-global-trading-system , accessed 5 February 2020.
14
Hugo Seymour and Jeffrey Wilson, RCEP: An economic architecture for the Indo-Pacific?, Raisina Debates,
https://www.orfonline.org/expert-speak/rcep-an-economic-architecture-for-the-indo-pacific-57242/, accessed 7
February 2020.
ASEAN in 2018, had significant interest in fostering economic liberalisation among ASEAN
countries, and eagerly pushed the negotiation. The priorities of the chair country generally
determines the activities of ASEAN in that year; therefore, Singapore’s determination to
finalise the negotiation increased the confidence that it would be completed by the date that
they announced.

Japan also demonstrated its eagerness to finalise the RCEP negotiation. Japan used to
prioritise the TPP over the RCEP negotiation because the former was a more challenging
scheme for economic liberalisation and had strong political implications for US-Japan
15
collaboration to dilute China’s leverage in East Asia and the Asia-Pacific. After the US
withdrawal from the TPP, the prospect of countering China decreased significantly, and, as a
result, the political elites of Japan became seriously concerned about the demise of the liberal
economic order because of the rise of protectionism, as symbolised in Trump’s trade and
economic policies. From Japan’s perspective, the RCEP is an important tool in stopping the
trend of strengthening protectionism and sustaining the free and open economy, as well as in
pressuring the United States to come back to its “normal track” as a promoter and patron of
the liberal economic order. In early July 2018, Prime Minister Shinzo Abe emphasised in his
speech at the 5th RCEP Intersessional Ministerial Meeting that free trade was the key to
economic development of the RCEP regions, and insisted: “The question is whether we, the
Asian region, can unite as one and keep on raising the flag of free trade while concern on
protectionism has been increasing worldwide. The RCEP negotiations are drawing attention
from the rest of the world more than before. Let us act in solidarity to create a free, fair and
rule-based market in this region.”16

15
Xiao, Yifei, "Competitive Mega-regional Trade Agreements: Regional Comprehensive Economic Partnership
(RCEP) vs. Trans-Pacific Partnership (TPP)" 20 April 2015. CUREJ: College Undergraduate Research
Electronic Journal, University of Pennsylvania,
16
Speech by Prime Minister Shinzo Abe at the Fifth Regional Comprehensive Economic Partnership
Intersessional Ministerial Meeting in Tokyo, Japan, 1 July 2018.
CHAPTER II: REASONS FOR INDIA’S WITHDRWAL

The East Asian region is critical to India’s trade and economic interests. The region
accounted for almost 29% of the country’s trade in 2018-19, and nearly 46.5% of the total
foreign direct investment that it received during the same period. Since the RCEP
negotiations began in 2013, countries driving the negotiating process have tended to treat
RCEP like yet another conventional FTA, with market access-related issues being fast-
tracked.

In order to understand the reasons behind India’s withdrawal, I shall deal with five issues in
some length. These issues are also important for not only does India have a clearly stated
position on each of these, India’s approaches have been quite divergent from those of other
RCEP participating countries (RPCs). The five issues are paranoid attitude of Indian govt,
tariff liberalisation, fear of chinese imports protection of intellectual property rights and
protection of foreign investment.

I. India’s tryst with FTAs – “Once bitten twice shy”

India’s reservations on the RCEP are part of its larger reservations on FTAs and free trade in
general. Over the last three years, India has put on hold several FTAs it was negotiating,
including those with the European Union (EU), Australia and Canada. The India-EU FTA
negotiations are likely to be abandoned.26 So might be the eventual fate of the India-Australia
and India-Canada FTAs. The ostensible reasons for these FTAs being held up are the
tremendous aversion to imports – across government departments and industries – and the
firm belief that India’s existing FTAs have deluged the country with imports. Such beliefs
exist, notwithstanding studies showing the low utilisation of India’s FTAs by both exporters
and importers.27 It is impossible to figure out how FTAs could have contributed to surging
imports if they were hardly being used much in the first place.

The other intriguing aspect of the dominating Indian perspective towards FTAs is that of the
narrative focusing almost entirely on imports and tariffs. Tariffs are only a small part of
modern comprehensive FTAs that include not only services and investment, but also
modern trade

26
India, European Union may announce end of free trade agreement talks as key differences remain unresolved,
Firstpost, 19 July 2018. https://www.firstpost.com/business/india-european-union-may-announ ce-end-of-free-
trade-agreement-talks-as-key-differences-remain-unresolved-4774181.html. accessed 10 February 2020.
27
FTA Utllization – An Opportunity in Waiting for Indian industry, Deloitte, 2017. https://www2.deloitte.
com/content/dam/Deloitte/in/Documents/tax/tax-2016/in-tax-deloitte-fta-utilization-noexp.pdf, accessed 10
February 2020.
issues like ecommerce, competition policy and intellectual property, to mention a few. 28The
RCEP also includes some of these. However, rarely does one come across opinions coming
out of India on the RCEP that reflect on issues other than tariffs. The only other subject that
appears to agitate majority Indian views on FTAs is the movement of its professionals to
other countries.

The movement of professionals is an issue that most in India are unable to grasp in its entire
complexity and implications. Not only are such professional movements difficult to be
sanctified through FTAs – as they depend on national labour market regulations, conformity
assessment of qualifications and immigration rules – they also need to be reciprocal. India’s
demand for easy movement of its professionals to other countries needs to be taken up
bilaterally with national regulatory agencies to make such movement effective. 29At the same
time, India must also be willing to accept professionals from other countries in its labour
market, which would not only mean changing some of its own sector-specific regulations, but
also managing political sensitivities. Indeed, those agitating against the RCEP on the ground
that some member countries are not opening up their labour markets to skilled Indian
professionals, might not have visualised the implications of counter-movement of the RCEP
member-economy professionals in its own market.30 It is difficult to figure out the Indian
insistence on the movement of professionals as a concession in exchange for its tariff cuts,
simply because the mere inclusion of such provisions in the annexes of FTA documents are
not enough for cross-border movements till regulatory compatibilities are reached.

However, the most astonishing aspect of the current Indian world view towards FTAs is the
complete lack of attention towards the fact that these can be greatly useful in increasing
Indian exports. It is remarkable that conversations in India on the RCEP and FTAs tend to be
excessively defensive and one-sided focusing either on ‘damage’ from imports or movement
of professionals. Indian opinions hardly consider the benefits the country can obtain from
FTAs through higher exports of both goods and services from preferential access in some of
the world’s robust, high- and middle-income markets. Without deep preferential access to
major

28
Arvind Panagariya, India’s Trade Reform, INDIA POLICY FORUM, 2004, Columbia University,
https://www.brookings.edu/wp-content/uploads/2016/07/2004_panagariya.pdf , accessed 10 February 2020.
29
Witada Anukoonwattaka and Adam Heal, Regional Integration And Labour Mobility : Linking Trade,
Migration and Development, Studies in Trade and Investment 81, Economic and Social Commission for Asia
and the Pacific, ST/ESCAP/2688.
30
Why India needs to rethink its decision to opt out of RCEP, The Economic Times,
https://economictimes.indiatimes.com/news/economy/policy/why-india-needs-to-rethink-its-decision-to-opt-out-
of-rcep/articleshow/72061734.cms?from=mdr, accessed 10 February 2020.
markets in Asia-Pacific, Europe and North America, India cannot hope to capture greater
shares of these markets and increase its share in global trade – a necessary condition for
31
lifting its GDP growth to the eight-per cent plus trajectory. The FTA with the EU, for
example, would have given Indian exporters, particularly garment exporters, access to the vast
European market and worked wonders for the domestic textile industry.

