Relevance: GS-2: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests, Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora, Important International institutions, agencies and fora- their structure, mandate.

Key phrases: RCEP, ASEAN, Free Trade Agreement, Most favoured nation, World Trade Organization, Globalization, Liberalization.

Context

• Philippines Senate has deferred ratification of RCEP after farmers and other civil society groups in the SE Asian country took cue from New Delhi's decision to stay out of RCEP and expressed strong reservations against the mega trade deal signed by the Duterte government.

What is RCEP?

• Described as the “largest” regional trading agreement to this day, RCEP was originally being negotiated between 16 countries —ASEAN members and countries with which they have free trade agreements (FTAs), namely Australia, China, Korea, Japan, New Zealand and India.
• The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region. Negotiations to chart out this deal had been on since 2013, and India was expected to be a signatory until it decided to not join this agreement.
• Aim: 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:

• RCEP is the world’s largest economic bloc, covering nearly half of the global economy.
• RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region.
• RCEP’s share of the global economy could account for half of the estimated $0.5 quadrillion global GDP (PPP) by 2050.
• The grouping envisages regional economic integration, leading to the creation of the largest regional trading bloc in the world.
• RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation.
• Analysts suggest that there are enormous export gains that could accrue to India from RCEP under varying scenarios. This assumes even greater importance since our focus has been on products with favourable terms of trade for India.
• India endeavours to integrate with a region, which has been the most successful region of the world in terms of thriving regional value chains (RVCs). These RVCs necessitate freer movement of professionals across countries in the region.
• This is especially crucial in a scenario when the vector of India’s demographic dividend is concomitant to the vector of the “aging” population in most RCEP countries.

Why India decided to walk out ?

• On November 4, 2019, India decided to exit discussions over “significant outstanding issues”which had not been resolved by the deadline.Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector. According to officials, the current structure of RCEP still does not address these issues and concerns.
• However, India’s stance on the deal also comes as a result of learnings from unfavourable trade balances that it has with several RCEP members, with some of which it even has FTAs. An internal assessment by the government has revealed that the growth in trade (CAGR) with partners over the last five financial years was a modest 7.1%. While “there has been growth rate in both imports from and exports to these FTA partners”, the “utilisation rate” of FTAs both for India and its partners has been “moderate” across sectors, according to this study, which covers pacts with Sri Lanka, Afghanistan, Thailand, Singapore, Japan, Bhutan, Nepal, Republic of Korea and Malaysia.
• India has trade deficits with 11 of the 15 RCEP countries, and some experts feel that India has been unable to leverage its existing bilateral free trade agreements with several RCEP members to increase exports.
• India was unable to ensure countermeasures like an auto-trigger mechanism to raise tariffs on products when their imports crossed a certain threshold. It also wanted RCEP to exclude Most-Favoured Nation (MFN) obligations from the investment chapter, as it did not want to hand out, especially to countries with which it has border disputes, the benefits it was giving to strategic allies or for geopolitical reasons. India felt the agreement would force it to extend benefits given to other countries for sensitive sectors like defence to all RCEP members.

China Factor

• Escalating tensions with China are a major reason for India’s decision. While China’s participation in the deal had already been proving difficult for India due to various economic threats, the clash at Galwan Valley has soured relations between the two countries. The various measures India has taken to reduce its exposure to China would have sat uncomfortably with its commitments under RCEP.
• Major issues that were unresolved during RCEP negotiations were related to the exposure that India would have to China. This included India’s fears that there were “inadequate” protections against surges in imports. It felt there could also be a possible circumvention of rules of origin- the criteria used to determine the national source of a product- in the absence of which some countries could dump their products by routing them through other countries that enjoyed lower tariffs.
• RCEP lacked clear assurance over market access issues in countries such as China and non-tariff barriers on Indian companies.

What are India’s options now?

• India, as an original negotiating participant of RCEP, has the option of joining the agreement without having to wait 18 months as stipulated for new members in the terms of the pact. RCEP signatory states said they plan to commence negotiations with India once it submits a request of its intention to join the pact “in writing”, and it may participate in meetings as an observer prior to its accession.
• However, the possible alternative that India may be exploring is reviews of its existing bilateral FTAs with some of these RCEP members as well as newer agreements with other markets with potential for Indian exports. Over 20 negotiations are underway.
• India currently has agreements with members like the ASEAN bloc, South Korea and Japan and is negotiating agreements with members like Australia and New Zealand.

Conclusion

• India needs to maintain a balance between the opening of its economy and protecting its domestic manufacturing industry.
• In the current scenario of growing protectionism, Regional Comprehensive Economic Partnership provides an opportunity for the countries to prosper by increasing trade, creating jobs and other economic opportunities and India should make use of such an agreement.
• While our negotiators bargain hard for an inclusive and balanced RCEP, domestically we must fiercely focus on eliminating niggles our manufacturing sector and exports are facing.

Source: Economic Times  Indian Express

Mains Questions:

Q. Discuss in detail the implications of India’s exit from the regional comprehensive economic partnership ? Words (250).