Regional Comprehensive Economic Partnership (RCEP)

Economic implications of India opting out of RCEP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : Economic implications for India

Even as India opted to stay out after walking out of discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.

Must read:

China-led RCEP takes off without India

Try answering this also:

Q.Signing the Regional Comprehensive Economic Partnership (RCEP) agreement would have given more substance to India’s Act East policy. Analyse.

Why did India walk out?

  • India decided to exit RCEP negotiations over “significant outstanding issues”.
  • Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector.
  • The current structure of RCEP still does not address these issues and concerns.

How far is China’s presence a factor?

(1) Escalated tensions

  • Escalated tension with China is considered to be a major reason for India’s decision.
  • Major issues that were unresolved during RCEP negotiations were related to the exposure that India would have to China.

(2) Surge in imports

  • This included India’s fears that there was “inadequate” protection against surges in imports.
  • It felt there could also be a possible circumvention of rules of origin— the criteria used to determine the national source of a product.
  • In the absence of this, other partner countries could dump their products by routing them through other countries that enjoyed lower tariffs.

(3) Inability for countermeasures

  • India was unable to ensure countermeasures like an auto-trigger mechanism to raise tariffs on products when their imports crossed a certain threshold.
  • It also wanted RCEP to exclude most-favoured-nation (MFN) obligations from the investment, especially to countries with which it has border disputes.

(4) No assurance of market access to India

  • RCEP also lacked clear assurance over market access issues in countries such as China and non-tariff barriers on Indian companies.
  • The agreement would have forced India to extend benefits given to other countries for sensitive sectors like defence to all RCEP members.

(5) Trade balances paradox

  • India’s stance on the deal also comes as a result of learnings from unfavourable trade balances that it has with several RCEP members, with some of which it even has Free Trade Agreements.
  • India has trade deficits with 11 of the 15 RCEP countries, and some experts feel that India has been unable to leverage its existing FTAs with several RCEP members to increase exports.

What can the decision cost India?

  • There are concerns that 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.
  • Given attempts by countries like Japan to get India back into the deal, there are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific.

What are India’s options now?

  • India, as an original negotiating participant of RCEP, has the option of joining the agreement without having to wait 18 months as stipulated for new members in the terms of the pact.
  • RCEP signatory states said they plan to commence negotiations with India once it submits a request of its intention to join and it may participate in meetings as an observer prior to its accession.
  • A possible alternative for India is to review its existing bilateral FTAs with some of these RCEP members as well as newer agreements with potential for Indian exports.
  • There is also a growing view that it would serve India’s interest to invest strongly in negotiating bilateral agreements with the US and the EU, both currently a work in progress.

Conclusion

  • A country can never get into FTAs merely to provide its market to the partner countries.
  • When we accommodate our partner countries, our objective is also to increase the presence of our products in the markets of partners, and India hasn’t been able to achieve the latter objective.
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