India exits RCEP

Context – India’s decision to stay out of the China-backed RCEP agreement and its significance.

What is RCEP and its significance?

Launched in 2012, Regional Comprehensive Economic Partnership is a trade pact between the 10-member ASEAN bloc, along with China, Japan, South Korea, Australia and New Zealand. However, India had been due to sign but pulled out last year.

  • Objective-
  • The purpose of the deal is to create an integrated market.
  • Mega Trade deal- It was described as the “largest” regional trading agreement as it covers nearly a third of the global population, contribute over a quarter of world exports and makeup around 30% of the GDP.
  • Significance of RCEP-
  • The agreement simplifies customs procedures and rules-of-origin laws between countries.
  • Low tariff rate– RCEP countries have agreed to progressively abolish 90% of all tariffs on goods between participating members.
  • The agreement focused on diversifying trading partners, solidifying supply chains, and achieving economic and job growth through a pan-regional trade agreement.

What are the reasons for India’s withdrawal from RCEP?

  1. Trade balance paradox– 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.
  2. Dumping of Chinese Goods– This is the major concern for India, as after signing RCEP cheaper products from China would have flooded the Indian market.
  3. Import might harm domestic producers– It raised alarm about market access issues, fearing its domestic producers could be hard hit if the country was flooded with cheap Chinese goods.
  • Textiles, dairy, and agriculture were flagged as three vulnerable industries.
  1. Shallow agreement– RCEP does not contain provision on issues like environmental protections, labour rights or intellectual property.
  2. There is no investor-state dispute settlement system in RCEP.
  3. China’s presence– Apart from economic reasons (fear of dumping), escalating tensions with China are a major reason for India’s hardened position on the deal.

What are the implications of India’s decision of opting out?

  1. Benefits China– RCEP is a China-backed trade deal, signing it without India will further strengthen China’s economic power.
  • It will affect India’s neighbourhood as China already tries to influence the region through its deep pockets.
  1. India remains outside the institutionalized orbit where future discussions, amendments, additions and revisions to RCEP could occur.
  • Such discussions and potential rules will facilitate trade not just between the Asean but the other five.
  1. Losing out on Large Market– The move could potentially leave India with less scope to tap the large market that RCEP presents.
  2. Positive institutional effects of RCEP must not be underestimated as trade patterns evolve in this region. Indian firms will find it tough to adapt to a regional market.

Way forward-

  • RCEP’s institutional legacy could have far-reaching effects such as fostering trust, creating standards, fixing gap.
  • India’s absence from the Asia-Pacific trade treaty will solidify its insular economic orientation and hurt innovation.

why India opted out of RCEP? | 17th November, 2020

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