The Regional Comprehensive Economic Partnership (RCEP)

Why in NEWS ?

• RCEP has now been signed and brought into existence without India.

About

• The Regional Comprehensive Economic Partnership (RCEP) was signed into existence on 15 th November 2020, by 15 countries led by China, Japan, South Korea, Australia, New Zealand and the 10-state ASEAN grouping, creating one of the world’s largest trading blocs.
• Noticeable by its absence was India, which after seven years of protracted negotiations decided last November to exit the grouping
• India had justified its decision as protecting its economy from burgeoning trade deficits with a majority of the 15 RCEP members and had cited the grouping’s refusal to accede to its requests on safeguards as a deal breaker.
• Those reasons were on the face of it justifiable at the time and were welcomed by industry, trade and farmers’ groups.
• However, 12 months down the road, India’s opting out appears far more debatable in terms of its economic rationale.
• With global trade and the economy foundering on the shoals of the COVID-19 pandemic, especially as new infections in Europe and the U.S. prompt fresh restrictions there, the pre-eminence of the east Asian and Pacific countries including China, South Korea, Vietnam, Australia and New Zealand serving as a bulwark in containing the pandemic and re-energising economic activity can hardly be understated.
• Add to this the heightened tariff uncertainty generated by the deadlocked Brexit negotiations between Britain and the E.U., and it becomes evident that India may have missed a vital opportunity but India has its own grave concerns.

RCEP

• During the 19th ASEAN meeting in November 2011, RCEP was introduced and in November 2012, RCEP negotiations were launched at the ASEAN Summit in Cambodia.
• It is a free trade agreement (FTA) between
  i. 10 members of The Association of Southeast Asian Nations (ASEAN).
  ii. Additional members of ASEAN +3 = China, Japan, South Korea
  iii. Members with which ASEAN countries have FTA = Australia, New Zealand
• India was also a member of ASEAN's FTA partner but opted out in November 2019.
• The group is expected to represent at least 30% of the global GDP and will emerge as the largest free trade agreement in the world.
• It includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40% of world trade.
• Its goal is to Boost economic growth and equitable economic development, advance economic cooperation and broaden and deepen integration in the region through the RCEP.
• It aims to cover the trade in goods and services, investment, economic and technical cooperation, intellectual property and dispute resolution.

Reasons why India opted out from RCEP?

• India’s seems RCEP as an agreement leveraging China.
• India was of the view that its industries won't be able to compete with China as cheaper Chinese goods will flood Indian markets.
• Also, Indian agriculture was at risk because it would not be able to compete on a global scale.
• Additionally, between 2014-19, Modi government raised import duties on several products.
• And India opted out in November 2019.
• China is the major concern for India amongst other RCEP members. This is because China uses its non-tariff barriers so that it may export more products to different countries.
• For instance, If India increases import duty on goods from China, it stops direct export to India and sends it good to India via the countries in South-east Asia. Also, China doesn't import many goods from India. This raises India's concern over joining the RCEP.
• However Interestingly, among the ASEAN signatories are several relatively far smaller economies including Vietnam and the Philippines, which not only continue to have their share of disputes with Beijing but also suffer significant trade imbalances with Asia’s largest economy. That these and other larger nations in the grouping have chosen to bury their geopolitical differences with China in order to prioritise what they collectively see as a mutually beneficial trading compact that would benefit their economies over the longer term is the clearest testament to economic realism trumping nationalist politics.

Opportunities

• The RCEP member nations look India as a potential country which can contribute not only in terms of its huge market but its participation in regional affairs as a whole.
• If India joins RCEP now, it will be at a prime position and will get a chance to frame the rules and investment standards of the RCEP.
• Also, India is at an advantageous position in the services sector-- IT, education, etc. and RCEP will create greater opportunities for the companies of India to access new markets.
• In a statement made public after the initialising ceremony among the member- countries on the sidelines of the 37th ASEAN Summit held virtually, the newly formed organisation has laid down the path for restarting discussion that had failed to admit India earlier and said “new” developments would be taken into consideration when India re-applied.
• Given that the RCEP members now account for about 30% of the global GDP and a third of the world’s population, the signatory states were emphatic that the timing of the accord presents a unique opportunity to support their economic recovery, inclusive development and job creation even as it helps strengthen regional supply chains.
• The summary of the final agreement shows that the pact does cover and attempt to address issues that India had flagged including rules of origin, trade in services, movement of persons and, crucially, remedies and safeguards
• Acknowledging India’s economic heft and value as a market, the RCEP members have not only left the door open should New Delhi reconsider its stance but have also waived a key 18-month cooling period for interested applicants.
• It would be in India’s interest to dispassionately review its position and embrace openness rather than protectionism.