Paranoid Indian views on FTAs must note that it is not for nothing that the rest of the world is
engaging actively in FTAs. Even the United States (US), notwithstanding the Donald Trump
administration’s disregard for multilateral trade rules and launching of the trade war,
continues to stay engaged in FTAs, such as the North American Free Trade Agreement and
the US-Korea FTA, while trying to persuade Japan and the EU to get into bilateral FTAs with
the US. India’s engagement in FTAs would have made it an attractive destination for
exportoriented foreign direct investments that would have not just increased domestic
investments, but also increased national exports. However, the current Indian thinking on
FTAs seems to be completely oblivious to these prospects, creating serious doubts over the
success of flagship initiatives like ‘Make in India’. 32

II. Tariff liberalisation

The RCEP negotiations on tariff liberalisation showed that barring India, all the major
countries had high trade liberalisation ambitions. Their ambitions were reflected in the
“Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic
Partnership RCEP,” the de facto mandate of the RCEP. The Guiding Principles stated that
“RCEP will aim at progressively eliminating tariff and non-tariff barriers on substantially all
trade in goods in order to establish a free trade area among the parties.”

It was further emphasised that the “negotiations should aim to achieve the high level of tariff
liberalisation.” The ambitions of these RPCs were conditioned by their simultaneous
engagements in several bilateral and regional integration initiatives, each of which have
significantly reduced/eliminated tariffs and non-tariff barriers. Seven RPCs were members of
the Trans-Pacific Partnership (TPP), a regional integration agreement between 12 countries
conceived “with the objective of shaping a high-standard, broad-based regional pact” that was

31
Oliver Tonby et al, Asia’s furure is now, Discussion Paper, Mckinsey Global Institute,
https://www.mckinsey.com/featured-insights/asia-pacific/asias-future-is-now , accessed 11 February 2020.
32
FTA Strategy: India may well give up hope to become global manufacturing hub and exporter: here is why,
Financial Express, https://www.financialexpress.com/economy/fta-strategy-indiamay-well-give-up-hope-to-
become-global-manufacturing-hub-and-exporter-here-is-why/964126/, accessed 12 Februaury 2020.
intended to comprehensively open markets of the participating countries.33 The TPP members
agreed to eliminate tariffs of up to 97% in manufactured goods and 100% in agriculture.
However, after the Trump Administration decided to withdraw from the TPP in January
201734, the 11 remaining countries decided to carry TPP to its logical fruition by endorsing
the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Alongside the CPTPP, several RPCs have negotiated FTAs or Comprehensive Economic
Partnership Agreements (CEPAs), among themselves or with partners outside the East Asian
region, which include commitments to comprehensively open markets.The RPCs’ support for
sweeping reduction/elimination of tariffs was a major challenge for India, for the latter
continues to use tariffs as an instrument for the protection and promotion of domestic
agriculture and manufacturing. The contrast between India and the other RPCs in the use of
tariff protection is evident from Table 1.

India’s tariff profile for 2018 for non-agricultural and agricultural products was in sharp
contrast with those of most RPCs on two counts (Table 1). In case of the former set of
products, India’s average tariff rate was 13.6%, the highest among RPCs, and India had the
least number of duty-free tariff lines. However, India’s maximum tariff rate was lower than
some of the other

33
USTR Ron Kirk Remarks on Trans-Pacific Partnership Negotiations, https://ustr.gov/about-us/policy-
offices/press-office/press-releases/2009/december/ustrron-kirk-remarks-trans-pacific-partnership-n, accessed 12
Februaury 2020.
34
The United States Officially Withdraws from the Trans-Pacific Partnership, official communication to TPP
members,https://ustr.gov/about-us/policy-offices/press-office/pressreleases/2017/january/US-Withdraws-From-
TPP, accessed 13 Februaury 2020.
RPCs.India’s agricultural tariffs have historically been higher, and this was true also in 2018,
when the average tariff rate was 38.8%. India’s average tariff rate was substantially above
those imposed by the larger RPCs. As in the case of non-agricultural products, India’s
maximum tariff imposed on agricultural products (150%), was much lower as compared to
over 1000% imposed by Malaysia.

Two important aspects of India’s import tariff regime must be pointed out here. The first is
that the average tariff rate in 2018 was higher than those in the immediately preceding years
by at least 3 percentage points. This increase in average tariffs was a result of a series of
hikes in import tariffs covering a wide range of products. Second, successive governments
have recognised that a number of sensitive products in both manufacturing and agriculture
must receive significantly high doses of protection. These aspects are elaborated below.

Recent increases in tariffs on India’s manufacturing and agriculture: In recent years, the GOI
has responded to the demands of several manufacturing sectors for increasing import tariffs,
which, for several sectors, were raised by at least 50%.35 As a result, India’s average tariffs on
manufactured imports increased from below 11% in 2017 to nearly 14% in 2018, while on
agricultural imports, average tariffs increased from below 33% to nearly 39%. This was the
first time in recent decades that the government had reversed its policy of import
liberalisation. Tariff hikes were first introduced on steel products in 2017 and it gained
momentum with the Union Budget of 2018 announcing tariff hikes on electronic products ,
including mobile phones and television components36. The then finance minister explained
that higher tariffs would “incentivise the domestic value addition and Make in India”. 37This
trend continued in the following budget. The finance minister announced an increase in tariffs
on auto parts, synthetic rubbers, electronic products and components “in order to provide
domestic industry a level playing field”. Alongside, tariffs on stainless steel products were
also raised (GoI 2019b). Significant increases in tariffs were also announced in July–August
2018, when tariffs were doubled from 10% to 20% on 300 textiles and clothing products in
order to protect the domestic

35
Arvind Panagariya, India’s Trade Reform, INDIA POLICY FORUM, 2004, Columbia University,
https://www.brookings.edu/wp-content/uploads/2016/07/2004_panagariya.pdf , accessed 13 February 2020.
36
Budget 2018-2019 Speech of Arun Jaitley Minister of Finance, February 1, 2018,
https://www.indiabudget.gov.in/budget2018-2019/ub2018-19/bs/bs.pdf , accessed 13 February 2020.
37
Id.
industry from imports from China.38 Through these policy pronouncements, the government
signalled that it was keen to use tariffs to incentivise domestic producers to make in India.

