RCEP: All You Need to Know

Regional Comprehensive Economic Partnership (RCEP)
T
he Regional Comprehensive Economic Partnership (RCEP) is the world’s largest free trade agreement comprising nearly a third of world’s GDP and population, was signed without India being a member of it. RCEP brings together the 10 ASEAN (Association of South East Asian Nations) countries with New Zealand, Australia, South Korea, Japan and China. RCEP agreement makes significant provisions for trade in goods & services, foreign investments, intellectual property, tariff reduction, technical and economic cooperation among the signatories. The stated objective of RCEP is “to achieve a modern, comprehensive, high quality and mutually beneficial economic partnership agreement among the ASEAN member states and ASEAN’s FTA (Free Trade Agreement) partners”.

Purpose of RCEP 

RCEP negotiations began as a collective response by the Asia Pacific Region to the US led (Trump administration later withdrawn) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which was set to become the largest trade pact in the world. The purpose of the RCEP is to create an integrated market facilitating freer flow of goods and services between the countries through lowering of tariffs and opening up of various sectors to foreign direct investments (FDIs). 

India’s Concerns on RCEP

Growing Trade Deficits 
The past experiences of growing trade deficits with the FTA partners including ASEAN, Japan, South Korea etc. kept India out of the largest trade pact. The growth of Indian imports compared to the growth of exports were significantly lower with most of the partners. The proposed cut on duties for imports from the member countries could seriously hurt the domestic economy. India has a trade deficit with 11 of the RCEP signatories amounting over $106 billion and nearly the half of it with China. 

Reductions of Import Duties 
The member countries are required to eliminate the customs duties on major share of traded goods. The deal will bring down or eliminate tariffs over 75 to 90% of goods traded. A further lowering of the import duties are expected to affect the balance of trade unfavorably. The base period for rationalizing the tariff rates is set at 2014 while India wanted it to be 2019 as we have raised tariffs for many products in the last six years. 

Protection for Domestic industries 
The proposed reductions in trade tariffs would adversely affect India’s marginal farmers who are not in a position to compete with large-scale farmers from Australia and New Zealand. India’s domestic industries particularly agrarian products, dairy, aluminum and steel couldn’t withstand the foreign competition from China, Australia, New Zealand etc. India fears about the possible circumvention of Rules of Origin which could result in flooding of Chinese goods through other member countries.

China Factor 
The Chinese mercantilist approach is conceived as a concern for India in partnering with an FTA, where China is a part of. China is not a fair player for items that India has export competitiveness i.e. pharmaceuticals, IT, engineering goods etc. Indian markets are already flooded with Chinese goods across various industries, either as a component or finished product, infuriating the local manufacturers. 

Data Localization 
India has pushed for data localization concerned about the possible security threats of cross-border data flows and urged for setting up data centers to store, process and manage personal data of Indians but the member countries opposed this condition on the grounds of possible deterrent to digital companies.

Service Sector 
India has a comparative advantage in service sector therefore wanted a greater market access for its professionals in the proposed agreement. But the RCEP bloc had rejected India’s proposal for a visa fee waiver fearing migration and subsequent loss of jobs. 
Why India must have joined RCEP?  

The liberalization of the economy had lifted millions out of poverty and opened up lots of job opportunities to millions compared to the economic growth we had during Nehruvian import substitution policies. The trade deficit should not be the only parameter for judging FTAs. The share of Indian merchandise exports is just 1.7% in the global trade while our services sector contribution is about 3.45%. If India wants ‘Make in India’ to become a global success, it must participate actively to become a part of the Asian value and supply chain. RCEP might open avenues for textiles, electronics and pharmaceutical industries where India have competitive advantage. India is one of the fastest growing economies but it’s impossible to attain the $5 trillion dream without the growth of exports which in turn requires integrating into the global economy. Indian industries will only become competitive if exposed to foreign competition.

The key industries crucial for the economic development- telecom, cement, iron & steel, airlines etc. are oligopolistic in nature and they wanted India to be a protectionist country to prevent eroding their pricing power while on the other hand competition provides greater choices and better-quality products at lower prices. We must not forget that the IT boom, growth of telecom industries etc. were not be feasible without liberalization of 1991. India aspires to create over a $1 trillion digital economy by 2025 and targets a transition to electric vehicles by 2030 reducing the dependence on conventional sources of energy. India is the 4th largest in the world in terms of renewable energy capacity. Digitalization and renewable energy shape the future economy and have significant forward and backward linkages which could aid India to achieve a growth rate of 9-10% by 2030. China remains the price-competitive supplier of intermediate goods for solar panels, lithium batteries, electric vehicles etc., which India doesn’t have adequate resources and production capacities. RCEP had opened a door for India to capitalize the industry requirements for digital economy and renewable sector. 

The unilateral policies of United States during the Trump era left a vacuum in the global order where US had a significant commanding power in the multilateral issues, now China through it’s expansionist policies trying to cement its position as a global power. India not joining RCEP, the largest trading bloc, will only aid China in its endeavor to be a significant political and economic power. India’s allies in South East Asia, Australia and New Zealand wanted India to join the agreement to balance China. It’s through strategic partnerships and diplomacy China must be reined, not through political gimmicks like ‘app ban’ or ‘vocal for local’, to enthrall the masses.
Alan Seemon

Alan Seemon is a 21 year old student graduated in Economics and currently pursuing Masters in Financial Economics from Madras School of Economics (MSE), Chennai.

3 Comments

  1. Great article...Clear and concise!

    ReplyDelete
  2. India must have signed the deal with certain negotiations. The 21st century being the Asian Century, India must counter its major rival 'China' in all forms of multilateral groupings so as to be the net security provider of the Indian Ocean Region and the next global leader.

    ReplyDelete
Post a Comment
Previous Post Next Post