- India will be raising concerns regarding the slow pace of negotiations on services trade liberalization in the region at the forthcoming ministerial-level meeting on the proposed Free Trade Agreement (FTA) involving 16 Asia-Pacific nations.
What is RCEP?
- The Regional Comprehensive Economic Partnership (RCEP) is a proposed mega-regional Free Trade Agreement (FTA) between 16 Asia-Pacific countries including the 10-member ASEAN countries, China, Japan, India, South Korea, Australia and New Zealand.
- RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
- RCEP is viewed as an alternative to the TPP (Trans-Pacific Partnership) trade agreement, which includes the United States but excludes China.
What are the Objectives behind RCEP?
- RCEP aims to open up trade in goods and services.
- RCEP aims to liberalize investment policies in member countries.
- The RCEP initiative aims to be an ASEAN-led process through which ASEAN would broaden and deepen its economic engagements with its FTA partners.
- The RCEP would lead to greater economic integration, support equitable economic development and strengthen economic cooperation among the countries involved.
- The agreement will require member countries to eliminate import duty on many products.
What are the global significance of RCEP?
- The partnership plans to become a potential vehicle to support the spread of the global production networks.
- RCEP will help reduce the inefficiencies of multiple Asian trade agreements that exists presently.
- The fruitful conclusion of the RCEP negotiations would serve as fresh move towards regional integration and release economic linkages that would be immensely beneficial for everyone involved.
- The RCEP, when realized will become the largest trade bloc in terms of population with nearly 3.5 billion people.
- It will also have an estimated 40% of world’s GDP and dominating 30% of global trade.
- A unique significance of the RCEP formation is that it contains the three biggest economies of Asia – China, India and Japan.
- The trade arrangement has big future potential as it holds the two of the fastest growing largest economies – China and India.
ASEAN centrality under RCEP
- A leading feature about the RCEP is that it is proposed as a refined and unified version of the existing free trade arrangement that the ASEAN has with the six partners – China, Japan, India, South Korea, Australia and New Zealand.
- For the members of RCEP, already there is bilateral FTAs. But being just bilateral, they have different regulations, rules of origin requirements etc. A unified FTA will facilitate trade more.
- Hence, the RCEP is modelled on FTAs of the ASEAN group with others and hence it is in an ASEAN+1 FTAs format.
- ASEAN +1 FTAs refers to the FTAs thatASEAN group have signed with each of the neighboring six countries – China, Japan, Korea, India, Australia and New Zealand.
What all does RCEP covers?
- The RCEP’s covers the entry level trade liberalization effort on goods and widens to services though the extent of service trade engagement.
- At the same time, the RCEP makes negotiations on higher order liberalization issues like intellectual property rights, competition and ecommerce.
- The usual issues like investment and dispute settlement are also part of negotiations.
What importance does RCEP has for India?
- The RCEP for India presents a crucial platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its “Act East Policy.”
- India’s trade share with the RCEP group of countries as a percentage of its total trade has increased over the past decade and half, underlining the importance of its trade with key countries in this group.
What are the immediate benefits to India from RCEP?
- The RCEP agreement would complement India’s existing free trade agreements with the Association of South East Asian Nations(ASEAN) and some of its member countries, as it would deal with Japan and South Korea.
- It will help address challenges originating from implementation concerns vis-à-vis overlapping agreements, obstructing effective utilization of these FTAs.
- The RCEP would help India simplify the rules and regulations of doing trade, which will reduce trade costs.
- It will also help achieve its goal of greater economic integration with countries East and South East of India through better access to a vast regional market ranging from Japan to Australia.
- The RCEP would enable India to strengthen its trade ties with Australia, China, Japan and South Korea, and should reduce the potential negative impacts of TPP and TTIP on the Indian economy.
- The RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory.
- With using domestic policy reforms and harmonization of rules and regulations would help Indian companies plug into regional and global value chains and would unlock the true potential of the Indian economy.
- There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
- In addition to facilitating foreign direct investment, the RCEP will create opportunities for Indian companies to access new markets.
- India is well placed to contribute to other countries in RCEP through its expertise in services, not only consolidating the position of the region as the world’s factory but also developing it as the world’s hub for services.
- RCEP will influence new investment decisionsin textiles, leather, processed food, machinery and electronic component sectors.
- This will happen on account of the common Rules Of Origin (ROO) framework and the entry of China as the new FTA partner of Japan, India and Australia.
- India may emerge as an attractive investment destinationfor China.
- By setting up manufacturing joint ventures in India, China can effectively reach India’s domestic market and also a large European market once India signs an FTA with the European Union.
What are the Challenges in front of RCEP?
- Flexibility: It could be a boon or bane for the RCEP. While it could help break deadlocks and protect disparate national interests, it could also limit change or curtail progress in achieving greater liberalization.
- Large number: Deeper agreements can be achieved more rapidly on difficult issues when there are only a small number of negotiating partners involved. consolidation may be just as difficult, if not more difficult, when there are so many countries involved.
- Huge economic disparities among the negotiating countries are likely to pose a challenge.
- An inevitable source of trust deficit between China and the rest which has the potential to constrain regional economic cooperation is China’s aggressive postures on territorial disputes with Japan and India and with ASEAN member countries on the South China Sea disputes.
What are the Challenges in front of India regarding RCEP?
- Tariff barriers, which have been a matter of discontent in bilateral FTAs, is great matter of concern.
- Sadly, India has not done enough to minimize tariff barriers; it needs to do more.
- Non-trade issues such as environment and labour are likely to be prickly as well and need greater attention.
- India must take steps to strengthen its Medium, Small and Micro Enterprises (MSME) sector, equipping it not only to survive the free flow of trade, but also to become a set of more competition.
- India has to be firm and calculative in terms of taking tough policy decisions, while working tirelessly on capacity building of its domestic industries.
- The successful conclusion of the RCEP negotiations would serve as a fresh move towards regional integration and unleash economic linkages that would be immensely beneficial for all involved.
- The negotiations would attempt to hand pick the best features of existing Asian FTAs and use them as a basis for negotiations to maximize quality.
- The negotiations must set clear timetables for concluding talks and actively pursue reforms deeper than any attempted before.
- The RCEP’s potential future as a major trade bloc will remain uncertain until there is enough political will to go through the arduous negotiation rounds.