Regional Comprehensive Economic Partnership (RCEP)

[op-ed snap] Can regional trade agreements boost India’s exports?

Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: RCEP, WTO

Mains level: The problem with multilateral agreements and what India needs to do to gain most from them


Context

Demand for India to join multilateral agreements

  1. As the World Trade Organization (WTO) comes under mounting attack from the Trump-led US administration, there is a clamour in India to negotiate regional trade agreements with peer countries
  2. It is perceived that this will boost exports and insulate India’s trade from the uncertainties of the global trading system

Are multilateral agreements really beneficial for India?

  1. An analysis of trade agreements suggests that India has often failed to gain from such agreements
  2. This could explain why Indian policymakers have become cautious about pursuing new trade agreements in recent years

History of trade agreements

  1. The rise of regional trade agreements (RTAs) globally coincided with the end of the Uruguay round of WTO talks in the mid-1990s
  2. Their growth has often been explained as a result of slow progress in multilateral negotiations
  3. RTAs include both preferential trade agreements and free trade agreements (FTAs)

Criticism of RTAs

  1. RTAs face criticism for being detrimental to the spirit of multilateral free trade
  2. This is because countries that are not part of a regional agreement find themselves at a disadvantage
  3. This is especially true in an era of rising protectionism and uncertainty

Solution: Trade blocs

  1. It is possible to address such issues to some extent by creating mega-trading blocs
  2. One such bloc being negotiated is the Regional Comprehensive Economic Partnership (RCEP), consisting of China, India, Japan, south-east Asian nations, Australia and New Zealand

Scope for India

  1. There might be scope for India to increase its trade with the Asia-Pacific region, given that its level of integration with the region is relatively low
  2. But India has remained ambivalent about the RCEP, with officials expressing concern that it might actually harm India

The reason behind India’s concerns

  1. India’s existing agreements with South Korea, Japan and the Association of South East Asian Nations (ASEAN) are often deemed to have benefited the partner countries at India’s expense
  2. India has not been able to sufficiently leverage these agreements to increase its presence in the markets of its partners
  3. The import-export ratio with these countries deteriorated in the years following the implementation of the trade agreements
  4. Even as partner countries have benefited, Indian exports to these regions have remained lacklustre

The actual reason for fewer gains from RTAs

  1. India’s inability to gain market share in these regions may be partly explained by its lack of competitiveness in exports
  2. India has various structural bottlenecks hurting its exports

Way Forward

  1. The focus needs to be on where India can promote its exports
  2. India needs to be careful in weighing each trade deal on its own merit
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