The debate surrounding Sri Lanka’s potential inclusion in the Regional Cooperation Economic Partnership (RCEP) has been gaining steam recently. The massive trade bloc, consisting of 15 countries including China, Japan, and Australia, has recently solidified its existence, heightening discussions about the implications for nations like Sri Lanka. While India opted out of RCEP after withdrawing from negotiations last year, the newly formed trading alliance has left the door ajar for India’s return.
Potential Gains for Sri Lanka upon Joining RCEP
Sri Lanka stands to garner several benefits from integrating into the RCEP. It can expand its trade and diversify commerce activities in the Asia Pacific region and beyond. Many economic experts have suggested that Sri Lanka should pivot towards a more eastward approach in their economic and trade diplomacy.
Sri Lanka’s strategic location, situated along one of the world’s busiest shipping routes, offers another key advantage. The Prime Minister of Sri Lanka has emphasized the need to develop the Hambantota and Colombo Ports alongside airports to fortify Sri Lanka’s position in the international commercial sphere. Especially amidst a global pandemic, isolationist policies cannot serve any country well.
Challenges for Sri Lanka in Joining RCEP
Despite potential benefits, joining RCEP also poses some significant challenges for Sri Lanka. Inconsistent trade policies, particularly concerning Free Trade Agreements (FTAs), could pose a hurdle. Sri Lanka’s standing agreements with India, China, and Singapore are being re-evaluated, leading to an unclear stance on future FTAs.
Joining RCEP would also augment competition for Sri Lanka. Unless bilateral agreements are struck, it may face difficulties competing with markets in countries like Vietnam, Cambodia, and Laos. Furthermore, with the disruption of global supply chains due to the pandemic and mounting critiques of globalization, Sri Lanka may be wary of committing to such an extensive trade alliance.
Sri Lanka’s Dilemma: China or India?
Sri Lanka finds itself at a crossroads. It must decide whether to align with the RCEP led by China or maintain its strong ties with India. Both India and China are significant import sources for Sri Lanka, and both are set to be among the world’s most powerful economies in the next decade.
Implications for India if Sri Lanka Joins RCEP
Should Sri Lanka choose to join RCEP, it could enhance China’s influence in India’s neighborhood. Sri Lanka is currently focused on the China-backed $1.4 billion Colombo Port City as an international business and investment hub. This would also lessen Sri Lanka’s dependency on India and may limit India’s access to strategically crucial ports located on the busiest sea lanes of communication. The potential sway this new alliance could hold over regional trade dynamics makes these developments a salient issue for India’s strategic considerations.