From UPSC perspective, the following things are important :
Prelims level : Nothing much
Mains level : RCEP - India - China
India finally rejected the RCEP trade deal.
- In his speech at the RCEP summit, PM argued that India has been proactively, constructively and meaningfully engaged in the RCEP negotiations since inception.
- The draft RCEP agreement did not fully reflect the basic spirit and the agreed guiding principles of RCEP and did not address satisfactorily India’s outstanding issues and concerns.
- Apart from the 10 member states of the ASEAN, the deal was to include the bloc’s six free trade partners — China, India, South Korea, Japan, New Zealand, and Australia.
- The RCEP negotiations were launched in 2012 and, this year, there was a big push to get it finalised.
- After India’s rejection, the remaining 15 members decided to go ahead and underlined their intent to sign a trade deal sometime next year.
- Base year – Shifting the base year for tariff cuts from 2014 to 2019.
- Import surge – avoiding a sudden surge in imports from China by including a large number of items in an auto-trigger mechanism.
- Rules of origin – stricter rules of origin to prevent dumping from China
- Services – a better deal in services.
- Trade deficits – India runs large trade deficits with at least 11 of the 15 RCEP members. China alone accounts for $53 billion of India’s $105 billion trade deficit with these.
- Domestic industry – China’s need for greater access to the Indian market to sustain its manufacturing industries will hurt the Indian industry and farmers due to a surge in Chinese imports.
- FTA experience – India’s experience with FTAs has been underwhelming. Niti Aayog suggested that FTA utilisation is in the 5%-25% range.
- Domestic opposition – Domestically, the RCEP generated considerable opposition with major stakeholders coming out against it – farmers, dairy industry or the corporate sector.
RCEP – India
- It comprises half of the world population and accounts for nearly 40% of the global commerce and 35% of the GDP. RCEP would have become the world’s largest FTA after finalisation, with India being the third-biggest economy in it.
- Without India, the RCEP does not look as attractive as it had seemed during negotiations.
- Divided ASEAN – ASEAN has been keen on a diversified portfolio so that member states can deal with major powers and maintain their strategic autonomy. ASEAN member states have tried to keep the U.S. engaged in the region.
- Act East policy has been well received. With China’s rise in the region, ASEAN member states have been keen on Indian involvement in the region.
- Indo-Pacific – India’s entire Indo-Pacific strategy might be open to question if steps are not taken to restore India’s profile in the region.
- Rejected China’s dominance – India signalled that, despite the costs, China’s rise has to be tackled both politically and economically.
China in the region
- Escalating Sino-U.S. trade tensions – China was particularly keen to see a successful conclusion of the RCEP summit and had been vigorously pushing for that.
- Increased domination – Both geopolitically and geo-economically, China is set to dominate the Indo-Pacific.
- Counter to Chinese – Japan is now suggesting that it would work towards a deal that includes India.
Way ahead for India
- Economic isolation is not an option for India.
- Bilateral pacts – There are reports that India will move towards bilateral trade pacts.
- Need domestic reforms – India will have to prepare itself more fully to take advantage of such pacts. Domestic reforms will be the need of the hour.