RCEP and India – UPSC GS2

Regional comprehensive Economic partnership (RCEP) which was signed in 2020 , came into force on 01/01/2022. India was part of the RCEP process but eventually pulled out of joining.
Regional Comprehensive Economic Partnership (RCEP)
  • The 15-nation RCEP is the world’s largest trade deal.
  • It includes China, Japan, South Korea, Australia and New Zealand and 10 members of the Association of Southeast Asian Nations (ASEAN).
  • It represents about 30% of the global GDP and population.
Significance of the RCEP:
  • Largest Free Trade Agreement (FTA):
    • RCEP accounts for about 30% of world output and population
    • 30% of world trade
    • About 44% of the trade was intra-Association of South-East Asian Nations (ASEAN).
  • Objectives of RCEP:
    • Tariff liberalization: To progressively eliminate tariff and non-tariff barriers on substantially all trade in goods.
      • China has agreed to cut its average tariffs from 9.4% in 2014 to 1.2% for Australia and all ASEAN members by the 10th year of implementation.
      • Vietnam does not have an exclusion list, while Malaysia had lowest level of protection.
    • Elimination of service restrictions: through a comprehensive and high-quality agreement.
    • Framework on investments: to cover the four pillars of promotion, protection, facilitation and liberalization.
  • Follows the World Trade Organisation’s template: It also includes other issues being discussed in the multilateral platform like
    • E-commerce and investment facilitation: along with legal framework ensuring the protection of personal information of the users of e-commerce (for public policy objectives).
    • Creating an enabling environment: for the participation of small and medium enterprises in global trade.
Reasons for India to not join the RCEP:
  • Shallow service liberalization: Movement of natural persons, an area in which India had considerable interest, is restricted.
  • Gaps in investment and e-commerce policy: The areas of investment and electronic commerce regulations are yet to be made along with rules on dispute settlement.
  • Tariff cuts on Chinese imports: With the increased conflict with China in recent months, India is reluctant to allow Chinese imports without tariffs.
  • Domestic focus: While the Atmanirbhar Bharat Abhiyan, is primarily focused on strengthening domestic value chains, while the RCEP promotes regional value chains.
Why India should join RCEP?
  • The RCEP will boost India’s economy by improving its supply chain, particularly with ASEAN countries.
  • India’s bilateral trade partnership with RCEP members can also benefit from RCEP membership.
  • It will expand access to overseas markets, allowing member countries to benefit from economies of scale, making home enterprises more competitive.
  • Lower tariffs result in a greater volume of trade between countries, resulting in profits for all members.
  • As member countries are increasingly likely to build distinct aspects of value chains among themselves, India’s strategy of luring international supply chains to India will improve.
Why India should not join RCEP?
  • Import surge in India: There are fears of a surge in imports from China against which it has inadequate protection. India also fears for the agricultural sector, which would not be able to compete against competitive imports from Australia and New Zealand.
  • Issue with Rules of Origin: The other unresolved issue included rules of origin; the fear was that some countries might route their products through RCEP members at low duties.
  • Most-favoured-nation (MFN) Obligation: India also wanted RCEP to remove the most-favoured-nation (MFN) obligation, as it did not want to give this benefit to nations with which it has border disputes.
  • Market Access Issues: There was no assurance to India on non-tariff barriers and market access issues and it was felt that sectors like steel, leather goods, electronics, and textiles will be affected by cheaper imports.
Way Forward:
  • India’s continued observer status in the RCEP can be utilised to examine its pros and cons for the Indian economy, if India joins it in the future.
  • Also, there is need for a keener understanding of the domestic reforms necessary to become part of the value chains of the future.
  • Govt should work towards introducing reforms and tariff rationalisation. New-age trade agreements are as much about “behind the border” adjustments such as regulatory harmonisation as they are about tariffs.

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