Prelims level : ASEAN Mains level : GS-II Regional Groupings involving India’s Interest.
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Why in News?

  • India has decided to not join the Regional Comprehensive Economic Partnership (RCEP) agreement in the recently concluded 3rd RCEP Summit at Bangkok, Thailand. It is because of the fact that India’s concerns not being addressed in the final deal.

What is RCEP?

  • RCEP is a proposed Free Trade Agreement (FTA) between ten ASEAN member states and their six FTA partners namely India, Australia, China, Japan, New Zealand and South Korea.
  • RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.

Objective of RCEP:

  • 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.

Significance of RCEP:

  • 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.

Advantages to India through RCEP:

  • 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.
  • It can augment India’s existing free trade agreements with the Association of South-East Asian Nations (ASEAN).
  • RCEP provides a chance for India to bring in historic trade reforms, which in itself will cement India’s position as a major global economy and make Indian industry competitive.
  • 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 can address challenges emanating from implementation concerns vis-à-vis overlapping agreements of ASEAN.
  • The RCEP would help India streamline the rules and regulations of doing trade, which will reduce trade costs.
  • India enjoys a comparative advantage in the services sector such as information and communication technology, healthcare, and education services etc. Thus, RCEP will create opportunities for Indian companies to access new markets.
  • 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.
  • 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 even subsequent extent of depreciation of the rupee.

Indian Concerns over signing RCEP:

  • Widening Trade Deficit: NITI Aayog held that India’s trade deficit with the ASEAN, Korea and Japan has widened post-FTAs. Thus, Tariff elimination due to RCEP could worsen the trade deficit, at $105.2 billion in 2018-19.
  • Impact on Agriculture: It threatens farm livelihoods, autonomy over seeds and also endangers the country’s self-sufficient dairy sector.
  • 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.
  • Flooding of Chinese Imports: Almost every sector registered its apprehension that once the RCEP agreement was in place, China would harm the domestic market with its cheap exports and would also dump its products. China already has a $70 billion (approx.) trade surplus with India.
  • Decline of Customs Revenue: Since import duties are also a source of revenue for India, it could experience a disproportionate loss of customs revenue.
  • 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.
  • This shows that ASEAN countries are very sensitive about protecting this sector and have not offered much liberalisation even within the bloc to each-other.
  • So, in terms of enhanced market access, India would benefit relatively less from its RCEP partners than the benefits given to them by it.

Way Forward:

  • India’s entry into RCEP will strengthen its strategic weight but it may act as a double-edged sword for India.
  • The RCEP can be a stepping stone to India’s Act East Policy, but at a time of growing protectionism and the US-China trade war, opening our market to China (through RCEP) can prove to be disastrous, given the structural issues in the Indian market.
  • So India has to undergo second-generation reforms of its domestic economic policies, including those that reform its factor markets, to make its trade more competitive and export-oriented.
  • These reforms will help India better access other markets and will mitigate some of the repercussions arising from the RCEP.
  • Hence, it is important that India focuses on resolving the structural issues in the domestic market, before concluding the RCEP negotiations.
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