RCEP (Regional Comprehensive Economic Partnership)

GS 2 International Relations Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Introduction 

        RCEP is a trade deal that was originally being negotiated between 16 countries including India, 
after exit of India, now has been signed by 15 countries.

Members:

  • 10 Association of Southeast Asian Nations (ASEAN) members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam
  • 5 other FTA partner countries ofASEAN: Australia, China, Korea, Japan, and New Zealand.

Aim:

To strengthen economic linkages and to enhance trade and investment related activities between participating countries.

Coverage Areas:

  • Trade in goods and services
  • investment
  • economic and technical cooperation
  • intellectual property
  • competition
  • dispute settlement, e-commerce
  • small and medium enterprises (SMEs) 

Reason why India decided not to join RCEP:

  • Market access to India: lacked clear assurance over market access issues in countries such as China and non-tariff barriers on Indian companies.
  • Trade Deficit: In financial year 2019, India registered trade deficit with 11 out of the 16 RCEP countries.
    • India’s trade deficit almost doubled in the last five-six years – from $54 billion in 2014 to $105 billion in 2019.
      • China alone accounted for $52 billion.
  • Auto-trigger mechanism: India was unable to ensure countermeasures like an auto-trigger mechanism 
    • to raise tariffs on products when their imports crossed a certain threshold.
  • MFN clause: wanted RCEP to exclude most-favored-nation (MFN) obligations from the investment chapter
    • as it did not want to hand out, especially to countries with which it has border disputes, the benefits it was giving to strategic allies or for geopolitical reasons.
  • Opening up of sensitive sectors: India felt the agreement would force it to extend benefits given to other countries for sensitive sectors like defense to all RCEP members.
  • Country of Origin: would have meant dumping of unwanted products by routing them through other countries
    •  i.e. possible circumvention of rules of origin criterion set by India to determine the national source of products.
  • Tariff reductions: The RCEP deal format required India to abolish tariffs on more than 
    • 70% of goods from China, Australia and New Zealand 
    • nearly 90% goods from Japan, South Korea and ASEAN. 
      • This would have made imports to India, cheaper.
  • Past Experience: The NITI Aayog, in 2017, had published a report 
    • that pointed out that free trade agreements have not worked well for India.
    • It analyzed multiple free trade agreements that India signed in the past decade
    • Among those were FTA with 
      • Sri Lanka
      • Malaysia
      • Singapore
      • South Korea.
    • analysis showed that 
      • imports from FTA countries increased 
      • while export to these destinations did not match up.
    • found that FTA utilization by India has been abysmally low between 5 and 25 percent.
  • Plantation products like rubber: Vietnam and Indonesia have very cheap rubber to export.
  • Dairy Sector: 
    • New Zealand is the second-largest exporter of milk and milk products
    • New Zealand’s milk producers are more efficient than India’s small producers. 
    • Both Australia and New Zealand are waiting for free access to India for their dairy products.
  • Services trade: India has “long pushed for other countries to allow greater movement of labour and services” in return for opening up its own market. 
    • Any agreement on trade in goods without simultaneous agreement on services trade and investment will only harm India’s interests.

Assessment:

  • China Factor: In the backdrop of rising tensions at India-China borders and the strong presence of China as a center of RCEP trade deal
    • it would have been difficult for India to reduce its exposure to China’s products
    • at a time when India is striving hard to find alternatives for China-made products.
  • Made in India: As India is pursuing its objective to become an Atmanirbhar Bharat 
    • domestic industries are required to be shielded by the use of Tariffs
    • By joining RCEP, India could have to compromise on this front.
  • Recession in India: At a time, when India is gripped under ‘Technical Recession’ and unemployment is on rise
    • giving a boost to domestic industries becomes of utmost importance.
  • Existing FTAs: 
    • RCEP hardly makes a difference as it has FTAs with ASEAN, and CEPAs (Comprehensive Economic Partnership Agreements) with Japan and South Korea already.
  • Clarity of India’s strategic vision: 
    • India’s strategic vision seems clear by not joining the China-centric RCEP
    • whereas it raises questions regarding the strategic vision of other Indo-Pacific countries whether China is seen as a threat or as a partner by them. 
    • This step will have implications for the Indo-Pacific concept and the Quad.

Possible Drawbacks:

  • Bilateral trade: 
    • India’s decision of not joining RCEP would also negatively impact India’s bilateral trade ties with RCEP member nations
      • as they may find strengthening economic ties within the bloc, more profitable.
  • Supply chain in Indo-Pacific: 
    • Japan’s failed efforts to bring India back into the deal 
      • may impact the Australia-India-Japan informal talks to promote a Supply Chain Resilience Initiative in the Indo-Pacific.
  • China’s dominance: 
    • RCEP shows that China can pursue its aggressive political and economic policies without cost
      • that it cannot be isolated, and that the world cannot delink itself from the Chinese market.

Way Forward 

  • India, as an original negotiating participant of RCEP, has the option of joining the agreement without having to wait 18 months as stipulated for new members in the terms of the pact.
  • India is required to make its domestic industries competitive and strong enough to compete in any international market. 
    • It will make negotiating any international agreement easy and profitable.
  • Conclusion of 17th ASEAN-India Virtual Summit and adoption of ASEAN-India Plan of Action for 2021-2025 
    • proves that despite conclusion of RCEP, ASEAN countries are welcoming towards India
    • India must try to find out possibilities of increasing trade with ASEAN countries.
  • India currently has agreements with members like the ASEAN bloc, South Korea and Japan and is negotiating agreements with members like Australia and New Zealand.

Conclusion       

 Reviews of its existing bilateral FTAs with some of these RCEP members as well as newer agreements with other markets with potential for Indian exports , India should invest strongly in negotiating bilateral agreements with the US and the EU.

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