PM Modi, Xi discuss RCEP, agree on early trade talks

Chinese President Xi Jinping and Prime Minister Narendra Modi. (PTI photo)

Prime Minister Narendra Modi and Chinese President Xi Jinping discussed about the Regional Comprehensive Economic Partnership (RCEP) agreement during a meeting in Brasilia early on Thursday – just 10 days after New Delhi opted out of the proposed free trade agreement.

Modi and Xi had a bilateral meeting on the sidelines of the 11th annual summit of the BRICS – a bloc comprising Brazil, Russia, India, China and South Africa – in Brasilia. They had last met on October 11 and 12 when Prime Minister had hosted Chinese President at a seaside resort near Chennai for the second “informal summit”.  

A spokesperson of the Ministry of External Affairs (MEA) confirmed that the proposed RCEP agreement was on the agenda of the discussion between Prime Minister and Chinese President in Brasilia.

Modi conveyed to Xi the reasons India decided to stay out of the RCEP and underlined that it could review its decision only when it receives a firm indication from China and the 14 other nations participating in the negotiations for the proposed agreement that its concerns would be addressed, according to the sources.

Sources quoted Xi telling Modi that China would follow the principle of “mutual understanding and accommodation” to resolve the “outstanding issues” cited by India as reasons for its not joining the RCEP.

During a conclave at Bangkok on November 4, Modi conveyed to the leaders of the other RCEP negotiating nations that India would stay out of the free trade agreement. The 15 other nations, however, decided to go ahead and sign it in 2020.

If India returns to the RCEP, the agreement will create the world’s largest free trade area, which would cover 3.6 billion people or the half of the global population and account for 39.5% ($49.5 trillion) of the GDP of the world.

New Delhi decided to stay out of the RCEP, primarily because it was of the view that the draft agreement would not provided adequate protection against the surge in cheap imports from China to India, when the agreement would come into force.

The negotiation for the RCEP was formally launched in November 2012 and was expected to be concluded by 2015. But it missed several deadlines. India was cautious during the RCEP negotiations in view of its huge trade deficit with China, which widened from $51.72 billion in 2017 to $57.86 billion in 2018.

New Delhi insisted on an “auto-trigger mechanism” within the RCEP to protect its own industries from surge in cheap imports, particularly from China. The “auto-trigger mechanism” would have ensured that higher safeguard duties would be automatically imposed after imports from another country reach a certain threshold. India was also demanding more stringent ‘Rules of Origin’ as it was apprehensive that its market could be flooded with the cheap import from a non-RCEP country, which might route its goods through a RCEP-country. India was also resisting pressure from China and a few other countries to accept 2014 as the “base year” for bringing down tariff after the RCEP comes into place.

The negotiators, however, could not reach a consensus on the proposal put forward by India.

Prime Minister and Chinese President agreed during the meeting in Brasilia early on Thursday that the new India-China high-level mechanism on trade and economy should meet at an early date.

Modi and Xi last month agreed to set up the mechanism, which would be jointly led by Finance Minister Nirmala Sitharaman and Chinese Vice Premier Hu Chunhua. It was mandated to explore ways to narrow trade deficit and raise volume of bilateral commerce as well as to explore manufacturing partnership between India and China.

The diplomats of the two nations are currently in touch to schedule the date and venue of the first round of the newly-institutionalized dialogue.

Sources told DH that if the new mechanism could address India’s concerns over its trade deficit with China, it might also help end the impasse over the RCEP and “create favourable condition” for New Delhi to consider returning to mega free trade agreement.

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