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RSTV – THE BIG PICTURE ANALYSIS
A day after the Regional Comprehensive Economic Partnership Agreement (RCEP) was signed by 15 countries — without India — External Affairs Minister S Jaishankar said that the impact of past pacts has been de-industrialisation and the consequences of future ones would lock India into “global commitments” — many of them not to India’s advantage.
He also said that those who argue “stressing openness and efficiency” do not present the full picture, and that this was “equally a world of non-tariff barriers of subsidies and state capitalism”.
What is the Background?
Fifteen Asia-Pacific nations, including China, on Sunday signed the world's biggest trade agreement, the Regional Comprehensive Economic Partnership (RCEP), sans India with hopes that it will help recover from the shocks of the COVID-19 pandemic.
The RCEP was signed after eight years of negotiations at the conclusion of annual summit of Southeast Asian leaders and their regional partners, held virtually this year due to the COVID-19 pandemic.
India, one of the leading consumer-driven market in the region, pulled out of talks last year, concerned that the elimination of tariffs would open its markets to a flood of imports that could harm local producers.
But other nations have said in the past that the door remains open for India's participation in the RCEP, influenced by China.
The Regional Comprehensive Economic Partnership (RCEP) is a proposed agreement between the member states of the Association of Southeast Asian Nations (ASEAN) and its free trade agreement (FTA) partners.
The pact aims to cover trade in goods and services, intellectual property, etc.
It was introduced during the 19th ASEAN meet held in November 2011.
The RCEP negotiations were kick-started during the 21st ASEAN Summit in Cambodia in November 2012.
Member states of ASEAN and their FTA partners were Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, China, Japan, India, South Korea, Australia and New Zealand.
RCEP aims to create an integrated market, making it easier for products and services of each of these countries to be available across this region.
The negotiations are focused on the following: Trade in goods and services, investment, intellectual property, dispute settlement, e-commerce, small and medium enterprises, and economic cooperation.
India was not satisfied with the final outcome and was raising these issues right from the beginning but it was told that these would get stored out before the final draft but unfortunately that did not happen and undue pressure was brought to bear on India at the last stage.
India’s strategy was to protect its domestic industries from Chinese imports. India had suggested some remedial measures but the other member countries of RCEP didn’t agree to it.
These were threats of circumvention of rules of origin due to tariff differential, inclusion of fair agreement to address the issues of trade deficits and opening of services.
The deal would have brought down import duties on 80% to 90% of the goods, along with easier service and investment rules.
Indian industry feared that reduced customs duty would result in a flood of imports, especially from China with which it has a massive trade deficit. India’s trade deficit with other RCEP countries was also rising.
India was not just interested in free trade in goods but also services which was ignored by other members.
China led multilateralism: Instead of being central to ASEAN, the RCEP is China central and big economies like USA are excluded from this.
Joining such block can undermine the position of India when it has political and strategic difference with China.
India would have the third biggest economy in the RCEP. India might lose investments while its consumers may end up paying more than they should, especially when global trade, investment and supply chains face unprecedented challenges due to the Covid-19 pandemic.
India could have gained from being part of the RCEP, in terms of welfare improvement for consumers.
Global trade would also have increased if India would have been a signatory because it is a market for textile and dairy product
India’s decision would impact its bilateral trade ties with RCEP member nations, as they may be more inclined to focus on bolstering economic ties within the bloc.
The move could potentially leave India with less scope to tap the large market that RCEP presents the size of the deal is mammoth, as the countries involved account for over 2 billion of the world’s population.
There are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific. It could potentially put a spanner in the works on informal talks to promote a Supply Chain Resilience Initiative among the three.
India has done well in terms of assessing the costs and benefits of RCEP and therefore coming to an informal conclusion that perhaps time is not right for India to join.
Before joining such blocks India needs a massive economic restructure and improvement in the manufacturing and export sector.
India should not close the door on this agreement and should think upon the idea of being an observer in the RCEP.
India needs to strengthen and upgrade its existing FTAs and ensure that they are in abreast with the times.