Faced with lobbying by the steel sector and some others, the Indian government is caught in a bind on whether to join the Regional Comprehensive Economic Partnership (RCEP) or not.
Last week, none other than Indian Prime Minister Narendra Modi chaired a meeting of the key players on the RCEP to decide on this vexed issue.
The RCEP is a proposed trade pact between the Association of Southeast Asian Nations (ASEAN) and their six Free Trade Agreement (FTA) partners. On the list are Australia, China, India, Japan, Korea and New Zealand.
The countries in the proposed trade group account for 25% of global gross domestic product (GDP), 30% of global trade, 26% of foreign direct investment flows and 45% of the world’s population.
Time and time again over the last few months, Indian steel companies have expressed reservations over the RCEP, especially in the wake of cheap steel imports flooding the Indian market from China and South Korea.
The concluding talks for the signing of the RCEP are currently in the last phase.
The production cost of steel in India of U.S. $40 a ton is one of the highest in the world, according to Entrepreneur India.
There are several reasons for this – red tape, poor infrastructure, taxes and exorbitant capital cost. Indian steel producers maintain that becoming party to the RCEP would ease imports, but would also hurt Indian steel producers’ sales.
India’s steel export dropped by 7.5% in the first five months of this fiscal year. As compared to the last year, steel exports in August surged to 37% in 2019.
India’s major bugbear is China.
India’s trade deficit with China and RCEP in 2018-19 was $53.6 billion and $105 billion, respectively. India is currently high on its Make In India program, and steel companies say further liberalization in tariffs would lead to a surge in imports, harming the domestic industry.
According to the Financial Express, India is contemplating some measures to safeguard its producers’ interest. It plans to employ an “auto-trigger” safeguard mechanism for imports to protect domestic players.
This plan will come into play once imports of a particular sensitive product breach a stipulated limit. The concessional duty under RCEP will then be scrapped for that item and the normal, most favored nation (MFN) duty will apply. India wants this for at least 68 products for about 10 years.
Another plan is the flexibility of a “snapback,” transitional safeguard mechanism for all RCEP members.
All these safeguards will be in addition to mechanisms already in place, such as anti-dumping, countervailing and traditional safeguard duties — all aimed to act against any import spikes.
India has decided to trim or remove tariffs on Chinese goods in phases over 25 years to protect its domestic producers.