Six years in the making, the Regional Comprehensive Economic Partnership (RCEP) was slated to become one of the mega trade agreements, when on November 4 India announced its decision to exit from RCEP. Though possibility of India still becoming  part of RCEP exists, India’s stance is quite clear. A joint statement issued by the RCEP leaders states that “India has significant outstanding issues, which remain unresolved, we will try to work together to resolve all outstanding issues of India. The final decision of India will depend on the satisfactory resolution of these issues.” The major concern of course has been China as India already has operational Free Trade Agreements (FTAs) with ASEAN, Japan and Korea; China would be a new addition in terms of significant free trade access under the agreement.

For any country trade agreements are important for its creation of new markets; for facilitating the import and export of goods which can benefit partner countries by promoting fair competition; and production to enhance economic growth & welfare.

However, in case of India, evidences from past Free FTAs show unfavourable gains to our trade partners and worsening of India’s trade balances. Some key macro takeaways from India’s experience with respect to operational FTAs are,

  • India’s exports to FTA countries has not outperformed overall export growth or exports to rest of the
  • FTAs have led to increased imports and exports, although the former has been greater
  • India’s trade deficit with ASEAN, Korea and Japan has widened post FTAs entered into force
  • Utilization rate of comprehensive agreements by exporters in India is very low (~ 10%)
  • Trade balance worsened (deficit increased or surplus reduced) for about 16 out of around 22 sectors

Among the three FTAs which have affected Indian domestic industry adversely- India Korea CEPA has been significant. India-Korea CEPA was signed on 7th August 2009 and entered into force on 1st January 2010 with the aim of rationalizing trade  economics of India- Korea. However, while it was expected that the agreement will be beneficial to both countries, probably it has failed to contain Indian industry’s expectation.

India’s trade deficit with Korea has widened post FTA; in turn, India has made no net gains from the agreement. India had trade deficit with South Korea of around 4.5 billion USD in the year 2009 which increased 3 folds in 2018 to 11.5 billion USD.

Source: Trade Map

Among the major sectors experiencing significant imports from South Korea and in which India is already self- sufficient, are Chemical and Plastic & Rubber. Certain products where imports from South Korea have crossed Rs. 500 crores figure are Phthalic Anhydride, Synthetic Rubber and Poly Vinyl Chloride.

 

SECTOR WISE – SHARE IN IMPORTS

 

Source: assessed by author as per data Trade Map

Recently, Directorate General of Trade Remedies (DGTR), Ministry of Commerce has initiated Bilateral Safeguard Investigations concerning imports of “Polybutadiene Rubber” and “Phthalic Anhydride” into India from Korea RP under India- Korea

 

Comprehensive Economic Partnership Agreement (Bilateral Safeguard Measures) Rules, 2017. In view of hardly any bilateral safeguards investigation under free trade agreements initiated by India in past, two investigations under same agreement is an example of how FTAs can disrupt domestic market and why it is very critical to analyse all scenarios before getting into a free trade bloc.

While FTAs form backbone of globalisation, certain disruption is of course inevitable. However, much of the adverse effect can be avoided by slow and careful integration  into global free trade economy; and the same reflects from recent decision of India taken as regards RCEP. Time will tell whether this stance of India will remain in long term or is short lived, not only for RCEP but for all future FTAs.

 

 

Author:

Jyoti Singh Rathore Assistant Secretary General

Forum for Trade Remedies, FFTR [Published on Moneycontrol.com]

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