RCEP effect: Hope springs eternal in India's readiness to cut tariff

Country had earlier offered differential levels of tariff reduction

Hope of a better offer in negotiation over services trade has been behind India’s willingness to consider similar levels of tariff cut in goods trade for all nations within the proposed Regional Comprehensive Economic Partnership (RCEP) agreement. The recently-concluded ministerial level meet at Laos saw India officially communicate its position, which represented a significant shift from its earlier position of a three-tiered approach to tariff reduction. However, as negotiations reached stalemate, with a greater number of countries pushing for dismantling of differential levels of reduction, India has shown flexibility in its stance, said a commerce ministry official.

However, most nations are reluctant to discuss the issue, the official quoted above said. “We have a sense now that most nations are only comfortable in opening up services as far as their existing tariff norms permit but we aim to bank on our latest position.” he added.

India is primarily interested in securing greater market access for services trade and is pushing for easing restrictions in the sector. It is especially looking at opening up issues under Mode 4, which deals with cross-border migration of services professionals.

It will now be up to India to negotiate on its latest offer in the upcoming round of talks set to start from August 14 in Ho Chi Minh City, Vietnam.

Trade experts suggested the new strategy might help in moving services negotiations forward, which have barely progressed in the last few rounds. “India’s new approach is expected to provide movement in services as well as other aspects of the talks where countries have struggled to arrive at a balanced plane of discussion,” director-general of policy think tank Research & Information System for Developing Countries said.

On merchandise trade, if similar levels of tariff reduction is finalised under RCEP, India, with its relatively high most favoured nation rates of trade, is set to lose out more than those with lower levels like China. The rates refer to the lowest possible tariff a country can accord to another in trade.

Under the previous plan, the 10 countries which are part of the Association of Southeast Asian Nations (Asean) were being offered up to 80 per cent tariff liberalisation. Of this, 65 per cent elimination of tariff was to come into force immediately upon completion of the agreement. Another 15 per cent tariff elimination was to happen over 10 years. In the second tier, India offered 65 per cent tariff elimination to South Korea and Japan, with whom it has free trade agreements. In turn, these two countries offered 80 per cent tariff elimination to India. Finally, in the third tier, India proposed a 42.5 per cent reduction in tariff lines to China, Australia and New Zealand, which offered India 42.5 per cent, 80 per cent and 65 per cent tariff lines reductions, respectively.

While mega goods exporter China had vehemently opposed the approach, India managed to rope in Japan and South Korea to endorse its plan. However, the Asean bloc had submitted a joint paper in support of a single tariff reduction during the 13th round of negotiations held in New Zealand, reportedly after a direct interference by China.

There was also a rift among Asean nations with different levels of development over this. The Asean nations want to see the agreement through as soon as possible and are being played by China against India for leverage over negotiations on services where India has taken an aggressive stance, said a commerce ministry official. 

The Asean nations are Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam. Apart from Asean, RCEP involves six countries with whom Asean has free trade agreements — Australia, China, India, Japan, South Korea, and New Zealand. Japan and China had earlier pressed India for either common tariff for all member countries in 10 years or to make the initial tariff liberalisation more ambitious. India had asked Japan to find a common ground on the issue.
TALKING POINTS

• India has hinted its willingness to consider similar levels of tariff cut in goods trade for all RCEP nations at the latest meet in Laos
   
• The country had moved from its earlier three-tiered differential approach to tariff reduction, which had reached a stalemate, in hopes of securing better offers in negotiation over services trade
   
• The next round of talks are set to take place between August 14-19 in Ho Chi Minh City