Q. Analyse the factors and implications of India’s exit from the Regional Comprehensive Economic Partnership (RCEP). (250 words)12 Nov, 2019 GS Paper 2 International Relations
- Introduce by mentioning about RCEP and India’s exit from it.
- Mention the factors which led to India’s exit from RCEP.
- Mention the implications of the move.
Recently, India decided to opt-out of the 16-nation Regional Comprehensive Economic Partnership (RCEP) trade deal, which is considered as the largest regional trade agreement contributing over a quarter of world exports, and makeup around 30% of the global Gross Domestic Product.
Factors which led to India’s exit from RCEP:
- The trade deficit with existing FTA partners: Though trade has increased post-FTA with South Korea, ASEAN countries and Japan, imports have risen faster than exports from India resulting in widening the trade deficit.
- Risk of dumping of Chinese goods: RCEP would allow cheaper products from China to flood the Indian markets, which would be detrimental to domestic manufacturers.
- Non-acceptance of Auto-trigger mechanism: Opposition from other ASEAN countries to allow India to raise tariffs on products in instances where imports cross a certain threshold.
- Protection of domestic industry: There is stiff opposition from industry associations, trade bodies, and other civil society organizations on lowering and eliminating tariffs on several products like dairy, steel etc.
- For instance, cheap imports of dairy products from Australia and New Zealand could ruin the rural economy of India.
- Lack of consensus on Rules of Origin: India was concerned about a “possible circumvention” of rules of origin which are the criteria used to determine the national source of a product.
- Current provisions in the deal reportedly do not prevent countries from routing, through other countries, products on which India would maintain higher tariffs.
Implications of India’s exit:
- Protection to domestic manufacturers: Refraining from RCEP will provide protection to the Indian domestic industry from cheap imports.
- The missed opportunity of economic integration: The global trade would be led by trade agreements like RCEP and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in the recent future considering the strategic location of countries in the Indo-Pacific.
- India could miss on cheap capital, investor base, access to technological improvements, and more importantly trading opportunities considering that RCEP accounts for one-third of global trade.
- India missed out on huge job opportunities for the younger generation in the services sector like IT services, tourism, education, etc.
- Loss of huge Indian market for other RCEP countries: The vast Indian population would have served as a huge market for ASEAN products which could have been beneficial for regional development and growth.
- Rising Chinese influence in the region: 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.
- Impact on diplomatic engagements: Since international relations are shaped by trade and economy, India's exit of RCEP may also affect India's Act East policy.
India should translate this withdrawal from the RCEP into a commitment for domestic reforms to prepare itself for the next opportunity to integrate itself into the global value chains and unleash Indian manufacturing.