The Regional Comprehensive Economic Partnership (RCEP) is trade agreement (FTA) between ten members of the Association of Southeast Asian Nations(ASEAN) {Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines, Thailand, Vietnam}and its six FTA Partners(China, India, Japan, South Korea, Australia and New Zealand),where they agree to partially reduce or completely eliminate trade barriers related to imports and exports. It was initially launched In November 2012 at the ASEAN Summit in Cambodia and accounts for more than 45% of the world’s population. The twenty-seventh round of meeting was held at Zhengzhou, China from July 22 to 31 and the last ministerial meet ending in October will give its final outcome.
India already has a free trade pact with ASEAN, Japan, and South Korea and is looking for negotiation with New Zealand, Australia and China.. The cost of manufacturing steel in India is higher by at least $80 per ton owing to higher cost of capital, higher power, and logistics cost, inadequate technology and creaky infrastructure which makes finished steel goods less competitive compared to Chinese ones. Imports have surged 27% in August and the share of duty-free imports from FTA countries like Indonesia, Japan and Korea have accounted for 77% as against their 58% in FY19. India’s trade deficit of $54 billion in 2013 had increased to $105 billion after India has signed an agreement with ASEAN, South Korea, and Japan. Of the $105 billion trade deficit, China’s share is around $53 billion. Despite the existing FTAs, the tariff on many products is kept higher, mainly because of the sensitivity of the sector. India’s commitment is expected to get higher from the presently existing one which is creating worries among steelmakers. Domestic steel industries want their sectors to be kept out of this deal as they fear a surge in import and flooding of cheap steel, especially from China.
China is having a trade war with the US and is eagerly looking for an ambitious market in India by making use of the import free duty. Iron and steel imports from China would increase by over $540 million annually if complete trade barrier is eliminated. The inclusion of stainless steel products will further lead to a surge in imports from China and make operations for domestic small scale enterprises unviable. It may even disrupt the government’s “Make in India” plan. The agreement was meant to improvise export but it’s hard to accomplish taking into account that technologically advanced countries are also participating in the trade agreement. India is moving through the economic slowdown across manufacturing sectors and going ahead with the pact will only aggravate the crisis. Profits have already dropped for the steel sector because of plummeting auto sales. The deal will make markets more vulnerable to imports and will squeeze the market even further.
Thus, India should review its gains before going ahead with furthermore commitments. Certain safeguard measures may be implemented to protect industries from hike in import.
© Metal world insight
