RCEP: World’s biggest trade deal
The Japanese government has approved the world’s largest trade deal. The Regional Comprehensive Economic Partnership (RCEP) could come into force next January. Let’s take a look at the economic deal which is said to represent 30 per cent of global economy…
Last year, the Regional Comprehensive Economic Partnership (RCEP) was signed into existence by 15 countries led by China, Japan, South Korea, Australia, New Zealand and the 10-state ASEAN grouping, creating one of the world’s largest trading blocs.
India’s stand
India had been a part of negotiations for almost nine years till it pulled out in November 2019, stating that inadequate safeguards and lowering of customs duties will adversely impact its manufacturing, agriculture and dairy sectors.
However, by staying out, India has blocked itself from a trade bloc that represents 30% of the global economy and world population, touching over 2.2 billion people.
Further, as the summary of the final agreement shows that the pact does cover and attempt to address some issues that India had flagged, including rules of origin, trade in services, movement of persons. Therefore, this makes the case of India to review its decision and look RCEP through the lens of economic realism.
Reasons for India’s Withdrawal
- Unfavourable Balance of Trade: Though trade has increased the post-Free Trade Agreement with South Korea, ASEAN countries and Japan, imports have risen faster than exports from India.
- Chinese Angle: India has already signed FTA with all the countries of RCEP except China. Trade data suggests that India’s deficit with China, with which it does not have a trade pact, is higher than that of the remaining RCEP constituents put together.
- Protection of Domestic Industry: India had also reportedly expressed apprehensions on lowering and eliminating tariffs on several products like dairy, steel etc.
- Lack of Consensus on Rules of Origin: India was concerned about a “possible circumvention” of rules of origin.
Advantages for India
- It can boost India’s inward and outward foreign direct investment, particularly export-oriented FDI.
- It would also facilitate India’s MSMEs to effectively integrate into the regional value and supply chains.
- It presents a decisive platform for India which could enhance strategic and economic status in the Asia-Pacific region and can complement its Act East Policy.
Disadvantages for India
- Widening Trade Deficit: NITI Aayog held that India’s trade deficit with the ASEAN, Korea and Japan has widened post-FTAs.
- Sensitive List: Most of the RCEP countries have very high tariffs on certain products sensitive to them, such as rice, footwear, dairy products and honey, which they can continue to shield through the sensitive lists.
- Services Sector: India has demanded that the ASEAN countries should open up their services sector so that Indian professionals and workers can have easier entry into their market.
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