Finally, there are sectors like the automobiles, which have consistently received high tariff
protection. The industry, which, according to its own estimates, accounts for about 49% of
the manufacturing gross domestic product (GDP), has been consistently demanding high
import tariffs for completely built units (CBUs), that have remained pegged at up to 100% for
new vehicles and 125% for second-hand vehicles. The Society of Indian Automobile
anufacturers’ (SIAM) position has been that “FTAs with competing countries do not benefit
Indian automobile industry, it is against the concept of Make in India for local value addition
and local employment, and hence CBUs of vehicles and engines should be kept in India’s
Negative List” for any FTA that India negotiates.39

In agriculture, India’s average tariffs have never decreased below 30%. Such levels of tariffs
have been primarily driven by the fact that 85% of the farm holdings are small and marginal
(less than 2 hectares), of which 67% of the holdings are one hectare or less.40 The government
is therefore left with little choice but to impose high levels of tariffs to protect rural
livelihoods, as imports caused by sagging global prices could destabilise domestic markets. If
this policy space is compromised by lowering import duties on major agricultural
commodities as a result of the RCEP, the farming community could face an uncertain future.

In the FTAs that India has negotiated thus far, it has used tariffs to protect domestic entities in
a substantial segment of agriculture and several manufacturing sectors. India’s initial
response to the RCEP tariff negotiations was no exception. Importantly, for the first time in
any FTA, the government made public the initial offers in the RCEP to reduce/eliminate
tariffs in 2015.

India’s initial offers in the RCEP negotiations: The RCEP tariff negotiations were
anchored on a three-tiered approach: the first tier for the ASEAN members, the second tier
for ASEAN

38
Import duty on over 300 textile products doubled to 20 per cent, The Hindu BusinessLine,
https://www.thehindubusinessline.com/economy/import-duty-on-over-300-textile-products-doubled-to-20-per-
cent/article24626558.ece , accessed 14 February 2020
39
White Paper: Trade Agreements that may Jeopardize “Make in India” Programme for Automobiles. June. New
Delhi.
40
Agricultural Statistics at a Glance 2017, http://agricoop.gov.in/ sites/default/files/agristatglance2017.pdf.,
accessed 14 February 2020
FTA partners (AFPs), and the third tier for AFPs who do not have an existing FTA with any
of its RCEP partners.41

India offered the following tariff elimination schedule in the market access negotiations:

(i) For the first tier, the one which included ASEAN members, India agreed to eliminate
tariffs on 80% of the tariff lines: 65% to be eliminated at entry into force of the RCEP and the
remaining 15%, tariffs to be eliminated over a 10-year period.

(ii) For the second tier, dealing with existing agreements between AFPs, India agreed to
eliminate tariffs on 65% of the tariff lines over a 10-year period. India made this offer to its
two FTA partners, namely Japan and the RoK.

(iii) For the third tier, dealing with AFPs with no existing FTAs, India agreed to eliminate
tariffs on 42.5% of its tariff lines for China, 62.5% for New Zealand and 80% for Australia.
In all the three cases, India agreed to eliminate tariffs over a 10-year period.

A better perspective on India’s offers of tariff elimination can be presented by examining

them sector-wise. In keeping with its sensitivities in the agricultural sector, India offered to
eliminate tariffs on just above 40% of its agricultural products imported from ASEAN
42
member states. On 35% of these products, tariffs were to be eliminated, while for the
remaining, over a 10- year period. Thus, a majority of agricultural tariff lines could still
attract high tariffs. For Tier 2 and 3 countries, India offered very little by way of tariff
elimination in the agricultural sector. Tariffs were to be eliminated for only 15 products for
China, and that too, over a 10-year period, while for Japan and the RoK, the Tier 2 countries,
there would be no tariff elimination.

India’s proposal for tariff elimination for non-agricultural products was significantly more
liberal than that for agriculture. For the ASEAN member countries, more than 86% of non-
agricultural tariff lines would be tariff-free within 10 years. Tariffs on nearly 70% of total
non- agricultural tariff lines would be eliminated upon implementation of the RCEP 43. Less
than 14% of the non-agricultural tariff lines were kept outside the ambit of tariff
liberalisation. For

41
Inputs on initial offer of goods under Regional Comprehensive Economic Partnership (RCEP. Department of
Commerce,https://commerce.gov.in/writereaddata/uploadedfile/MOC_635975229496960521_Inputs_trade_goo
ds_under_Regional_Comprehensive_Economic_Partnership.pdf, accessed 14 February 2020.
42
Sudipto Mundle, Asia’s miracle economies have lessons for India’s trade policy, Livemint,
https://www.livemint.com/opinion/online-views/asia-s-miracle-economies-have-lessons-for-india-s-trade-
policy-11573748092248.html, accessed 14 February 2020.
43
Jurenas, Remy; (2015); - How Could Mega-Regional Trade Negotiations Affect Agricultural and Food Trade?;
Issue Paper No. 57; International Centre for Trade and Sustainable Development, Geneva, Switzerland.
Japan and the RoK, India proposed to eliminate more than three-fourths of its tariffs on non-
agricultural products within 10 years of entry into the force of the RCEP, although, as
mentioned earlier, most of this reduction could be back-loaded. Similarly, for China, close to
one half of the tariff lines would be eliminated within the first decade, but no immediate tariff
elimination had been proposed.

India’s initial offers were rejected by all the RCEP members, forcing the government towards
offering a single set of tariffs for all countries.44 However, unlike the initial offer that was
made public, details of India’s subsequent offers are yet unknown. There were suggestions
that India would eliminate tariffs on up to 90% of its imports from ASEAN members and
80% of its imports from China.45 Such drastic cuts in tariffs would have two serious
implications for the country. First, the scope for protecting the vulnerable sectors of
manufacturing and agricultural sectors would have been severely constrained. Second, the
government would have ceded its auto•nomous policy space and therefore its efforts to
promote critical sectors using tariff protection, which had clearly been the focus in the
previous two union budgets.

III. The fear of Chinese Dragon

One of the biggest issues in India regarding the RCEP is opening up the economy to China.
Practically all opinions in India consider the RCEP as a FTA between China and India46. Such
views smack ignorance about the composition and character of the RCEP, which is
ASEANcentric, comprising ASEAN and its FTA partners (Australia, China, India, Japan,
Korea and New Zealand). They also conveniently overlook the fact that while the RCEP
would lead toIndia providing preferential market access to China and 14 other member
countries, it would also mean India getting similar access in all other countries.

