From UPSC perspective, the following things are important :
Prelims level : RCEP
Mains level : Implications of India's drop-out from RCEP
- India decided to drop out of the RCEP agreement, citing its negative effects on “farmers, MSMEs and dairy sector”.
What is the RCEP?
- The Regional Comprehensive Economic Partnership (RCEP) is a trade deal that was being negotiated between 16 countries.
- They include the 10 ASEAN members and the six countries with which the bloc has free trade agreements (FTAs) — India, Australia, China, Korea, Japan, and New Zealand.
- The purpose of the deal is to create an “integrated market” spanning all 16 countries.
- This means that it would be easier for the products and services of each of these countries to be available across the entire region.
What makes RCEP special?
- The RCEP is billed to be the “largest” regional trading agreement as the countries involved account for almost half of the world’s population, contribute over a quarter of world exports, and make up around 30% of the global GDP.
- Negotiations to chart out the details of this deal have been on since 2013, and all participating countries had earlier aimed to finalise it by November 2019.
Outstanding issues where India contradicts
- Key issues that have prevented India from coming on board include “inadequate” protection against surges in imports.
- This is a major concern for India, as its industry has voiced fears that cheaper products from China would “flood” the market.
- India had been seeking an auto-trigger mechanism that would allow it to raise tariffs on products in instances where imports cross a certain threshold.
- India has also not received any credible assurances on its demand for more market access, and its concerns over non-tariff barriers.
Rules of origin criteria
- Its concerns on a “possible circumvention” of rules of origin — the criteria used to determine the national source of a product — were also not addressed.
- Current provisions in the deal reportedly do not prevent countries from routing, through other countries, products on which India would maintain higher tariffs.
- This is anticipated to allow countries like China to pump in more products.
- Despite India already having separate, bilateral FTAs with most RCEP nations, it has recorded trade deficits with these countries.
- China India has an over $50 billion trade deficit is one of the major reasons for New Delhi not joining in at this stage.
- During negotiations, it was also not able to get a favourable outcome on its demands on the base year that would be used to reduce the tariffs on the products that would be traded as part of the pact.
Protecting domestic industries
- Throughout the RCEP negotiations, several sections of the Indian industry have raised concerns over India signing the deal.
- They have argued that some domestic sectors may take a hit due to cheaper alternatives from other participant countries.
- For instance, the dairy industry was expected to face stiff competition from Australia and New Zealand.
- Similarly, steel and textiles sectors have also demanded protection.
- As all other RCEP nations have agreed to sign the treaty on the terms negotiated, they will likely try to persuade India to agree to the same.
- It remains to be seen whether those efforts ultimately lead.
- All RCEP Participating Countries will work together to resolve these outstanding issues in a mutually satisfactory way.
- India’s final decision will depend on the satisfactory resolution of these issues.