In recent current events, the Regional Comprehensive Economic Partnership (RCEP) has launched under the framework of the 37th ASEAN Summit. This development has reopened dialogue that had previously faltered over India’s disapproval. New circumstances will be contemplated if India applies for membership again.
Understanding the Regional Comprehensive Economic Partnership
The RCEP is a collective consisting of 10 Association of Southeast Asian Nations (ASEAN) members and five other countries – South Korea, China, Japan, Australia, and New Zealand. Notably absent from this group is the USA, which opted out of the Trans-Pacific Partnership (TPP) in 2017.
Negotiations for the RCEP began in 2012 and India was an original participant. However, India withdrew in 2019 due to fears that reduced tariffs could hurt local producers. The combined population of the RCEP member nations accounts for nearly one-third of the world population and holds a total of 29% of the global GDP.
The RCEP Emerges as the World’s Largest Free Trade Agreement
The RCEP, with China’s backing, has become the world’s most considerable free trade agreement (FTA), surpassing both the US-Mexico-Canada Agreement and the European Union (EU). The RCEP aims to eradicate a variety of import tariffs over the next two decades. It also includes provisions for intellectual property, telecommunications, financial services, e-commerce, and professional services.
Under the RCEP, components from any member nation are treated equally, incentivizing companies within RCEP countries to source suppliers within the trade region. This factor particularly impacts businesses with global supply chains that might face tariffs even inside an FTA if their products contain parts made elsewhere.
Economic Impact of the RCEP
The RCEP has the potential to increase global national income by USD 186 billion annually by 2030 and to augment the economy of its member states by 0.2%. Nevertheless, some analysts speculate that the deal may benefit China, Japan, and South Korea more than other member states.
The implementation of these benefits may take some time, as six ASEAN nations and three others must ratify the agreement before it takes effect. Ratification may face obstacles in national parliaments due to prevalent anti-trade and anti-China sentiments among the countries.
Significance of RCEP for China
The commencement of the RCEP represents a significant development that will bolster China’s trade within the Asia-Pacific region in the post-Covid-19 context. The pact will facilitate China’s access to Japanese and South Korean markets, as these three countries have not yet agreed on their FTA.
India’s Stand on RCEP and Its Implications
India, while acknowledging the need for regional peace and stability at the ASEAN summit, remained silent on RCEP. Given the current military tension along the Line of Actual Control (LAC) in eastern Ladakh, India’s stance towards the China-backed grouping appears unwelcoming. The ongoing tensions at LAC and Chinese activities in Pakistan-occupied Kashmir compound India’s concerns about China’s growing power.
In the meantime, India conducted the Malabar Exercise with Japan and the USA as part of the Quadrilateral Security Dialogue (QUAD). This move was interpreted as an anti-China gesture, yet it didn’t impact Japanese and Australian plans regarding the RCEP.
India ended its participation in RCEP negotiations due to perceived threats to its interests. Notably, there were fears that signing the RCEP would enable an import surge from China, flooding India’s market with cheaper products.
India’s Potential Membership in the RCEP
As an original negotiating participant, India has the option to join the RCEP without the standard 18-month wait required for new members. If India formally expresses its intent to join, RCEP signatory states plan to commence negotiations. Meanwhile, India can attend meetings as an observer.
Looking Ahead: Prospects for India and the RCEP
The mega trade bloc is a significant initiative expected to boost commerce among member countries spread across the Asia-Pacific region. India still possesses opportunities for export expansion to RCEP member nations, given its pre-existing trade and investment agreements with 12 of them. Effective utilization of these agreements, coupled with proactive pursuit of new opportunities, could diversify both Indian markets and the export basket.