MUST INDIA STAY OUT OF RCEP???

The article in The Hindu “Threat or treat: on Regional Comprehensive Economic Partnership (RCEP) trade deal” published on 17/11/2020 and my blog of 1st March, 2019 are requested to refer for better understanding of the present blog.

Countries entered into many trade negotiations for improved market access in ever expanding international trade and thereby many trade agreements are signed like FTAs or GATT, WTO or the EU etc. 

Similarly RCEP trade deal was conceptualized in 2011 and formally floated in 2012, was envisaged to bolster economic associations among the now 15 member countries in Asia and to promote trade and investment linked activities as greater flows of trade between member states and their increased influence on non-member countries came in the way to reap the benefits to the maximum by member countries in Asia.

The 2020 RCEP summit was hosted by Vietnam on 15th November. India had been a part of negotiations for almost nine years till it pulled out in November 2019 for reasons of inadequate safeguards and lowering of customs duties will adversely impact its manufacturing, agriculture and dairy sectors.

To elaborate reasons for India's withdrawal have been ….

1. Unfavourable balance of trade, especially India’s deficit with China, with which it does not have a trade pact, is higher than that of the remaining RCEP constituents put together.

2. India does not have the option to raise tariffs on products in instances where imports cross a certain threshold. The proposals raised by India were not accepted by other RCEP member countries.

3. India had also reportedly suggested lowering and eliminating tariffs on several products like dairy, steel etc for the protection of domestic industry.

4. India wants strict rules of origin to prevent Chinese goods from flooding the country through member countries that may have lower or no duty levels. Chinese garments are making their way into India through the duty-free route under the South Asia Free Trade Pact and the Duty-Free Quota-Free window from Bangladesh.

India's objection has been to the provisions in the deal reportedly do not prevent countries from routing, through other countries, especially Chinese products on which India would maintain higher tariffs.

India must review her decision and look RCEP through the lens of economic realism as the summary of the RCEP 2020 final agreement shows that the pact does cover and attempt to address some issues that India had flagged, including rules of origin, trade in services, movement of persons.

In the RCEP 2020 deliberations it is agreed that RCEP would remove potential restrictions when implemented,on sourcing products from China by putting the country in the same category as other members of the trade agreement. 

However, by staying out, India has blocked itself from a trade bloc that represents 30% of the global economy and world population, touching over 2.2 billion people. India can draw inspiration from Japan & Australia, as they chose to bury their geopolitical differences with China to prioritise what they collectively see as a mutually beneficial trading compact.

It is not just the gains from trade are significant, but the RCEP’s membership is a prerequisite to having a say in shaping RCEP’s rules.

Moreover, with global trade and the economy facing a steep decline due to Covid-19 pandemic, RCEP can serve as a bulwark in containing the free fall of the global economy and re-energising economic activity.

This is necessary to safeguard India’s interests and the interests of several countries that are too small to stand up to the largest member, China.

Moreover, staying out of RCEP may also affect India's Act East policy.

Acknowledging India’s economic heft and value as a market, the RCEP members have left the door open for India for inviting it to be an observer member and also waived a critical 18-month cooling period for interested applicants.

Clearly, India’s decision is influenced by China dominating the RCEP trade bloc but the editorial of The Indian Express dated 17th November, 2020 rightly suggested India must "Seize The Deal" and there are valid reasons as discussed above.

Therefore, given the global economic scenario in present times and the near future, it would be in India’s interest to dispassionately review its position on RCEP and carry out structural reforms that will help India to mitigate some of the repercussions arising from the RCEP.