china trade deal Archives

What is the RCEP Agreement?

RCEP or The Regional Comprehensive Economic Partnership is an agreement between the members of the Association of Southeast Asian Nations (ASEAN) and countries with which they have free trade agreements (FTAs), namely India, China, Australia, Korea, Japan and New Zealand. The 16 countries involved in this deal (including India) covered almost one-third of the global population. Together these countries account for 29% of the world’s gross domestic product (GDP).

According to the deal, RCEP members will eliminate about 92% of the tariffs on goods traded between all of them. The countries involved will work to create an integrated market. With this, products and services of each of these countries can be easily available. Other than trades of goods & services, RCEP members will focus on investment, intellectual property, economic cooperation and dispute settlement.

Why did India Opt-Out?

“The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India’s outstanding issues and concerns in such a situation” – PM Narendra Modi during the RCEP meeting last year.

According to the Indian officials, the RCEP deal will give freeway to the importers to import in huge quantities. Many products made in China cost much less than what an Indian variant of that product cost. Thus, importers will import foreign goods to generate higher demand. This will decrease the expenditure of the people but at the same time, it will haunt domestic producers.

If India removes the import duties, there will be no protection for the domestic players. The domestic manufacturers will not be able to engage in the price war due to expensive raw materials or poor technology. Eventually, people will choose the cheaper foreign goods, thus, pushing the domestic players out of the market. India has an enormous trade deficit with China. In 2019-20, the deficit stood at $48.64 billion. Indian officials fear that this number would increase if the current RCEP agreement is inked.

There is another benefit for India if they maintain their distance from the RCEP agreement. The “largest regional trading agreement” does not include the United States of America and the European Union. This step away from the deal could serve in India’s favour to clinch bilateral trade agreements with the US and the EU. The global negative sentiments against China has already pushed the US and India on similar fronts. Any step against China can be counted as a step towards the United States.

The Never-Ending Debate

Globalisation has been a topic of deliberation for decades. Whether its the economists, politicians or other policymakers, there has always been people “for-globalisation” and “against-globalisation”. Often people have voiced that globalisation will fall under the stress of economic nationalism. Globalisation has both positives and negatives which gives birth to this divided opinion.

The positives come mainly to the customers. They get a variety of products to choose from. These products may vary in cost and quality. Thus, customers have the luxury to choose what is best for them. Also, globalisation helps to increase the productivity of the company. More competition from foreign brands forces the domestic players to upskill themselves and produce better output. Economic theories also say that all nations should have open economies for the world to prosper.

On the other hand, the vulnerable sections of Indian society are negatively affected due to this “openness”. Foreign competitors may have better human, capital or technological resources. Whereas the small-scale industries in India still aim to survive rather than thrive. Under the pressure of foreign products, these small-scale or medium-scale domestic ventures lose their business. “In the name of openness, we have allowed subsidised products and unfair production advantages from abroad to prevail. And all the while, this was justified by the mantra of an open and globalised economy. Those who argue stressing openness and efficiency do not present the full picture” – External Affairs Minister S. Jaishankar.

One of the recent targets of this has been the Indian textile Industry. They struggled to cope up with the low prices offered by the garments coming from other Asian countries like Bangladesh and Sri Lanka. With the RCEP agreement, the Indian government is fearing that unlimited foreign influx of goods will expose the domestic players.

What Can India Do Now?

Agriculture and Industrial sectors will benefit from India shying away from this deal. But many sectors which produce better and cheaper products than other nations will lose a golden opportunity. They will miss a chance to tap into the huge global market and generate more revenue. The gates for India to return in RCEP are not closed. The current signatory countries have said that they will welcome India for negotiations but only if they submit a request to join the pact “in writing”.

The RCEP countries are also aware that India offers them an enormous market to explore. If Indian rejoins the pact, it will benefit every country. But the Narendra Modi led government is standing firm on their grounds. The recent struggles with China in the Ladakh region have made their comeback even tougher. The RCEP agreement will help every country but China is one of the biggest beneficiaries of the deal. With this strain in the relationship, it is very tough to see India inking the deal without any favourable amendments.