China has been a convenient excuse for raising red flags on market access. Emotional
outbursts on Chinese products swamping the Indian economy fail to note the realities of such
imports being unavoidable. Many Chinese imports to India, particularly consumer goods, are
a result of Indian domestic industry lacking capacities to produce as much of these goods as
are wanted by a consumption-driven rapidly-growing Indian economy. Mobiles and
smartphones are

44
Sen, Amiti (2018): “Time for India to Exit RCEP Trade Pact,” Hindu Business Line, 9 March,
https://www.thehindubusinessline.com/opinion/time-for-india-to-exit-rcep-trade-pact/article22134775.ece1.
45
Pattanayak, Banikinkar (2019): “RCEP Talks: India for Safeguard Tools to Keep Out Damaging Imports,”
Financial Express, 9 October, https:// www.fi nancialexpress.com/economy/rcep-talksindia-for-safeguard-tools-
to-keep-out-damaging-imports/1730116/, accessed 14 February 2020.
46
Pranab Dhal Samanta, RCEP is a call on China first, then ASEAN, The Economic Times,
https://economictimes.indiatimes.com/news/economy/foreign-trade/rcep-is-a-call-on-china-first., accessed 15
February 2020.
among the best examples. India’s telecommunication revolution could not have happened had
its people not been able to afford cheap 2G and 3G service-enabled phones, most of which
were assembled in China and East Asia, and imported by India. 47 In more recent times, China
has been the largest source of imports of idols of Hindu gods and goddesses being sold by
Indian shops all over the country and being purchased by Indian families in millions
throughout the year.48 Needless to say, the brightness of many Indian households, courtesy of
the glow of light-emitting diode lamps, is also due to their vast imports from China.

Why does India import so much from China? India is not an exception. The whole world
imports from China. However, for India, the most common cynical explanation of high
Chinese imports is that China is subsiding its exporters through cheap land, inexpensive
power and easy bank credit, making its imports cheap. The argument overlooks the fact that
India offers similar benefits to its exporters located in the Special Economic Zones, as well as
those producing outside through various export promotion schemes, such as the Merchandise
Export from India Scheme.49 However, Indian exports have not been able to achieve the same
degree of competitiveness as Chinese exports. The issue is, therefore, not of subsidies. The
real reason for India’s (and most of the world’s) dependence on Chinese products is Indian
industry lacking the scale and productivity to produce as much and as quickly as Chinese
producers to meet rising demand. Indian products also suffer price disadvantages from costs
inflicted by poor business conditions at home. The net result of these imperfections is
Chinamade Indian religious idols, phones, lamps and many other items being cheaper for
Indian consumers, notwithstanding import tariffs, compared with same products made in
India.

Would the RCEP further increase these imports? Regardless of the RCEP, these imports
would continue to increase if their domestic availability is insufficient and their prices are
cheaper. Consumer habits and preferences are functions of price, quality and availability, as
opposed to the origin of products. 50However, if the RCEP is found responsible for increasing
imports in a manner that is ‘injurious’ to the domestic industry, India can always take
recourse to safeguards and can hike tariffs to block imports. India has been one of the world’s
leading users

47
Xiaomi pips Samsung to become India's number 1 handset brand, Electronic Industries Association of India,
Report, Feb 08, 2020, http://www.elcina.com/policy.php?w=Telecom , accessed 15 February 2020..
48
Even religious idols come from China: Seven reasons why ‘Make in India’ is a distant goal, Scroll.in, ,
https://scroll.in/article/855392/even-religious-idols-come-from-china-seven-reasons-why-mak e-in-india-is-a-
distant-goal, accessed 15 February 2020.
49
India in the 1980s and 1990s: A Triumph of Reforms Arvind Panagariya, IMF Working Paper, WP/04/43.
50
Valarie A. Zeithaml, Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis
of Evidence, Journal of Marketing, Vol. 52, No. 3 (Jul., 1988), pp. 2-22.
of anti-dumping actions to block imports.51 Even if it cannot do so through the RCEP, all
FTAs have provisions for ‘safeguards’ for all members and so does the RCEP.

Avoiding the RCEP on fears of more imports, particularly from China, hurting domestic
industry is a convenient excuse for overlooking domestic inefficiencies that make Indian
producers less competitive and Indian consumers dependent on imports. 52 There are yet to be
any detailed studies on the RCEP and India that go down to the level of eight-digit
disaggregated tariff classification for identifying products that might be adversely affected by
more imports through deleterious impacts such as job losses and lower market shares. Such
studies, either from the industry or other experts, could have been of great help in enabling
Indian negotiators to draw up ‘sensitive’ or ‘negative’ lists of products on a country-specific
basis for longer tariff phase-outs, maybe as much as 20 years or more. Long phase-outs are
integral parts of ASEAN FTAs as these emphasise ‘special and differential’ treatment for the
members, given their domestic market sensitivities, and allowing them sufficient time to
open. However, shying away from opening up without backing protective arguments with
appropriate evidence is unfortunate.

IV. Intellectual Property Protection & Medicine Industry

RCEP negotiations have become yet another forum where the contestation between the
enhanced rights of intellectual property owners and the interests of the public at large,
especially in the area of pharmaceuticals, is being played out. 53The contested area has seen
deep divisions between the participating countries on issues that have implications for access
to medicines at affordable prices. For instance, countries have differed on the language for
incorporating the Doha Declaration on TRIPS and Public Health, especially on the nature of
flexibilities that the Declaration provides for addressing public health concerns.

Japan, the RoK and to a lesser extent, Australia and New Zealand, have differed with the
positions taken by India and the ASEAN members. Japan and the RoK have also introduced
the so-called “TRIPS-plus” provisions, i.e. provisions that go beyond those included in the

51
Aradhna Aggarwal, Anti Dumping Law and Practice: An Indian Perspective, Working Paper No. 85, Indian
Council For Research On International Economic Relations, https://icrier.org/pdf/antiDump.pdf, accessed 15
February 2020.
52
Harsh V. Pant, Nandini Sarma Modi Was Right. India Isn’t Ready for Free Trade, Foreign Policy,
https://foreignpolicy.com/2019/11/19/modi-pull-out-rcep-india-manufacturers-compete-china/, accessed 15
February 2020.
53
Townsend B,et al, The Regional Comprehensive Economic Partnership, Intellectual Property Protection, and
Access to Medicines, Asia Pac J Public Health. 2016 Nov;28(8):682-693.
TRIPS Agreement for enhancing the rights of the intellectual property holders 54. For instance,
these two countries have proposed that the patent term should be extended beyond the 20-
year period provided by the TRIPS Agreement for compensating for the delay in obtaining
marketing approval for a patented product. Further, the RoK has proposed that patent term be
extended if there was a delay in processing a patent application.

