RCEP or Regional Comprehensive economic Partnership

RCEP or Regional Comprehensive economic Partnership is a proposed free trade agreement among 16 nations i.e. ASEAN countries (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and India, China, Japan, South Korea, Australia, New Zealand. 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. Liberalising investment norms and doing away with services trade restrictions is another aspect of RCEP.

When inked, it is to become the world’s biggest free trade pact. This is because the RCEP nations account for a $50 trillion and house close to half of the world population. 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.

RCEP negotiations were formally launched in 2012 in Cambodia during ASEAN summit and have been recently concluded in Bangkok. At the end of seven years of discussions, PM Modi concluded that India would not join the mega partnership as the negotiations failed to address New Delhi’s outstanding issues and concerns. These issues and concerns are rooted in the following.

India ran a merchandise trade deficit with 11 out of 15 other members of RCEP in 2018-19, totalling $107.28 billion. India’s overall merchandise trade deficit was about $180 billion in 2018-19. In 2018-19 , 34 percent of India’s imports were from this region, while only 21 percent of India’s exports went to this region.

China, the biggest trade partner amongst these countries was another concern. Import of cheaper electronics and engineering goods from China could increase even more after the signing of RCEP which could negatively impact Indian manufacturing. Especially in times of increasing protectionism and US-China trade war.

Another area is Ratchet mechanism where a country cannot go back from relaxations on tariffs and quotas on merchandise exports and imports once they have been offered to another country via trade agreement. India wants a clear exemption from Ratchet obligations to protect the interests of exporters and importers whenever needed.

Some other concerns were choosing 2014 as the base year for tariff reduction, an automatic trigger mechanism to curb sudden surges in imports and the decision on which products it is not willing to offer the same tariff concessions to all countries.

Similarly, RCEP could threaten indigenous farmers and milk cooperatives due to increased competition with dairy industry of Australia and New Zealand given that New Zealand exports more than 90 percent of its milk and butter. Hence exemptions are required for Indian dairy and its products.

The flipside is that, 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 may have cascading effects on the economy. 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.

Therefore a balanced outlook is required. India’s expertise in services requires a strong agreement on trade in services including a deal on easier movement of skilled manpower. This will also help other south Asian economies as per IMF. Protecting the interests of skilled workforce is of paramount importance.

India commands around 1.7% share of world’s total goods exports ranking 20^th (WTO 2018 data). The government’s target of $1 trillion exports requires building manufacturing capabilities. This will also help fulfil quest for $5 trillion economy by 2022. India will need 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.