India does have an alternative: the bilateral trade agreement. They already have Free-Trade Agreements (FTA) with some of the members of RCEP. Currently, India has a kind of trade treaty or agreements with Nepal, South Korea and Japan. They are also reported to be negotiating with Australia and New Zealand on bilateral trade deals. They can strengthen their existing bilateral FTAs and explore the possibilities of newer agreements. It will give Indian producers a chance to explore international markets. Also, it will help the Indian government to keep their market away from Chinese goods and services.

That being said, consistent steps away from foreign competition will increase the prices of goods. Keeping that in mind, the Government should not show their backs to international trade. But yes, they have to make sure that their rivals are not gaining more than them. RCEP should be just one of the events where they felt to move out due to much larger benefits to China.

1. Global Equity Rally Slows After Days of Consecutive Rises

The rally that’s added $6 trillion to global stocks this month slowed on Thursday, as investors assessed whether markets had overheated amid a deteriorating coronavirus situation in many large economies. European stocks headed toward their first drop of the week on disappointing earnings reports tied to the pandemic. Tech shares outperformed, as some investors perceive them to be defensive. Fears that an intensifying pandemic will curb the economic rebound threaten this month’s almost 10% surge in global equities. The International Energy Agency on Thursday cut forecasts for global oil demand amid new lockdown measures.

Futures on the S&P 500 Index dipped 0.5% as of early morning New York time.

Nasdaq 100 Index futures climbed 0.1%.

The Stoxx Europe 600 Index dropped 1%.

The MSCI Asia Pacific Index was little changed.

2. China and 14 Asian Nations to Sign World’s Biggest Free-Trade Deal

Fifteen Asia-Pacific nations including China aim to clinch the world’s largest free-trade agreement this weekend, the culmination of Beijing’s decade-long quest for greater economic integration with a region that accounts for nearly one-third of the global GDP. The Regional Comprehensive Economic Partnership (RCEP), which includes countries stretching from Japan to Australia and New Zealand, aims to reduce tariffs, strengthen supply chains with common rules of origin, and codify new e-commerce rules. Its passage may disadvantage some U.S. companies and other multinationals outside the zone. Following the withdrawal of India from RCEP negotiations last year, the remaining 15 nations sought to announce the agreement by the end of this week’s ASEAN Summit, which Vietnam is hosting virtually.

3. Merkel Warns Germany’s Curbs May Get Extended Through Christmas

Chancellor Angela Merkel opened the door to extending coronavirus restrictions into December as Germany struggles to regain control of the pandemic. While rapid increases in new cases have slowed, levels are still too high, Merkel said on Thursday. Germany is looking to reduce cases to 50 per 100,000 people over seven days from 138 currently. Germany is in the midst of a partial lockdown, with bars, restaurants and gyms closed in a bid to regain control of the outbreak while keeping most of the economy operating. Merkel had raised hopes that the measures could be eased again in time for Christmas.

4. U.S. Initial Jobless Claims Decline by the Most in Five Weeks

Applications for U.S. state unemployment benefits fell by the most in five weeks, signalling the gradual improvement in the labor market is continuing despite a record surge in Covid-19 infections. Initial jobless claims in regular state programs totaled 709,000 in the week ended Nov. 7, down 48,000 from the prior week, Labor Department data showed Thursday. On an unadjusted basis, the figure decreased by about 21,000. Continuing claims — the total number of Americans claiming state unemployment assistance for multiple weeks — fell by 436,000 to 6.79 million in the week ended Oct. 31.

5. UK economy rebounds 15.5% in third quarter

Britain’s economy rebounded by 15.5% in the third quarter, emerging from a historic recession as initial coronavirus lockdown measures were relaxed. The economy, however, was still 9.7% smaller than before this year’s coronavirus-induced recession after a massive contraction in the second quarter. Output in services, the production and construction sectors increased by record amounts in the third quarter, but the reports cautioned that they were still below their pre-pandemic levels seen late last year. The nation entered a painful recession after shrinking by a record 19.8% in the second quarter after 2.5% in the first.

