Japan has still not given up hope that India might reconsider joining the Regional Comprehensive Economic Partnership (RCEP) that it quit in 2019, a senior Japanese official said, indicating that India-Japan collaborations in other countries may be impacted if India continues to stay out. In particular, the official said that the RCEP “Rules of Origin” clause could also make it more difficult for products that have an Indian component to be sold easily among the 15-member grouping countries in the future.
“RCEP will benefit the Indian economy with a better supply chain, especially with ASEAN countries,” Japan’s Cabinet Secretary for Public Affairs Noriyuki Shikata said in an interaction with journalists during the visit of Japanese Prime Minister Fumio Kishida.
“India will be treated exceptionally as a founder member and if India is willing to negotiate its re-entry to RCEP, Japan would be happy to take a lead on that,” Mr. Shikata said, acknowledging, however, that the Modi government has not shown any interest in the process.
India and Japan signed a number of economic agreements and focused in particular on projects in India’s northeast region during the annual summit meeting. The two leaders also set a target of five trillion yen in Japanese investment, including loans, foreign direct investment (FDI) and assistance for the next five years. However, plans for joint collaborations in third countries, including using Indian-made components in products, could run into higher tariffs and barriers, Mr. Shikata explained. In particular, the RCEP includes a “Rule of Origin” certification requirement that would given free trade access only to goods made in RCEP countries., which have pledged to eliminate tariffs on 91% of goods.
“Because of the structure of the RCEP agreement, there is the issue of Rules of Origin certifications. If, for example, Japanese and Indian companies invest in Thailand or Vietnam and create a supply chain and the final product is exported to China, they could make use of RCEP provisions and put more conditions or tariffs on it,” Mr. Shikata said, explaining that the India-Japan collaborations could then be restricted to projects in India’s neighbourhood, like with Bangladesh.
“So, if India comes on board, those kind of investments, cross-border investments could be facilitated,” he added.
The 15-nation RCEP, which is the world’s largest trade deal and includes China, Japan, South Korea, Australia and New Zealand and 10 members of the Association of South East Asian Nations (ASEAN), and represents about 30% of global GDP and population, came into force on January 1 this year. India was a founding member at the negotiations that began in 2012, but Prime Minister Narendra Modi announced his government was walking out of the agreement in 2019, after being unable to resolve issues, mainly over concerns on dumping from China and allowing Indian services free access in the region. Since then, Japan and Australia, two countries that continue to convene the trilateral trade dialogue they started during RCEP negotiations with India, have said that they would welcome India back to the agreement if it decides to re-join, which was accepted by the RCEP grouping as well.
In a turnaround from 2019, when Commerce Minister Piyush Goyal had vowed that India would sign no Free Trade Agreements (FTA) “in a hurry or to the disadvantage of Indian industry and exporters”, the Modi government has set several FTA negotiations on a fast track in the past few months, finalising an agreement with the U.A.E., and speeding up talks with Australia, Canada and the U.K. However, according to Mr. Shikata, plans to review the India-Japan FTA signed in 2011, have not yet made any headway, nor has the government given any indications that it could review the 2019 decision to leave RCEP.
“We will wait,” Mr. Shikata said, adding that, “It is a sovereign decision. The door is open and Japan really wishes to see [India re-join].”