The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement in the Asia-Pacific region between the ten member states of the Association of Southeast Asian Nations (ASEAN) and five of ASEAN’s FTA partners.

India, which is also ASEAN’s FTA partner, opted out of RCEP in November 2019.

RCEP potentially includes more than 3 billion people or 45% of the world’s population, and a combined GDP of about $21.3 trillion, accounting for about 40 percent of world trade. India’s decision to not join RCEP reduced the impact of RCEP significantly.

The combined GDP of potential RCEP members surpassed the combined GDP of Trans-Pacific Partnership (TPP) members in 2007. Continued economic growth, particularly in China, India and Indonesia could see total GDP in RCEP grow to over $100 trillion by 2050, roughly double the project size of TPP economies.

HISTORY

The RCEP was built upon the existing ASEAN+1 FTAs with the spirit to strengthen economic linkages and to enhance trade and investment-related activities as well as to contribute to minimising development gap among the parties.

The Regional Comprehensive Economic Partnership was introduced during the 19th Asean meet held in November 2011. The RCEP negotiations were kick-started during the 21st Asean Summit in Cambodia in November 2012.

RCEP is among the proposed three mega FTAs in the world so far. The other two is:

• The TPP (Trans Pacific Partnership, led by the US) and
• The TTIP (Trans-Atlantic Trade and Investment Partnership between the US and the EU).

RCEP is viewed as an alternative to the TPP trade agreement, which includes the United States but excludes China.

Objective of RCEP

• RCEP aims to create an integrated market with 16 countries, making it easier for products and services of each of these countries to be available across this region.
• The negotiations are focused on the following: Trade in goods and services, investment, intellectual property, dispute settlement, e-commerce, small and medium enterprises, and economic cooperation.

China’s role in RCEP

RCEP was pushed by Beijing in 2012 in order to counter another FTA that was in the works at the time: The Trans-Pacific Partnership (TPP). The US-led TPP excluded China. However, in 2016 US President Donald Trump withdrew his country from the TPP. Since then, the RCEP has become a major tool for China to counter the US efforts to prevent trade with Beijing.

Reasons behind India’s withdrawal from RCEP

On November 4, 2019 India decided against joining the 16-nation Regional Comprehensive Economic Partnership (RCEP) trade deal, saying it was not shying away from opening up to global competition across sectors, but it had made a strong case for an outcome which would be favourable to all countries and all sectors.

Prime Minister Narendra Modi, in his speech at the RCEP Summit said “the present form of the RCEP agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India’s outstanding issues and concerns in such a situation.”

Indian demands

• Base year – Shifting the base year for tariff cuts from 2014 to 2019.
• Import surge – avoiding a sudden surge in imports from China by including a large number of items in an auto-trigger mechanism.
• Rules of origin – stricter rules of origin to prevent dumping from China
• Services – a better deal in services.

Indian concerns

• Trade deficits – India runs large trade deficits with at least 11 of the 15 RCEP members. China alone accounts for $53 billion of India’s $105 billion trade deficit with these.
• Domestic industry – China’s need for greater access to the Indian market to sustain its manufacturing industries will hurt the Indian industry and farmers due to a surge in Chinese imports.
• FTA experience – India’s experience with FTAs has been underwhelming. Niti Aayog suggested that FTA utilisation is in the 5%-25% range.
• Domestic opposition – Domestically, the RCEP generated considerable opposition with major stakeholders coming out against it – farmers, dairy industry or the corporate sector.

There was a fear in India that its industries would be unable to compete with China and Chinese goods would flood Indian markets. India’s farmers were also worried given that they would be unable to compete on a global scale.

Benefits of joining RCEP

• A closer association with RCEP could have been of help to India in playing catch up with countries which are members of the group.
• It could have also promoted formation of supply chains and facilitated participation in mutual recognition agreements.
• Joining the RCEP would have given more substance to India’s Act East policy.
• Manufacturing today requires greater integration with global supply chains. Signing the agreement would have signalled an embrace of freer trade, which could have aided in the shift of companies out of China to India.

Disadvantages of stepping out of RCEP

• It reduces the opportunities for trading with RCEP countries which together accountfor roughly a third of global trade.
• The decision has complicated India’s course to integrate into global value chains and India has also ceded space to China to have greater say in the region.

Conclusion

India’s decision to not join the RCEP will not detract the country from mounting a focussed effort in enhancing its competitiveness and expanding its export base. India needs to explore other means for enhancing its market access. Therefore, bringing the ongoing trade negotiations with the US which is India’s largest export destination, to a successful conclusion should be a priority. A realistic yet meaningful FTA strategy needs to be formulated for the next five years based on the RCEP negotiation experience.