6. Netherlands lender Rabobank is set to close half its branches to cut costs

Netherlands-based lender Rabobank will close roughly half its local branches in coming years to cut costs. There will be an unspecified number of job cuts, but most employees will be relocated. Rabobank, best known internationally as an agriculture lender, did not immediately respond to a request for comment. In 2016, the company said it would trim 9,000 jobs, or a fifth of its workforce as part of cost-cutting measures. The number of local branches will be reduced from around 335 to “100 to 150” in coming years, the newspaper said. It said the decision was prompted by prolonged low-interest rates, digital banking and the COVID-19 pandemic. In July, leading Dutch bank ING said it would close a quarter of its bank branches in the Netherlands as the pandemic has accelerated the switch to digital banking.

7. Saudi Red Sea project plans 16 hotels by 2023 to boost tourism

Saudi Arabia’s flagship tourism project, The Red Sea Development Co (TRSDC), plans to have 16 hotels ready by the end of 2023, two more than initially planned in the first phase. The project’s chief executive, John Pagano, said that he expects a V-shape recovery in global tourism once the coronavirus pandemic abates. Owned by a Saudi sovereign fund, and backed by Crown Prince Mohammed bin Salman, the multibillion-dollar project entails developing luxury resorts on 50 islands off the coral-fringed Red Sea coast, where tourists can dive, visit a nature reserve and see heritage sites. TRSDC plans to finalise a 15-year loan from banks worth 14 billion riyals (INR 28,000 cr) by the end of the year to partly fund its 30bn-riyal capital spending by 2023, and it expects to end 2020 with around 15 billion riyals worth of committed contracts.

8. Moderna Poised to Take Vaccine Spotlight With Data Due

The same U.S. explosion of Covid-19 cases that helped Pfizer get results for its vaccine trial earlier this week is helping speed along Moderna’s trial. Moderna said Wednesday its study has accumulated more than 53 infections, allowing a preliminary analysis of the shot’s effectiveness to begin. The shares jumped. Moderna didn’t predict how long it could take an independent monitoring committee to analyze the data but said the company could get the data to the committee within days. The company said it is still blinded to the data. The bet among top experts in the field is that Moderna’s therapy, which uses a similar mRNA technology to Pfizer’s, will likely prove to be highly effective, perhaps mirroring Pfizer’s announcement earlier this week that its shot appears to be more than 90% effective.

9. Xi Challenges Biden With Move to Snuff Out Hong Kong Dissent

President Xi Jinping effectively defeated the most democratic institution under China’s rule, sending a message to Joe Biden that no amount of pressure will prompt him to tolerate dissent against the Communist Party. China’s top legislative body on Wednesday passed a resolution allowing for the disqualification of any Hong Kong lawmakers who aren’t deemed sufficiently loyal. Chief Executive Carrie Lam’s government immediately banished four legislators, prompting the remaining 15 in the 70-seat Legislative Council to resign en masse.

10. Singapore to Introduce New Visa to Draw Top Global Tech Talent

Singapore is rolling out the red carpet for top talent, launching a program to initially attract 500 individuals with a proven track record of contributing to the global technology ecosystem. Under the so-called “Tech.Pass” program, qualified individuals will be able to secure a new type of visa allowing them to start and operate more than one company and become an investor, consultant or mentor for local startups. This offers more flexibility than current government regulations, which require companies to sponsor an employment pass for workers they want to bring in. The two-year visa isn’t designed for mid-tier tech workers who might compete with locals for jobs, a political issue that has prompted the government to tighten its framework for issuing employment passes to foreigners this year. It’s targeted at highly accomplished entrepreneurs and technical experts who can bring in capital, networks and knowhow, as Singapore aims to become the region’s technology and innovation hub.