Unnecessary alarm: Indias farmers, RCEP and ASEAN

This fear comes about because, as the deputy director of Kashmir’s horticulture department indirectly admits, without charging higher duties for foreign products, local production will cease. 

Why?  The article in DNA goes on to note that while apple orchards dominate Kashmir’s economy, local produce does not match the “technology, packaging, and presentation of foreigner countries.  Sub-standard pesticides and fungicides also add to farmers’ (sic) woes.”

Hence, without sustained barriers in place, Indian consumers would likely switch to cheaper, more attractively presented, and potentially healthier, alternative apple products.

Assuming similar conditions apply across other products, lowering tariffs could indeed affect India’s USD$1 billion fruit industry. 

This raises several issues relevant to trade watchers. 

As always, with protectionist barriers, there is a question of the value of continuing such supports.  Generally, such measures are meant to be temporary—to give time and space for domestic industry to adjust before being subjected to foreign competition.  But in many countries, the removal of barriers is much harder than imposing them in the first place.

Consider the story of Indian apples again.  Presumably, these apples have been protected for some time.  In spite of years of support (at least in the form of high external tariff walls), apple growers continue to lag behind in technology, packing and presentation. 

It is possible to have endless arguments about such issues as what sort of systems ought to be in place to help apple growers, how much responsibility falls on government shoulders and how much belongs to the private sector, and whether some levels of protection should be allowed for developmental purposes for some areas like Kashmir for extra time. 

Developed countries are not immune to the same pressures to protect favored sectors.  A quick glance at the tariff schedules of nearly any country shows that agricultural tariffs are always higher and more protectionist than those applied to non-agricultural sectors.  Tariffs in developing countries for agriculture tend to be the highest of all.

So we could indeed have quite a debate about whether the apple growers of Kashmir deserve to keep their protections in place and whether or not Indian consumers should continue to subsidize apple production in this region through higher prices and sub optimal apple products.

But for now, the issue is whether the fear of foreign competition for apple growers from RCEP is justified.  Here the answer seems to be much clearer—no. 

RCEP is highly unlikely to challenge the apple industry in India at all.  Why not?  Because in the very best of scenarios, RCEP officials will cut down tariffs on 90-92% of tariff lines between the 16 country members currently engaged in the negotiations.

They will cut these tariffs down, but not automatically to zero.  Nor will these cuts happen overnight.  The phase-in periods for tariff cuts could be lengthy.  On sensitive products, the timelines could be quite long indeed.

Finally, cutting tariffs on 90-92% of product lines means that 8-10% of lines will not be touched at all.  No tariff cuts of any kind will be addressed for a relatively healthy share of items in RCEP.

Since agriculture is sensitive for nearly every member, it is logical to assume that most of the excluded items will be agricultural.  Apples are likely to fit into this basket of goods.

There is likely no specific threat of tariff reductions coming from RCEP for apple growers in Kashmir or anywhere else. 

Yet the concerns over RCEP tariff reductions prompted India’s Foreign Secretary, S. Jaishankar, to argue in front of a parliamentary committee that “observance of due restraint” in continuing with RCEP talks is called for given past experience with “a lot of our agreements [that] have not served as well as they could have.”

This latter reference presumably refers to India’s trade agreement with ASEAN, which is often cited as a problem for India’s agricultural sector.  ASEAN exports to India exceeded Indian imports, creating a trade deficit in goods of $9.56 billion.

Focusing on a trade deficit in merchandise trade alone rarely makes sense.  But more important, the ASEAN-India FTA cannot have been responsible for most of the trade deficit in goods, as the agreement barely touched many of the tariff lines where trade levels have grown since the agreement came into force.

For example, while Indian agriculture is frequently asserted to have suffered in the wake of the ASEAN agreement, a quick glance at the tariff schedules for India under the deal shows clearly that most key items, including apples, other fruits and vegetables, grains and pulses, were placed on the exclusion list (EL).  This means that the ASEAN-India (AIFTA) agreement made no changes to existing tariffs. 

The 50% tariff on apples into India from 9 ASEAN member states still exists—even after full implementation of AIFTA.  Philippines has a separate tariff schedule with India in AIFTA and apples are also on the EL. 

Apple exports from ASEAN to India could have grown in the wake of AIFTA, but it was not as a direct result of any changes to tariff levels in the agreement.  Hence AIFTA cannot be blamed as a cause of competitiveness problems in India’s apple orchards.

[Note that since herbicides are on the exclusion lists, these are not subject to tariff cuts and fungicides had a 9-year phase out.  AIFTA would not have improved the situation in these areas either for apple growers.]

It is important to properly understand what AIFTA has—and has not done—as officials and leaders from India and ASEAN prepare to gather in India for the Republic Day Parade on January 26. 

Holding AIFTA responsible for damaging prospects for Kashmiri orchards sets an unrealistic and unfair expectation of what might be forthcoming in the RCEP talks.  It suggests that India should remain hostile to further goods negotiations.  Such an approach is not warranted by the evidence. 

RCEP may do many things, but it is likely to have zero effect on India’s apple growers in Kashmir: unless the Indian government chooses to make it so.