Regional Comprehensive Economic Partnership Future & India

INTRODUCTION

This is the season for regional-integration initiatives in Asia. There is talk of region-wide FTAs, and there are east-Asian initiatives on financial and monetary cooperation. But grand visions for Asian regional blocs are not achievable. Regional economic integration is most developed in Asia, but only because of manufacturing supply chains linked to global markets. Asian countries try to solve their trade problem via FTAs, association and cooperation etc. & one of them is RCEP. RCEP aims to create an integrated market with countries, making it easier for products and services of each of these countries to be available across this region. The negotiations are focused on the following: Trade in goods and services, investment, intellectual property, dispute settlement, e-commerce, small and medium enterprises, and economic co-operation. RCEP negotiations will follow eight principles: (1) consistency with the WTO; (2) significant improvements over the existing ASEAN+6 FTAs; (3) facilitation of trade and investment; (4) flexibility (e.g., special and differential treatment) to the least developed AMSs; (5) continuation of existing FTAs; (6) open accession clause; (7) technical assistance and capacity building to the developing and least-developed countries; and (8) parallel negotiation. Associate Members/Countries/Partners Any one of the external economic partners, such as in nations Central Asia, South Asia and Oceania becomes its member. 1. Ten members of ASEAN Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam 2. Six FTAs Partners South Korea, China, Japan, India, New Zealand, and Australia

• August 2011, East Asia Summit Economic Ministers welcomed a Chinese and • During the 19th ASEAN Summit held 14–19 November 2011, the Regional Comprehensive Economic Partnership (RCEP) was introduced. • The 44th ASEAN Economic Ministers (AEM) Meeting and Related Meetings were held in Siem Reap, Cambodia, 25 August – 1, September 2012. • Leaders at the 21st ASEAN Summit held 18–20 November 2012 in Phnom Penh, Cambodia endorsed the framework of RCEP and announced the launch of their negotiations.

• The first five rounds of RCEP negotiation was held on different place. • The sixth round of RCEP negotiation and related meetings was held on December 1–5, 2014 in New Delhi, India.

• Next fourteen rounds (seven to twenty) of RCEP was also held on different place on many dates. • The first RCEP summit was held on Nov 14, 2017 in Manila, Philippines.

• Upto twenty five rounds of RCEP was held on different countries. • The twenty-sixth round will be schedule on July 3, 2019 in Melbourne, Australia. • The third RCEP summit will be schedule on October 31 to Nov 3, 2019 in Thailand with 35th ASEAN summit on same day.

1. The RCEP 2. India 3. FTAs

The annexure-1 at the end of the paper provides the economic and trade profile of ASEAN countries and its six FTA partners. In terms of land area China, Australia and India are the large economies where China, India and Indonesia are the most populous countries in the group. In terms of GDP size, China is by far the largest economy with 11 trillion US $ in 2015 followed by India which is a 2.9 trillion economy. Australia got the highest per capita income followed by New Zealand and Japan. India and China are the fastest growing economies among bigger countries. FDI inflows into China is way high with 133 billion US dollars followed with India at 44 billion dollars in 2015. Trade GDP ratio is highest in Singapore as trade is almost three times the GDP of Singapor.

Singapore is the dominant country in the ASEAN region with regard to international trade. Singapore is having an export of 346 billion US Dollars and imports worth 296 billion dollars with a trade surplus of 46 billion US dollars. Thailand, Malaysia, Vietnam and Indonesia are the other important ASEAN countries having larger trade share in the region. With regard to services also Singapore plays a dominant role.

The table gives the top five exports and import partners of ASEAN countries and its six FTA partners. With regard to Brunei, the top export and import partners are primarily from the Asian region with Japan is the major export destination where Malaysia is the largest import partner. For almost all countries, China is the largest import partner. For Indonesia, Myanmar, Singapore, Australia, Korea and New Zealand, China is the largest export and import partner. The table shows for most of the ASEAN plus countries the large proportion of trade happening among themselves.

The Annexure-4 shows the intra-regional export share of ASEAN six countries. China, Japan and Korea are the largest trade partners of Australia. China is having larger export share with Japan. China, Japan, India and Singapore are the important export destination of Indonesia. India does not enjoy large export share with the ASEAN

China and Singapore are the important trade partners followed by Japan. For New Zealand, Australia and China are important while Singapore is having larger export share with China and Malaysia. China and Japan are the important export destination for Thailand whereas China, Japan and Korea are important for Vietnam.