Yet another “TRIPS plus” provision introduced by Japan, the RoK and Australia is in respect
of intellectual property protection of plant varieties.55 These countries have proposed that
RCEP members should compulsorily accept the framework provided by the International
Union for the Protection of New Varieties of Plants, better known as the UPOV Convention.
The framework that UPOV currently follows (this was adopted in 1991 and is hence
commonly known as UPOV, 91) imposes several limitations on the functioning of the
traditional farmers in developing countries. The most important limitation is that farmers are
not allowed to either save seeds of a protected variety to be used in the following year’s
harvest, or to exchange the seeds with their farm neighbours. 56 The TRIPS Agreement, on the
other hand, does not require the WTO members to follow UPOV, 91; they can develop their
own sui generis system for protecting plant varieties. India has used this flexibility to enact a
sui generis system for protecting plant varieties that allows the farmers to save seeds and
exchange with their farm neighbours.57

Over the past couple of decades, the issue of intellectual property rights (IPR) has witnessed a
sharp divide between the advanced and the developing countries, as latter set of countries
have argued for the inclusion of public interest dimension in IPR laws alongside effective
58
protection to be granted to the holders of intellectual property (IP). The area in which this
divide has been most pronounced is pharmaceuticals, because developing countries have
expressed their commitment to provide affordable medicines to their populations by using the
flexibilities in Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
being monitored

54
Jakkrit Kuanpoth, Harmonisation of TRIPS-Plus IPR Policies and Potential Impacts on Technological
Capability, Regional Research Agenda, International Centre for Trade and Sustainable Development (ICTSD),
https://unctad.org/en/PublicationsLibrary/ictsd-idrc2006d1_en.pdf, accessed 21 February 2020.
55
Jae Sundaram (2015) Analysis of TRIPS Agreement and the justification of international IP rights protection
in the WTO's multilateral trading system, with particular reference to pharmaceutical patents, Information &
Communications Technology Law, 24:2, 121-163.
56
Frequently asked questions, UPOV, https://www.upov.int/about/en/faq.html, accessed 21 February 2020.
57
Jagjit Kaur Plahe (2011) TRIPS Downhill: India's Plant Variety Protection System and Implications for Small
Farmers, Journal of Contemporary Asia, 41:1, 75-98.
58
Dosi, Giovanni; Stiglitz, Joseph (2013) : The role of intellectual property rights in the development process,
with some lessons from developed countries: An introduction, LEM Working Paper Series, No. 2013/23, Scuola
Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa.
by the World Trade Organization (WTO), the globally accepted patent law. Several
developing countries have introduced appropriate instruments in their intellectual property
laws (especially patent laws) to ensure that the large pharmaceutical companies are not able
to charge excessively high prices on medicines using the monopoly rights conferred to them
by the patents that they own. India has been the most articulate advocate of this position. It
has accordingly put in place a domestic patent regime that is responsive to the requirements
of public health; by creating conditions for the growth of a generic pharmaceutical industry
that can supply affordable medicines. Importantly, the patent regime that India has adopted is
compatible with the global standards provided by the TRIPS Agreement. 59

However, on the other hand, some of the participants in the RCEP are arguing for the
introduction of a regime for intellectual property protection that could limit the use of
flexibilities provided by the TRIPS Agreement in several different ways. The first is that the
applicability of the provisions for the grant of compulsory licenses, an instrument that can be
used to prevent abuse of patent rights, could become more restricted. In 2001, the WTO
members adopted the Doha Declaration on TRIPS Agreement and Public Health, which
sanctified, among other things, the use of the compulsory licenses for meeting public health
concerns. However, the draft of the IP Chapter that was put together by the RCEP members
in October 2015 has put serious doubts over the applicability of the Doha Declaration, and
60
therefore the use of compulsory licensing provisions.

This draft includes two further proposals, which go beyond the standards of IP protection
provided in the TRIPS Agreement. The first of these is the so-called “patent term
restoration”, which allows the extension of the term of patent protection beyond the 20-year
61
period of protection to compensate for the delays in the processing of patent application.
The second proposal is to grant six-year market exclusivity to a pharmaceutical firm that is
the first to submit data for the obtaining marketing approval from the concerned regulator.
62
Since this firm is the originator of a pharmaceutical product and enjoys patent rights, the
effect of the

59
Amy Kapczynski, Harmonization and Its Discontents: A Case Study of TRIPS Implementation in India's
Pharmaceutical Sector, California Law Review Vol. 97, No. 6 (December 2009), pp. 1571-1649.
60
Kung-Chung Liu, Shufeng Zheng, Asian IP Law: An Area of Rising Importance, GRUR International, ,
ikaa013, https://doi.org/10.1093/grurint/ikaa013.
61
Scott Whittaker, et al, Pharmaceutical Patent Term Extension: An Overview, White Papers, Alacrita,
https://www.alacrita.com/whitepapers/pharmaceutical-patent-term-extension-an-overview, accessed 21 February
2020.
62
Pascale Boulet, et al, Data Exclusivity in the European Union:Briefing Document, Medicines Law & Policy,
2019, https://medicineslawandpolicy.org/wp-content/uploads/2019/06/European-Union-Review-of-Pharma-
Incentives-Data-Exclusivity.pdf, accessed 21 February 2020, at 14.
proposed market exclusivity provisions would therefore be to extend the monopoly rights
over the market for the product in question.

If the above-mentioned proposals form a part of the IP regime agreed between the RCEP
members, the direct impact could be higher prices of medicines, and as a consequence,
patients in countries, like India, would be denied access to affordable medicines. A larger
impact of the trends in IP protection that is visible from the draft of IP Chapter is the rise in
the monopoly control of the patent owners over the market for technology. For most
developing countries, including India, involved in the RCEP negotiations, access to frontline
technologies, especially for the small and medium enterprises (SMEs) to improve their
competitiveness, has been one of the major constraints. 63This could, in turn, adversely affect
the ability of India’s SMEs to figure in the production networks, which has been seen as one
of the major prospective gains from the formation of RCEP, could suffer a setback.

V. Foreign Investment Protection

An investment agreement is another important feature of RCEP.64 A leaked text of the
investment chapter from an early phase in the negotiations in 2015 showed that most RPCs
had preferred adoption of provisions that seek to provide high levels of protection to foreign
investors. Host countries have found at least three sets of these provisions quite problematic.
The first is the assetbased definition of investment through which frivolous claims can be
made on the host countries, the second is indirect expropriation, which gives the foreign
investors considerable latitude challenge any public policy initiative taken by a host
government that limits its functioning, and the third, is the investor-state dispute settlement
(ISDS) mechanism that offers the option to the foreign investors to seek private arbitration in
private tribunals established under the rules mandated by the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (ICSID) or the United
Nations Commission on International Trade Law (UNCITRAL).65

International investment agreements, including the bilateral investment treaties (BITs), have
generally adopted a template which provides high levels of protection to foreign investors
and

63
Harsha Jethmalani, Why opting out of the RCEP deal was a Hobson’s choice for India, Livemint,
https://www.livemint.com/market/mark-to-market/why-opting-out-of-the-rcep-deal-was-a-hobson-s-choice-for-
india-11573061009083.html, accessed 21 February 2020.
64
Heng Wang, The RCEP and Its Investment Rules: Learning from Past Chinese FTAs, The Chinese Journal of
Global Governance 3 (2017) 160–181.
65
Anupam Chander & Madhavi Sunder, The Battle to Define Asia's Intellectual Property Law: From TPP to
RCEP, 8 U.C. Irvine L. Rev. 331 (2018).
in this respect, the RCEP seems to be no exception. The draft of the investment chapter
includes the controversial investor-state dispute settlement (ISDS) mechanism that allows a
foreign investor to litigate against its host government using private international arbitration
mechanisms under the rules of the ICSID or the UNCITRAL rules.

