In the recent Regional Comprehensive Economic Partnership (RCEP) Summit held in Thailand, India opted not to finalize its participation in the RCEP trade deal. The decision was fueled by concerns over potential negative impacts on India’s domestic agricultural and industrial sector due to a reduction or elimination of tariffs on imported goods.
RCEP Agreement: An Overview
All the participants of the RCEP, excluding India, have culminated their text-based negotiations for the trade deal, eyeing to sign the agreement by 2020. The primary objective of this deal is to establish an integrated market, ensuring convenience in the availability of products and services across the region.
Reasons Behind India’s Withdrawal
India’s decision to pull out of the deal was underpinned by several apprehensions. These include:
- Inadequate protection against import surges: Fearing an inundation of Chinese products into the Indian market due to the signing of the Free Trade Agreement (FTA), India has been advocating the implementation of an auto-trigger mechanism. This mechanism would enable India to hike tariffs when imports cross a specific threshold.
- Trade Deficit: Despite existing separate bilateral FTAs with most RCEP countries, India has consistently recorded trade deficits with these nations. With an existing trade deficit of over $50 billion with China, the current deal would contribute to a further widening of this deficit.
- Lack of Market Access: India claims it has not received any credible assurance of receiving more market access concerning mobility of Indian labour, services, agricultural commodities, and concerns over non-tariff barriers.
Concerns Leading to India’s Exit from RCEP
| Concern | Description |
|---|---|
| Problem with Base Year | India’s demand to have 2014 as the base year for tariff reductions instead of 2013 was rejected. This would lead to a drastic drop in import duties, thus affecting India’s economic interests negatively. |
| Sectors Impacted | Some domestic sectors such as dairy, steel, and textiles could face intense competition from other RCEP countries due to their cheaper alternatives. |
| Rules of Origin | India fears violation of these rules which determine the national source of a product. The current provisions in the deal reportedly do not prevent countries from rerouting their products through other countries, allowing for possible dumping of products into India. |
The Way Forward
The creation of a mutually beneficial RCEP where all participating countries reap substantial gains is crucial at this juncture. Given India’s thriving services trade surplus with the world, the nation is striving for a robust agreement on services trade, including an easier movement of skilled manpower. An opportunity like the RCEP, if leveraged properly, can help drive historic trade reforms in the country’s economic sector, thereby bolstering India’s global economic standing and enhancing its industrial competitiveness.
Significance of RCEP
Proposing a regional economic integration, the RCEP brings together the 10 ASEAN countries and its six free-trade agreement partners—Australia, New Zealand, Japan, China, South Korea, and India. Being one of the largest free-trade blocs, it accounts for 45% of the world’s population, roughly 30% of global GDP, worth about $21.3 trillion, and 40% of the worldwide trade.
