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Chairman

Mr. Ravi Sehgal is the 24th Chairman of EEPC India

TRADE Wars and Trade Negotiations have been the two dominant themes of the month gone by. Let me begin with the latter since I and my colleagues played some role in hoping to form the Government of India’s negotiating stance in RCEP.

The Regional Comprehensive Economic Partnership Agreement (RCEP) is a proposed free trade agreement (FTA) between the ten member-states of the Association of Southeast Asian Nations (ASEAN) and its six FTA partners RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.

In 2017, prospective RCEP member-states accounted for a population of 3.4 billion people with a total gross domestic product (GDP, PPP) of $49.5 trillion, approximately 39 percent of the world’s GDP, with the combined GDPs of China and India making up more than half that amount. RCEP is the world’s largest economic bloc, covering nearly half the global economy. The 8th Inter-sessional Ministerial Meeting was held in Beijing recently and before that the Commerce and Industry Minister, Mr Piyush Goyal had a series of consultations with various stakeholders to understand their concerns. EEPC India was present in three of such meetings in Mumbai and Delhi. While many issues were discussed, our main contention with respect to RCEP could be summed up as follows:

  1. RCEP is essentially becoming a Free Trade Agreement between India and China. We believe the RCEP will be used by China to have such an agreement as otherwise India would never agree to a bilateral trade agreement. We already have an FTA with ASEAN and comprehensive economic arrangements with Japan, Korea, Singapore, and Malaysia in the RCEP region.
  2. We have a huge trade deficit in the RCEP region, particularly, with China and the ASEAN countries. Industry fears that dropping of tariffs will exacerbate the trade deficit from China, in particular, and thereby pour water into Prime Minister’s call for Make in India. We have, therefore, suggested a cautious approach of back-loading tariff drops, if at all the government signs the RCEP.
  3. We need clarity on liberalisation of tariffs chapter-wise. Our suggestion is that raw materials should be opened up first, then intermediate products, and thereafter final goods, to promote Make in India and prevent inverted duties being exacerbated further. Moreover, all tariff line-wise import substitution measures taken since 2014 should be in the exclusion list; and
  4. Last but not the least, the Rules of Origin should be the same as that of ASEAN FTA to prevent spaghetti bowl effects for exporters.

At the time of writing, the Government of India has issued a Press Release, which says ‘the Commerce Secretary Dr Anup Wadhawan, led a delegation to the 8th RCEP Inter-sessional Ministerial meeting held in Beijing on 2-3 August 2019. During the meeting, he highlighted India’s contribution in shaping the RCEP negotiations till date. He advocated a spirit of understanding accommodation and flexibility towards reaching balanced outcome in the negotiations. India’s concerns regarding market access and other issues leading to imbalanced trade between some of the partner countries was specifically flagged during the meetings.’

Lack of space prevents me from giving a more detailed comment than to just state that trade wars have begun to simmer, once again, as the US threatens to impose a further 10 percent increase in duties on $300 billion. As expected, China, too, has vowed to retaliate. Simultaneously, Japan and South Korea have begun their own trade battles over export controls put by the former.

Clearly, these are difficult times for those in the foreign trade sector. However, we need to continue to look for new markets and new products to tackle and emerge successfully from the global trade headwinds.

The good news for our member-exporters is that EEPC India has opened four chapters in the last three months – Coimbatore, Tamil Nadu in May, Bhilai, Chhattisgarh in June, Jamshedpur, Jharkhand and Belgavi, Karnataka in July. We plan to launch 17 Chapters in 16 States to reach out to engineering exporters in Tier-II and III cities, who for various reasons cannot effectively utilise our services.

This meeting delivered some results and the RBI caution listing date was postponed to 31 March 2019; the ‘pre-import’ condition was dropped vide DGFT Notification No.53 dated 10 January 2019 and efforts are now being made to educate the exporters with respect to using the UCO Bank mode for exports to Iran. I hope to continue this dialogue further during my meetings in the month of February 2019 when, among others, the Board of Trade Meeting is also scheduled.

 

As I write, the Interim Budget 2019-20 has been presented by the Union Finance Minister, MrPiyush Goyal. The fiscal deficit is expected to be around 3.4 percent of the GDP while the first step towards a Universal Basic Income (UBI) Scheme for smaller farmers has been initiated. Similarly, income tax exemption has been provided for incomes up to Rs5 lakh per annum. I understand that all the tax-related proposals are likely to be ratified when a full budget is presented by the newly-elected government in July 2019.

 

There is no doubt now that the pace of engineering exports growth has slowed down considerably and the third quarter has shown negative growth. While detailed analysis of the trend is provided in the following pages, three critical segments have held back the potential that is there: primary iron and steel exports; copper and copper products exports; and zinc and zinc products exports. Of the three, the first two are the result of market imperfections and an exogenous factor respectively. EEPC India has been continuously hammering the point that while most segments of engineering face the vagaries of the market, domestic steel prices are not ‘market determined,’ resulting in higher prices making downstream value added uncompetitive in global markets. The other impact, now that the international steel prices have fallen, is that the Indian steel majors are catering only to the domestic sector, cutting back on their exports.

 

With respect to copper products exports, the closure of the Tuticorin plant has led to 40 percent drop in production of copper products while imports of refined products have increased. From a net exporter of refined copper, we have now become a net importer. With respect to zinc, there was a fall in domestic production, which hopefully is a short-term phenomenon. Clearly, we need to work out alternatives and some of the suggestions that we have been making to the government, if implemented, can help to some extent in the promotion of the rest of the engineering products. These are products where domestic production and external conditions do not face such negative externalities.

 

On our part, we will continue to promote engineering goods and the eighth edition of the International Engineering Sourcing Show, IESS VIII, scheduled over 14-16 March 2019, will be one such effort to give a major thrust to the promotion of sourcing of engineering products from India, showcasing technological advancement and future technologies, especially for our MSME units.

 

Malaysia is the Partner Country in IESS VIII being held in Chennai. Malaysia, with Asia’s eighth best and the world’s 25th best overall infrastructure, Southeast Asia’s fourth-largest and world’s 38th-largest economy, has one of the best economic records in Asia since its independence with its GDP growing at an average of 6.5 percent per annum for almost 50 years.

 

As both Malaysia and India are moving towards a technology-driven automotive industry equipped with shared mobility, connectivity, electrification, and autonomous driving, this is the most appropriate time for Malaysia Automotive, Robotics and IoT Institute (MARii) to play a lead role to participate in a global forum like IESS.

 

Malaysia’s participation is expected to be a major game changer at IESS 2019, anticipating greater collaborations between MARii and Indian companies and the creation of a technology ecosystem between the two countries.

 

I urge our readers to join us in IESS VIII and benefit from the bouquet of the programmes we are going to present at this mega show.
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