In recent years, ISDS cases have registered significant increase. During the six-year period
between 2013 and 2018, 439 cases were initiated; nearly 45% of all known cases of
investment disputes since the United Nations Conference on Trade and Development
(UNCTAD) began maintaining records of such disputes.66 This development prompted
several governments to re- think about these investment agreements.67 Among the countries
participating in the RCEP negotiations, India and Indonesia had decided to terminate several
of the BITs they were parties to.India had terminated 58 of the 83 Bilateral Investment
Treaties it had entered into.68 Indonesia had terminated 17 bilateral investment treaties (BITs),
including six of those with its RCEP partners.69 India terminated the BITs after it had put in
place a revised “Model Text for the Indian Bilateral Investment Treaty” in 2015.70 The new
Model Text has re-written the provisions relating to the investor state dispute settlement
mechanism and has introduced several public interest provisions, which would limit the
claims that a foreign investor can make while initiating a dispute against the Government of
India.

The revised model BIPA introduced several caveats that limit the freedom of the foreign
investors to use the ISDS provisions. These include:

(i) foreign investors must exhaust the possibilities of local remedies for resolving the
disputes;
(ii) ISDS can be invoked three years after an investor had suffered damages, and
(iii) 18 months have elapsed from the conclusion of proceedings in a domestic court.
In addition, arbitrators can be appointed subject to several conditions.

66
Investment Dispute Settlement Navigator, https://investmentpolicy.unctad. org/investment-dispute-
settlement?status=1000, accessed 22 February 2020.
67
Rethinking Bilateral Investment Treaties: Critical Issues and Policy Choices, Both ENDS, Madhyam and
SOMO, https://www.madhyam.org.in/ wp-content/uploads/2016/03/Rethinking-BIT-Book-PDF-15-March-
2016.pdf, accessed 22 February 2020.
68
Bilateral Investment Treaties: Question answered by the Minister of State (Independent Charge) of the
Ministry of Commerce & Industry (Shrimati Nirmala Sitharaman) in the Lok Sabha. Unstarred Question No.
1290. 25th July.
69
Magiera, Stephen L. 2017. International Investment Agreements and Investor-State Disputes: A Review and
Evaluation for Indonesia. ERIA Discussion Paper Series. ERIA-DP-2016-30, http:// www.eria.org/ERIA-DP-
2016-30.pdf, accessed 22 February 2020.
70
Indian Model Text of Bilateral Investment Promotion and Protection Agreement (BIPA). Ministry of Finance,
https://dea.gov.in/sites/default/files/ModelBIT_Annex_0.p, accessed 22 February 2020.
 One of the more crucial features of the Model Text was that it gave the investors limited
options to claim indirect expropriation of their investments, which has been the trigger for
initiating most of the investment disputes.71 This was done by excluding several areas of
public interest from the purview of indirect expropriation, which an attempt was made to
restrict the ability of the foreign investors to easily invoke the provisions of ISDS. The
government’s response to this adoption of the Model Text was quite interesting. It signalled
to its partner countries that India would negotiate investment agreements solely on the basis
of the framework provided by the Model Text.72 There is, however, no evidence that the
government had adopted a similar resolute position in the RCEP negotiations on investment
that followed.

71
Dhar, Biswajit, Reji Joseph and TC James. 2012. India’s Bilateral Investment Agreements: Time to Review.
Economic & Political Weekly. December 29. Vol XLVII No 52.
72
Mishra, Asit Ranjan. 2017. India to trade partners: Sign new bilateral investment treaties by 31 March.
Livemint, https://www.livemint.com/ /India-asks-trade-partners-to-sign-new-BIT-pact.html, accessed 22 February
2020.
 CHAPTER III – FINDING ALTERNATIVES FOR RCEP

How should India strategise in this context? Before coming to RCEP itself a few overall
points on broad challenges facing India currently on trade and what could be our priorities
may be relevant here. Most worrying is the sluggish export trend. India’s total merchandise
exports have been hovering at around US$ 300 bn since 2011-12. With a 1.65 per cent share
in world exports, India is nineteenth in rank, not a comfortable place to be in. 73 A point that
sometimes gets overlooked in all this discussion is that achieving exports is far more difficult
than being able to regulate imports. The former not only depends on the competitiveness of
the Indian export product in question but also access conditions in the export market, both in
terms of tariffs and non-tariff aspects, and acceptability of the product among possible
buyers.74 Regulating imports in contrast remains within the administrative control of the
importing country even as WTO rules have to be observed.

Our second challenge is the very troubled situation currently facing the international trading
system. The Doha round is dead, the dispute settlement system of the World Trade
Organisation (WTO) is facing a collapse, new WTO reforms are under discussion but these
are mainly on rules, investment facilitation and e-commerce75. For securing more market
access only FTAs presently provide a viable opening. And the FTAs generally are getting
more comprehensive and sophisticated with some commitments and disciplining demanded
on domestic policy making. Further, every additional FTA concluded anywhere in the world
(on top of the 300 FTAs already in force worldwide) generally means also less access for
non- signatories. From this perspective, being part of RCEP had some advantage for us in that
it was relatively less intrusive about domestic policies. More importantly, it could have
improved our access not only with China, Australia and New Zealand with which we had no
FTAs at present but also incrementally with our existing FTA partners within RCEP.
Secondly, coming within the larger Asia Pacific region it was perhaps better to be in than
out.76 Being out will not

73
Annual Report 2018-19, Department of Commerce,
https://commerce.gov.in/writereaddata/uploadedfile/MOC_637036322182074251_Annual%20Report%202018-
19%20English.pdf, accessed 27 February 2020.
74
NON-TARIFF MEASURES TO TRADE:Economic and Policy Issues for Developing Countries, Developing
Countries In International Trade Studies, UNCTAD Report,
https://unctad.org/en/PublicationsLibrary/ditctab20121_en.pdf , accessed 27 February 2020.
75
James McBride and Andrew Chatzky, What’s Next for the WTO?, Council on Foreign Relations,
Backgrounder, https://www.cfr.org/backgrounder/whats-next-wto , accessed 27 February 2020.
76
The growing importance of the Asia-Pacific region, Speech by Jean-Claude Trichet, President of the ECB,
New Year’s Reception Asia-Pacific 2008 of the German-Asian Business Circle, Frankfurt am Main, 25 February
2008, https://www.ecb.europa.eu/press/key/date/2008/html/sp080225.en.html, accessed 1 March 2020.
necessarily safeguard India from external supply chains in East and South East Asia that will
henceforth be further reinforced by RCEP and which can target their exports to India.

The third was the Trump effect, the ‘America First’ approach and readiness to use
77
unilateralism such as GSP withdrawal from India. But the US-China trade war also
presented opportunities to third countries if they could leverage it to advantage. Moreover,
Trump’s unilateralism has led to countries scurrying for insurance cover from protectionism
through finalising other deals such as Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP), or we could even ascribe it to the hurry enacted in the end game
of RCEP. Fourthly, the technology factor. After International Trade Administration (ITA)-1
and ITA-2, framing rules for digital trade (e-commerce) has been receiving priority
internationally. This is even as the regulatory issues surrounding digital trade and how should
data be fairly dealt with are not fully understood. It is not clear how the finalised RCEP text
has dealt with this issue even as it is learnt there may be a chapter on the subject in the text. It
is also to be seen if this chapter will be subject to dispute settlement provisions of RCEP.

