Regional Comprehensive Economic Partnership

The Regional Comprehensive Economic Partnership (RCEP) is the world’s largest trade agreement, comprising 15 nations that collectively account for 30% of global GDP and nearly a quarter of global exports. Despite extensive negotiations, India opted to stay out of the RCEP in November 2019, citing economic and domestic industry concerns. This decision has sparked ongoing debates about its implications and the need for a re-evaluation in light of changing global dynamics.

India’s Trade Policy and the RCEP –

What is the Regional Comprehensive Economic Partnership (RCEP)?

The RCEP is a trade agreement between 15 countries aimed at creating a unified economic bloc.

1. Members include:

a. ASEAN Nations: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam.

b. Non-ASEAN Members: China, Japan, South Korea, Australia, New Zealand.

2 Objectives:

a. Promote free trade by reducing tariffs.

b. Facilitate investments and economic integration.

c. Address trade in goods, services, and e-commerce.

Why did India decide not to join the RCEP in 2019?

India declined membership due to the following concerns:

1. Trade Deficit with China: Joining RCEP could worsen India’s existing trade deficit with China, a dominant member of the bloc. .

2. Threat to Domestic Industries: Indian agriculture, dairy, and small-scale industries feared increased competition from cheaper imports.

3. Non-Tariff Barriers: The agreement lacked mechanisms to address issues like quotas or product standards, which hinder India’s exports.

4. Safeguards Against Import Surges: India was concerned about the absence of provisions to protect against sudden import increases.

How has India’s absence from RCEP impacted its trade opportunities?

A recent Oxford Economics report highlights that while India has benefited from US-China trade tensions, its gains have been minimal compared to countries like Vietnam, Indonesia, and Malaysia. India has struggled to attract significant foreign direct investment (FDI), even as FDI flows to China have declined.

How have global trade dynamics changed since 2019?

The world has undergone significant changes, making trade policies more complex:

1. Pandemic Disruptions: COVID-19 caused widespread supply chain disruptions.

2. Geopolitical Instabilities: Events like the Russia-Ukraine war and tensions in the Middle East have altered trade priorities.

3. Rising Protectionism: Western nations, especially the US, are adopting protectionist policies, emphasizing geopolitical and security considerations.

4. Uncertainty in US Trade Policies: A potential second Trump presidency raises concerns about high tariffs, particularly on imports from China.

Why is there a renewed debate on India’s stance on trade agreements like RCEP?

The CEO of NITI Aayog, BVR Subrahmanyam, recently suggested reconsidering RCEP membership, stating that India is missing out on:

1. Global Supply Chain Integration: Membership could enable India to become a manufacturing hub.

2. Export Growth: The agreement provides access to larger markets.

3. Regional Relevance: Neighboring countries like Sri Lanka and Bangladesh are exploring RCEP membership.

What steps has India taken to enhance its trade policies post-2019?

a. Signed trade agreements with UAE and Australia to boost bilateral trade.

b. Engaged in negotiations with EU and UK, though progress remains slow.

What should be India’s way forward in trade policy?

a. Reassess RCEP Membership: Consider joining with provisions to protect vulnerable sectors.

b. Strengthen Domestic Industries: Improve competitiveness through reforms and investments.

c. Expand Bilateral Agreements: Negotiate with countries offering strategic trade advantages.

d. Leverage ‘China Plus One’ Strategy: Capitalize on companies seeking alternatives to China.

How does the RCEP debate fit into India’s broader economic strategy?

1. India aims to become a global manufacturing hub.

2. Enhanced trade integration is essential to capture foreign investments and export opportunities.

3. RCEP membership could align with these long-term objectives if safeguards are ensured.

Conclusion

India’s decision to stay out of RCEP was driven by concerns for its domestic industries and economic balance. However, evolving global trade dynamics demand a re-evaluation of this stance. Subrahmanyam’s comments reflect a potential shift in policy, emphasizing the need for India to rethink its trade strategies. A balanced approach—integrating into global trade networks while protecting domestic interests—will be key to India’s economic success.