Australia‘s imports are coming mainly from China and Japan. Malaysia is the largest import partner of Brunei. China‘s largest import partner from the region are Korea and Japan. India imports substantially from China. Indonesia imports large share from China, Singapore Japan, Korea and Malaysia. One-fourth of the Japanese imports are coming from China. Imports from China are dominant in ASEAN countries and the FTA partners of ASEAN.

India‘s exports to ASEAN increased from U.S. $ 10.41 billion in 2005-06 to U.S. $ 25.20 billion in 2015-16 and imports over the same period quadrupled from U.S. $ 10.81 billion in 2005-06 to U.S. $ 39.84 billion. This reflects a compound annual growth rate (CAGR) of about 9.2 percent in exports to the ASEAN region and close to 14 percent per annum growth in imports during 2005-06 to 2015-16. Concomitantly, India‘s trade deficit with the ASEAN surged from US$0.5 billion in 2005-06 to US$14.6 billion. In terms of market share, the share of imports in India‘s total imports from ASEAN went up from 7.3 percent in 2005-06 to 10.5 percent in 2015-16, over the same period share of exports to ASEAN in India‘s total exports fell from 10.1 percent to 9.6 percent. With regard to India‘s trade with individual countries of the region, India runs in to trade deficit with major countries of southeast Asia. With regard to ASEAN plus countries, India has a trade deficit of 88 billion dollars of which China alone accounts 52 billion dollars. India also has trade deficits with Australia (6.15 Bn. $), Indonesia (11 Bn. $) Korea (9.48 Bn. $), Japan (5.10 Bn. $), Malaysia (4.67 Bn. $). India got trade surplus with Vietnam (2.68 Bn. $) and a marginal trade surplus with Cambodia, Philippines and Singapore.

The economic impact of proposed India-ASEAN plus Free Trade Agreement is analysed using World Integrated Trade Solutions (WITS) tool. WITS is a data extraction and tariff simulation software using estimate the partial equilibrium impact of tariff reductions for a single market at a time. WITS simulation is largely used to simulate the impact of preferential trade agreements. This simulation involves two aspects. First, a database has to be extracted to conduct simulation exercise. Secondly, simulation parameters are defined to get the impact of a tariff cut arising out of a Free Trade Agreement (FTA). The simulation exercise for the study used bilateral trade data between India and ASEAN plus countries for the year 2015. India is cutting tariff and the beneficiary Countries are ASEAN and its five FTA partners. Tariff cut is done across the board and all products are affected by that. Since the attempt is to understand the impact of FTA, the new tariff rate is kept at zero percent. There arise five results from the simulation exercise. They are total trade effect, export effect on partners, effect on average duty, welfare effect and tariff revenue effect. When India initiates 100 percent tariff cut against ASEAN plus countries as part of the Free Trade Agreement, they gain access to the Indian market and the exports to India will increase substantially. Annexures provides changes in the exports of 10-member ASEAN countries and five FTA partners of ASEAN due to 100 percent tariff reduction by India. The biggest trade gains are arising to countries against which the tariff cuts are effected by India. China gains most with an increase of 13.52 billion (22.49 percent), followed by Malaysia, a (4.74 billion$), Korea (3.36 billion $), Thailand (2.19 billion) and Japan (2.18 billion US$). The countries which are losing most from India ASEAN plus FTA is Indonesia (2.77 billion), US (532 million), Germany (523 million), Italy (180 million). Interestingly, Indonesia which is an FTA partner is losing out a substantial trade to other members of the ASEAN plus group. The simulations show that India‘s imports will increase by 23.58 billion if the FTA is signed with ASEAN plus countries. Because of the elimination of tariffs with ASEAN plus countries, there will be a reduction in customs duty to the tune of 19.3 billion US dollars. Because of the reduction in tariff and the consequent reduction in prices, there will be a consumer surplus to the tune of 1.92 billion US $. The total trade effect of India ASEAN plus FTA is 23.58 billion US $ of which the trade creation effect is 12.58 billion US$ and the trade diversion effect is only 79 dollars the total welfare effect is to the tune of 2.22 billion US$. This showed that the India ASEAN plus is a highly trade creation FTA with no

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Post-Graduate Student, Department of Political Science, Maharshi Dayanand University Rohtak, India