Against the aforementioned challenges, a few months ago, this writer had in another
Vivekananda International foundation (VIF) report78 suggested a set of eight priorities in
international trade for India for the coming years. While they will not be repeated here, which
incidentally included negotiating a balanced and beneficial RCEP and getting ready for it,
three of those priorities are particularly relevant in a discussion of what next: a) prepare and
implement an action plan to double exports in the next five years; b) draw up and implement
an FTA strategy; and c) Implement a credible and robust system of regulating imports.

I. Action Plan needed for Doubling Exports

The first priority is drawing up an action plan for doubling India’s exports in the next five
years. The VIF report79 had suggested possible elements in such a plan including the policy
actions that would be necessary for scaling up existing export capacities, for bringing value
addition in many items in the existing export basket a good portion of which is going in
primary form, steadying agriculture exports that have expanded their share in India’s export
basket and inviting foreign investments for new products including from possible supply
chains, joining

77
Generalized System of Preferences (GSP): Overview and Issues for Congress, Congressional Research Service
https://crsreports.congress.gov RL33663, accessed 1 March 2020.
78
Proiority issues for India in External trade, https://www.vifindia.org/sites/default/files/priority-issues-for-india-
in-external-trade.pdf, accessed 1 March 2020.
79
Chapter 3, Proiority issues for India in External trade, https://www.vifindia.org/sites/default/files/priority-
issues-for-india-in-external-trade.pdf, accessed 1 March 2020.
the export basket. All this also required greatly improved soft and hard infrastructure,
reducing transportation and transaction costs, a more robust standards and compliance
mechanism for ensuring quality exports, easy export financing and market development and
export promotion.80

The Government was already working on several fronts like the Bharat Mala programme, the
Sagar Mala programme, skill development programme apart from the Make in India
initiative. There were also moves for setting up product clusters and Special Economic Zones
(SEZs) with the idea of boosting exports. The Surjit Bhalla led High Level Advisory Group
(HLAG), it is understood, has also submitted several recommendations for doubling India’s
exports.81 Most importantly the recent move to significantly reduce corporate taxes and the
preparation of a “national infrastructure pipeline” from 2019-20 to 2024-25 under a Rs.100
lakh crore infrastructure plan are most timely and encouraging here, as is the disclosure14 by
Finance Minister Nirmala Sitharaman that as many as 12 global companies have shown
interest in moving from China to India.

So coming out with an action plan by the Government for the next five years to double
exports, in consultation with all ministries and state governments and industry stakeholders,
should be possible within a short time frame. In fact, working towards doubling exports also
formed one of the 75 Action Points of BJP’s election manifesto. But if this has to make a
difference with earlier efforts this has to be on a mission mode and not just left with targets
but those broken down into sub-targets and subsub-targets with time bound implementation,
with assigned responsibilities and periodical oversight and allocated resources. The urgency
needs also national and political recognition. Just as getting this done some years earlier may
have been relatively easier, doing this five years later may be more difficult than doing it
now. And such a plan could be attractive for investors looking to move from China.

II. Need for an FTA Strategy

But expanding exports also required increased market access. Those who may argue that this
can be attempted even with India’s existing FTAs need to recognise that with countries
worldwide entering into more FTAs India’s overall market access has been steadily
diminishing. And one reason (there are other reasons as well) for our existing FTAs not

80
Alberto Portugal-Perez, Export Performance and Trade Facilitation Reform: Hard and Soft Infrastructure,
World Development 40(5261), 10.1016/j.worlddev.2011.12.002, accessed 1 March 2020.
81
High Level Advisory Group Report
https://commerce.gov.in/writereaddata/uploadedfile/MOC_637084607407371826_HLAG%20Report%20.pdf
delivering enough is that they are not deep enough compared to what our competitors have
with those partners. Market access for some years now has entered a more dynamic and
82
competitive phase and those not active in it have to settle for declining access.

So an FTA strategy needs to be developed by India. This should include making a renewed
effort to see which of the pending FTA negotiations can be brought to quick closure including
the one with European Union (EU). It also needs decision which other countries India should
target, and what criteria should be adopted to select possible candidates. Some countries have
followed an hub approach in this regard. The VIF report makes certain suggestions here. 83 No
less important will also be how to get more from existing FTAs particularly with ASEAN,
Korea and Japan through the reviews that are known to be presently underway.

RCEP could have helped here. Even a country like China is more or less duty free for
ASEAN countries. Pakistan’s FTA with China allows it to export several textile products to
that country undermining India’s access in China for these products. China is also signing
more FTAs. And its average MFN tariff is over 8 per cent. So if India is looking to export
manufactured exports to China, against primary goods that normally attracts lower duties, an
FTA is important even as a bilateral FTA is inconceivable now for several reasons. And even
foreign investors, including those looking to locate units of their supply chains, would have
found India a more attractive country to invest in if it was part of RCEP. And FTA dynamic
is also such that as a country concludes more FTAs, those left out will come forward and
show greater interest and perhaps even flexibility.

III. Mechanism for efficient Regulation of Imports

The third priority is to put in place a more robust system of standards and regulations for
imports and ensuring their compliance. All major countries rely not only on tariffs but also on
standards and regulations to properly regulate imports but somehow India has not got this
84
adequately in place yet. A number of national standards conclaves have been held and
attempts are being made to move in this direction. But more persuasion is needed to get on
board some domestic industry segments that have shown resistance. Taking action to meet
the necessary infrastructure and skill capacities would be also important. A time bound action
plan

82
Participation of developing countries in World Trade: Overview of major trends and underlying factors, Note
by the Secretariat, WT/COMTD/W/15, 16 August 1996, Committee on Trade and Development.
83
Chapter 6, Proiority issues for India in External trade, https://www.vifindia.org/sites/default/files/priority-
issues-for-india-in-external-trade.pdf, accessed 1 March 2020.
84
Arvind Panagariya, India’s Trade Reform, INDIA POLICY FORUM, 2004, Columbia University,
https://www.brookings.edu/wp-content/uploads/2016/07/2004_panagariya.pdf , accessed 2 March 2020.
is clearly required that will also have a phased programme for the domestic industry,
including SMEs, to conform. China for example has the China Compulsory Certification
system whose compliance is helped by 22 sectoral standards and compliance agencies.85
Effective regulation of imports also needs strict oversight over underpricing and
underinvoicing of imports, fraudulent declaration about rules of origin, circumvention of
right tariff classification etc.

