India chose to stay out of the RCEP agreement citing that the pact did not resolve some of the issues that India had.
The RCEP (Regional Comprehensive Economic Partnership) was meant to be the world’s largest trade pact consisting of 16 countries– China, India, Japan, South Korea, Australia, New Zealand and all the 10 members of ASEAN (The 10 members of ASEAN or Association of Southeast Asian Nations are Brunei, Cambodia, Indonesia, Malaysia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam.)
The main purpose of the RCEP agreement is to grant almost unrestricted market access for goods and services to the other countries involved, by lowering trade barriers like import duties etc. Apart from free trade in almost all goods and some service sectors, it aims to cover investment, Intellectual Property and dispute resolution. The negotiations for the agreement had started in the year 2013.
India opted to stay out of the pact because it had some concerns that were not addressed. The remaining 15 countries have decided to move ahead with the agreement.
To facilitate free trade, the RCEP requires the elimination of import duties or tariff on 85-95 % of all traded goods. It would have had an adverse impact on India’s agriculture and manufacturing sector.
India’s agricultural sector has always been protected by tariffs. This is the reason why India excludes agriculture from the WTO agreement and other bilateral Free Trade Agreements (FTAs). Elimination of tariff would have exposed the vulnerable agriculture sector to foreign competition. The same is with the Dairy sector which wanted safeguards against dairy imports from New Zealand and Australia. The other sectors which would have been vulnerable were the automobile, textile, steel, mining, pharmaceutical etc
India is particularly wary of the deluge of cheap Chinese imports due to tariff reduction. India already has a trade deficit with 11 RCEP members in 2018-19. India’s trade deficit with the RCEP nations is $105 billion, of which China alone accounts for $53 billion. To add to that, China is looking for new markets after the US-China trade war. It would have had a detrimental impact on India.
To check the sudden import surges, India had proposed the auto-trigger mechanism. As per this mechanism, if there is a flood of imports beyond a certain level, tariffs would automatically increase. This was not accepted by the member countries.
There has been criticism from many quarters against India’s decision that India has isolated itself from the world’s largest trading bloc. Had India joined the agreement, the trade bloc would have consisted of about half of the world’s population and makeup around one-fourth of the global GDP.
But, it has to be considered that, India is not in the position to take advantage of the improved market access arising from RCEP, as its manufacturing and agriculture sector are not globally competitive. Its service sector has an edge, but the RCEP excludes most of the services sector. (This was another point of contention for India).
India’s history with FTAs is also abysmal. As per a report by the Asian Development Bank, India’s FTA utilisation rate is under 25 %. India already has Free trade agreements (FTAs) with ASEAN, South Korea and Japan. (That leaves only China, Australia and New Zealand from the RCEP countries) The trade deficit with these countries has increased after the signing of FTAs. So, we need to be careful to negotiate a better deal for us in the future
In conclusion, now that the RCEP is behind us, we should focus on promoting reforms to make manufacturing and agriculture more competitive, so that India is capable of taking advantage of such opportunities in the future. We should also sign bilateral FTAs which are more favourable from our point of view.
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