The mega trade agreement amongst ASEAN and its FTA partners, the Regional Comprehensive Economic Partnership, is slated for conclusion by November 2019. With signatories including ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam), Australia, China, India, Japan, Korea and New Zealand, the mega FTA is expected to cover almost half the world’s population and about 39% or more of the world’s GDP.[see endnote 1] The ambitious FTA also has enhanced coverage in terms of subject areas with chapters covering substance and procedure regarding market access on Trade in Goods, Trade in Services and Investment as well as Rules of Origin, Intellectual Property and Electronic Commerce.[see endnote 2]
As per leading news sources and from India’s perspective, three issues remain unresolved at this climactic stage.[see endnote 3] These issues and their origin are discussed in detail in this article.
The proposed Investor-State Dispute Settlement (ISDS) mechanism under the Investment Chapter
India is opposed to the introduction of ISDS owing to its recent experience pursuant to various bilateral investment treaties. Following its first defeat in investment arbitration in the White Industries v. India[see endnote 4] case in 2011, India’s approach to ISDS underwent a sea-change. It also faced numerous fresh claims, with about twelve ongoing disputes under various BITs as of date.[see endnote 5] Learning from this experience and after a detailed review of its bilateral investment treaties (BITs), India introduced a revised Model Text for the Indian Bilateral Investment Treaty in December 2015.[see endnote 6] As per the Press Release, the Model Text introduced “a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration and limiting the power of the tribunal to awarding monetary compensation alone.”
Generally, RCEP members appear to have had an adverse experience with ISDS with a total of 32 outstanding cases, majority of them against India, Japan and Korea.[see endnote 7] Accordingly, there has been substantial speculation that the RCEP members have agreed to drop ISDS from the scope of negotiations, with a clause to allow introduction of ISDS two years after the Agreement’s ratification. The Malaysian Minister for International Trade and Industry (MITI) has made statements to this effect last month.[see endnote 8] However, the possibility of reintroduction of ISDS within two to five years of ratification remains and India’s ability to safeguard against the same remains under question. A related concern for the negotiators is the continued ability to attract foreign investment under RCEP without an assured ISDS mechanism.
The proposed Rules of Origin chapter
India has proposed very strict Rules of Origin, with a view to prevent circumvention of Chinese goods through other RCEP member territories. This is relevant considering that there is speculation that India may have restricted the market access commitments to China as compared to other RCEP members.
Rules of Origin (ROO) are a sensitive subject matter in any negotiation owing to the following:
- Market access, once granted, can only be reigned in by way of the rules of origin contained in the agreement;
- They require a fine balance- allowing permissive rules for goods which India is an exporter of and restrictive rules for goods which India is an importer of.
Under the RCEP, different levels of tariff liberalization are being negotiated by India with respect to ASEAN on the one hand and China on the other. As such, ROO which permits value addition to take place in any RCEP member (or, by extension, FTA partners of a RCEP member) for the purpose of availing the preferential tariff assigned to the country of export would defeat the whole purpose of such differential tariff liberalization.
India’s ROO proposal attempts to address this issue. However, with the conclusion of the 7th Intersessional Meeting of the Regional Comprehensive Economic Partnership (RCEP) Trade Negotiating Committee (TNC) held in Bangkok from 14-19 October 2019, there appears to be no finality on this issue yet. It is also questionable whether non-acceptance of the stricter ROO would reopen market access negotiations amongst RCEP members.
The proposed Auto-Trigger and Snapback Safeguard Mechanism under the Trade Remedies chapter
The biggest fear with signing onto the RCEP has been the surge in imports, particularly from China and also with respect to certain sensitive sectors (like dairy) from Australia and New Zealand as well. In order to address the expected surge in imports, India has proposed an auto trigger and snapback safeguard mechanism which would ensure some degree of protection to the Indian industry.
The proposed mechanism is expected to “auto-trigger” when imports from any of the RCEP members with respect to identified and negotiated sensitive items increase beyond a pre-negotiated trigger level within a specific duration and tariff concessions extended under RCEP are withdrawn and most-favoured-nation level of tariffs reinstated for the said RCEP member. Additionally, the “snapback” mechanism is expected to permit transitional safeguards, applicable for a period even after the completion of tariff liberalization under the RCEP.
India has faced strong opposition from most members with respect to this proposal and no consensus seems likely before the ministerial meeting for Ministers of the RCEP Members scheduled to be held on 1 November, 2019 in Bangkok, Thailand ahead of the Leaders Summit scheduled for 4 November, 2019.
Expectations from RCEP
In light of the significant issues still remaining to be negotiated by the RCEP members, it appears to be almost impossible to conclude the RCEP in the timelines agreed without remarkable backtracking, on the part of India or the other RCEP members. The protests from the agricultural and dairy sector are also finding more and more support as the negotiations come to a close, and the strength of India’s stance for supporting its proposals may be derived from this ground reality as well. Added incentive to delay signing of the RCEP is also presented by the ongoing India-US Strategic Partnership, which broadly opposes inclusion of China in the mega FTA.
Ultimately, the outcome of negotiations will only become evident at the leaders' summit scheduled for November 4 where India’s stance on RCEP will be announced.
[The author is Principal Associate in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]
- Press Release, Ministry of Commerce and Industry, “Stakeholders’ Consultations by Department of Commerce on RCEP” dated 24 August 2019 (available at www.pib.nic.in)
- Press Release, Ministry of Commerce and Industry, “Piyush Goyal to Attend 9th RCEP Intersessional Ministerial Meeting in Thailand” dated 10 October 2019 (available at www.pib.nic.in)
- “Threat to agri sector, data localisation, China's influence keep India wary of RCEP deal”, Business Today dated 18 October 2019 (available at: https://www.businesstoday.in/current/economy-politics/threat-to-agri-sector-data-localisation-china-influence-keep-india-wary-of-rcep-deal/story/385488.html); “RCEP: India wants auto-trigger mechanism to curb import surges”, Business Line dated 24 August 2019 (available at: https://www.thehindubusinessline.com/economy/rcep-india-wants-auto-trigger-mechanism-to-curb-import-surges/article29241238.ece); “India tries to loosen RCEP tangle ahead of Leaders Summit on November 4”, Business Line dated 21 October 2019 (available at: https://www.thehindubusinessline.com/economy/india-tries-to-loosen-rcep-tangle-ahead/article29756763.ece)
- White Industries Australia Limited v. The Republic of India, UNCITRAL, under the Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments (1999) (Final Award available at https://www.italaw.com/sites/default/files/case-documents/ita0906.pdf)
- List of Investment cases against India available at: https://investmentpolicy.unctad.org/investment-dispute-settlement/country/96/india/respondent
- Press Release, Ministry of Finance, “Model Text for the Indian Bilateral Investment Treaty” dated 16 December 2015 (available at www.pib.nic.in)
- List of Investment Cases against RCEP Members verified from https://investmentpolicy.unctad.org/investment-dispute-settlement/
- “RCEP talks to proceed without ISDS”, The Malaysian Reserve dated 13 September 2019 (available at: https://themalaysianreserve.com/2019/09/13/rcep-talks-to-proceed-without-isds/)