1. International trade practices and policies are constantly evolving and India needs
to keep up, not to be left behind.
India ended the use of Quantitative Restrictions on balance of payments grounds in 2001 only
after a WTO dispute was raised against India and it was lost. India is now changing its export
schemes after it has lost another WTO case.86 But on stitching up more FTAs or on standards
no external pressure may really come. India needs to itself decide how best to move forward.
Finally, there is the question if India will still get to be part of RCEP. The Home Minister’s
article conveyed the confidence that considering India’s growing stature, RCEP members
can’t afford to ignore it for long and will come around to agree to Government of India’s
(GOI) terms. Countries like Japan and Australia too are very keen for India to join RCEP
apart from certain ASEAN countries but whether they will agree to accept all of India’s
demands and get the others to do so remains to be seen. 87

2. Well-crafted FTAs should be seen as part of reform and not undermining domestic
industry or agriculture.
Irrespective of what may happen to RCEP, India needs to move ahead with its own plans for
internal reform and doubling exports as outlined earlier. RCEP too could have worked for us
only if it had found a place as part of reform for restructuring and becoming competitive and
not looked at as likely to undermine our industry or agriculture. Adequate protection is
certainly warranted for some of these areas. This writer for example had recommended in a
CII study he had the opportunity to lead, on a possible approach to deal with China in view of
the already large presence of that country in our market, a phased and extended approach in
industrial tariff

85
China Compulsory Certification, EUSME Centre, http://ccilc.pt/wp-
content/uploads/2017/07/CCC_CHINA_COMPULSORY_CERTIFICATION_EN_EUSMECENTER.pdf,,
accessed 2 March 2020.
86
Report of the Panel, India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial
Products, WT/DS90/R 6 April 1999.
87
Why India needs to rethink its decision to opt out of RCEP, The Economic Times,
https://economictimes.indiatimes.com/news/economy/policy/why-india-needs-to-rethink-its-decision-to-opt-out-
of-rcep/articleshow/72061734.cms?from=mdr, accessed 2 March 2020.
reduction that was also more back loaded.88 But such protection without timeframes for
reform by the industry will only entrench inertia to change. As a beginning, therefore, the
government will need to look at tariff increases undertaken by India in recent years on a
whole range of products and lay out a clear time table for industry restructuring by when
those tariffs will return to earlier levels. This by itself is a very significant reform the other
RCEP countries will favorably note.

3. Dairy sector is a case in point.

The dairy sector itself, which became a flash point during RCEP negotiations, is a case in
point. For example, for a country like New Zealand, insisting on some market access in this
sector where it has considerable strength may seem quite reasonable. Otherwise it would have
been very difficult for them to defend the deal nationally 89. The question is could India have
dealt with this request by: a) limiting the market access to a few products in the dairy sector
and only upto a limited tariff rate quota; and b) the TRQ quantities itself to be determined not
on the basis of the size of the large Indian market but moderated on the basis of reciprocity
for India’s real market access in that country.

The dairy sector is in any case highly protected in several countries around the world, in even
advanced countries like Canada or Japan or Korea. Some FTAs not only have very limited
TRQs for several dairy items but carry a whole range of import stipulations including a) how
they can be imported only in bulk and not in retail form; b) how the Tariff Rate Quotas
(TRQ) have to be divided for the four quarters during an year; c) how the TRQs will be
auctioned or there will only be limited authorised importers; and so on. 90 In India, if it is
determined that only a few large cooperative dairies should be allowed import through
specified ports, that is an aspect that can perhaps be negotiated. And just as butter oil aid from
EU was used by National Dairy Development Board (NDDB) in the building up of the Indian
dairy industry several decades ago, can certain regulated and limited lower priced imports by
cooperatives be used as a means of improving their finances (and while not affecting
domestic prices) to usher

88
Emerging dynamics on RCEP, RIS Policy Breif,V. S. Seshadri https://www.ris.org.in/sites/default/files/policy
%20brief-85%20v%20s%20 sheshadri.pdf, accessed 2 March 2020.
89
Proceedings of the Expert Meeting held in Geneva from 6 to 8 November 2002, The Development Dimension
Of Fdi: Policy And Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/04.
90
Harry de Gorter and Erika Kliauga, Reducing Tariffs versus Expanding Tariff Rate Quotas, World Bank
Resources,
http://siteresources.worldbank.org/INTTRADERESEARCH/Resources/Ch5_AgTradeBook_deGorter_Kliauga.
pdf, accessed 3 March 2020.
in technological change to this sector? If that would be possible, such limited TRQ imports
could be seen as part of reform rather than something that will hurt our dairy farmers. 91

4. Creative possibilities for negotiations in the industrial sector.

Even among industrial products, perhaps certain types of steel and non-ferrous metals could
be allowed to be imported in limited quantities as TRQs than saying no-no to any such import
if that will improve our negotiating position.92 Is it possible for such imports to be made
available only in the respective product clusters for our SMEs at international prices for them
to be able to manufacture value added products from them for export. What needs to be
appreciated and creatively used is the wide flexibility available within FTA making in
consultation with the FTA partner. The yarn forward rule designed by the United States for
garment imports under FTAs is a good example here that encourages greater use of American
made fabrics for making garments seeking entry into US market under FTAs or other
concessional arrangements.

91
A. Banerjee, Dairying systems in India, Food and Agriculture Organization,
http://www.fao.org/3/t3080T07.htm, accessed 3 March 2020.
92
V.S. Sheshadri, After Withdrawing from RCEP, What Next?,
https://www.vifindia.org/sites/default/files/After- Withdrawing-from-RCEP-What-Next_1.pdf , accessed 3
March 2020..
 CONCLUSION

RCEP militates against several of India’s critical interests. At least two countries from among
the RPCs could seriously challenge India’s rural economy since they are seeking to enter the
markets for wheat, sugar and dairy products. If the tariffs in these products are lowered to
facilitate the entry of these countries, India would concede one of its long-standing positions
in trade negotiations, which is, trade agreements should not threaten the livelihoods and food
security of small and marginal farmers. Opening the markets for food crops and the dairy
products would act as disincentives for the farmers and this, in turn, could threaten the
domestic production of these products. India had assiduously developed its farm sector and
animal husbandry to raise the production of grains and milk and to emerge as one of the
largest producers. Domestic producers need to be further incentivised so that they are able to
meet rising domestic demand effectively. This would not only increase the income of the
farmers and improve their economic viability; enhanced domestic production would also help
in meeting the needs of those who are currently in the throes of poverty and malnutrition. It
seems obvious that India can hardly afford to risk national food security by acceding to
agreements such as the RCEP.

Whether India gets to be in RCEP or not, this paper places importance on India quickly
taking action on: a) drawing up and implementing an action plan to double exports in the next
five years; b) devising an FTA strategy; and, c) devising and implementing an efficient and
robust system of regulating imports. Should other members of RCEP meanwhile decide to be
more accommodative towards India and its demands, and signal their willingness to discuss a
win- win deal for India, this should be welcome. But the decision to join should be assessed
based primarily on whether it can significantly contribute to doubling India’s exports in the
next five years. Also to bear in mind are whether we can keep our imports within manageable
limits and whether it will be possible to integrate RCEP implementation within our domestic
reform process. In all this, our negotiators too need try and come up with creative solutions
for which industry needs to lend a helping hand.