Regional Comprehensive Economic Partnership (RCEP)

Topics Covered:

1. India and its neighbourhood- relations.
2. Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Regional Comprehensive Economic Partnership (RCEP)

What to study?

For prelims: RCEP- Key facts and Geographical location of member countries.

For mains: Why is India concerned, gains and losses from this, what India needs to do?

Context: Stakeholders’ Consultations by Department of Commerce on RCEP.

What you need to know about RCEP?

1. RCEP is proposed between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand).
2. RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
3. Aim: RCEP aims to boost goods trade by eliminating most tariff and non-tariff barriers — a move that is expected to provide the region’s consumers greater choice of quality products at affordable rates. It also seeks to liberalise investment norms and do away with services trade restrictions.

Why has it assumed so much significance in recent times?

When inked, it would become the world’s biggest free trade pact. This is because the 16 nations account for a total GDP of about $50 trillion and house close to 3.5 billion people. India (GDP-PPP worth $9.5 trillion and population of 1.3 billion) and China (GDP-PPP of $23.2 trillion and population of 1.4 billion) together comprise the RCEP’s biggest component in terms of market size.

Why is India concerned?

Greater access to Chinese goods may have impact on the Indian manufacturing sector. India has got massive trade deficit with China. Under these circumstances, India proposed differential market access strategy for China.

There are demands by other RCEP countries for lowering customs duties on a number of products and greater access to the market than India has been willing to provide.

Why India should not miss RCEP?

If India is out of the RCEP, it would make its exports price uncompetitive with other RCEP members’ exports in each RCEP market, and the ensuing export-losses contributing to foreign exchange shortages and the subsequent extent of depreciation of the rupee can only be left to imagination. Some of the sectors that have been identified as potential sources of India’s export growth impulses under RCEP to the tune of approximately $200 billion.

There are more compelling trade and economic reasons for RCEP to become India-led in future, than otherwise. India would get greater market access in other countries not only in terms of goods, but in services and investments also.

However, there are views that in present form the RCEP agreement is not good for India. Why?

1. The current account deficit (CAD) touched 8 per cent of GDP, and the agreement in the present state of negotiations would mean forgoing a substantial part of the revenues.
2. Greater access to Chinese goods may have impact on the Indian manufacturing sector. India has got massive trade deficit with China. In fiscal year 2017-18, the trade deficit with China was $63 billion.
3. Under these circumstances, India proposed differential market access strategy for China.
4. Exports from ASEAN into India have grown far quicker than Indian exports to the bloc, which they attribute to the fact that India is a “services economy.”
5. There are demands by other RCEP countries for lowering customs duties on a number of products and greater access to the market than India has been willing to provide.
6. Apart from China, India is also losing out to financial and technological hub of Singapore, agriculture and dairy majors Australia and New Zealand, plantations of South East Asian countries, and pharmaceutical trade with China and the US.
7. With e-commerce as part of the discussion, the Indian resistance at WTO of not letting the discussion on digital trade will weaken.
8. The free movement of investments will benefit investors in the US, Singapore, Japan and China, but very few Indians will be taking advantage of this.
9. New Delhi is also worried that the RCEP will open backdoor negotiations and may lead to the country losing out on TRIPS agreements. This may result in giving way to global majors in agriculture seed and pharmaceutical manufacturing.

Way ahead:

Bilateral talks between India and China are crucial for an early conclusion of RCEP negotaiations as agreed by other members. Indian policymakers need to be mindful of domestic sectors’ concerns before agreeing on terms of deal. Simultaneously, there is a necessity to improve our competitiveness in the economy. India must play its due role to get its due place in the regional economic configurations.