After engaging for six years for establishing the Regional Comprehensive Economic Partnership, the largest free trade agreement (FTA) ever, India decided to pull out when leaders of the 16 participating countries had convened in Bangkok for announcing the conclusion of negotiations.
The trigger for the pull-out was the unprecedented opposition to the most obvious component of an FTA — tariff liberalisation. Never before did almost all major stakeholders, from farmers, trade unions, civil society organisations and industry associations representing the sectoral interests, come together to make their voices heard against a policy initiative of the government.
Their immediate concerns were the threat to the existence of domestic entities in the face of stiff import competition. The voices perhaps became louder given the uncertain state of the Indian economy, which has been losing momentum, and whose growth projections going forward have been lowered by almost every institution.
For the domestic stakeholders, the lack of transparency and predictability in the government’s engagement with RCEP was among the most problematic issues. Take, for instance, the trigger for the huge discontent over what seemed to be a tacit acceptance by the government that it would effect deep cuts in tariffs, which was what the mandate of RCEP had stipulated.
This came to many of the stakeholders as a surprise since in an early phase of the negotiations, in 2015 to be precise, the government had taken the nation into confidence by stating clearly that it was not willing to accept the RCEP negotiating mandate on tariff cuts. In the initial tariff offer the government informed the stakeholders that the additional market access to its three FTA partners from among the RCEP participating countries (RPCs), namely ASEAN, Korea and Japan, would be kept at modest levels, and China’s access to preferential tariffs under RCEP would be significantly lower than those of other participants.
The transparency that the government displayed was unparalleled — never before had any government disclosed its negotiating position in the FTAs. It was an assurance from the government that the interests of the stakeholders would be protected.
Turn in tide
The next phases of the government’s engagement in RCEP negotiations saw the tide turn completely in the opposite direction.
The government seemed to have changed its initial position in tariff negotiations by committing to the RCEP negotiating mandate, but the extent of the shift was not quite clear. Further, in some of the critical areas like investment and electronic commerce, the government seemed to be backing proposals which were in complete contradiction with its domestic policy template.
On the issue of investment, the government had declared, once again in 2015, that it would discuss investment agreements on the basis of the Model Text for the India’s Bilateral Investment Treaty, which it had adopted to protect itself from frivolous investment disputes under the investor state dispute settlement mechanism (ISDS).
In keeping with this stance, the government had terminated bilateral investment treaties with 58 countries in 2017. However, some parts of the investment chapter of RCEP available in public domain suggest that the provisions are no different from those of the investment treaties that the government had rejected in 2017.
In other words, if the disquiet among domestic constituencies over tariff liberalisation had not taken centre-stage, the government would have taken the commitment to implement an investment agreement whose adverse consequences were too well-known.
E-commerce
Equally serious would have been the commitments on electronic commerce (e-commerce), which is the elephant in the room for at least two reasons. First, its definition is anything but clear. This implies, the sectors of the economy that e-commerce could impact cannot be gauged easily.
The second and the more contentious aspect of e-commerce is the possibility free flow of data across international borders. This raised a myriad of issues, ranging from flows of sensitive data from the point of view of the country’s security, personal data and other information pertaining to the functioning of the economy.
The RCEP does not provide a definition of e-commerce. This leaves the door open for definitions provided by other forums, as for instance, the OECD, according to which, goods or services are ordered online, but the payment and the ultimate delivery of the goods/services do not have to be conducted online. This definition would suggest that there is a thin line dividing conventional foreign trade transactions and e-commerce conducted across international boundaries. In recent years, several members of the WTO have been engaged in developing rules on e-commerce, but India has consistently opposed this move.
Among the reasons why India has opposed discussion of e-commerce in the WTO was the push by some countries to keep e-commerce transactions free from import tariffs. In other words. imports using the e-commerce platform would not face any tariff restrictions.
The RCEP chapter on e-commerce seems to have adopted this framework, despite India’s presence in the negotiations. This implies that if India had been a party to RCEP, the extent of market opening would have been far more than what the tariff cuts suggest. Two provisions of the e-commerce chapter on cross-border transfer of information and location of servers are particularly contentious.
The former provision stipulates that RPCs must allow data and other information to freely flow across borders, and the latter provides that no RPC can insist that servers of entities engaged in e-commerce business must be located in their territories. Both these provisions run counter the Draft National E-Commerce Policy that the government had circulated in February 2019.
There are at least two important takeaways for the government from its RCEP experience. The first is that new generation FTAs like the RCEP can cause a rupture of government’s autonomous policy space in critical areas like tariff policy, treatment of foreign investors and data protection policy, among others. Given that the country’s development deficits need a degree of government intervention, foregoing the policy space would be least desirable.
And, second, there must be complete transparency in the government’s decisions-making and, therefore, FTAs which require democratic governments to negotiate in secrecy are inappropriate forums to take decisions on the country’s future.
The writer is Professor, Centre for Economic Studies and Planning, JNU