On 15th November, the Regional Comprehensive Economic Partnership ["RCEP"] was finalized after a delay of almost a decade. The RCEP is a free-trade agreement between ten Association of Southeast Asian Nations ["ASEAN"] states (which include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), as well as Australia, China, Japan, New Zealand and South Korea. The RCEP, when measured by population and GDP, is one of the most ambitious FTAs ever signed. The 15 countries part of the RCEP account for about 30% of the world's population and GDP. The RCEP was first proposed in 2011, and after several rounds of negotiations, it has been finalized. It seeks to eliminate as much as 90% of the tariffs on imports between its signatories within 20 years of coming into effect. To this end, it establishes common rules for e-commerce, trade and intellectual property. Member nations hope that this deal will help spur the recovery of their economies in a post-COVID world.
It is also ambitious in the sense that it is the first-ever FTA between China, Japan and South Korea, Asia's first, second and fourth-largest economies. This new free-trade bloc will be bigger than both US-Mexico-Canada Agreement and the European Union! It will see member nations granting each other preferential tariffs, along with a massive reduction in red tape, thereby increasing the ease of doing trade and allowing for freer movement of goods and services.
The Peterson Institute for International Economics estimates that the deal could increase global national income by USD 186 billion annually by 2030 and add 0.2% to the economy of its member states. However, several analysts believe that the deal will mostly benefit China, Japan and South Korea, and will have only marginal benefits for other members. This move is particularly beneficial for China as it inter alia marks its first ever multilateral FTA. Not only will it allow China to consolidate its position as an emerging superpower, but it also paves way for China to enter into more advanced FTAs in the future. Further, with the USA imposing heavy tariffs on some of its trade partners and an increased isolationist outlook under President Trump, the RCEP allows China to make inroads with countries and blocs which it could not have previously. It was because of these policies of President Trump which saw USA's withdrawal from the Trans-Pacific Partnership ["TPP"] which allowed space for China to grow into and forge alliances it was always excluded from.
In 2019, India (one of the original partners of the FTA) dropped out of the negotiations over concerns that its local industries would be devastated by cheaper manufactured goods from China and agricultural and dairy products from Australia and New Zealand. It is important to note that the Indian Dairy market is one of the oldest and longest protected industries. According to news sources, intense lobbying was done by interest groups within India to force this move. According to them, the RCEP's inadequate protection against import surges, the possible circumvention of rules of origin, and a lack of "credible assurances" on market access and non-tariff barriers are all against Indian interests. More so, considering the fact that India's trade deficits with the countries which are part of the RCEP. External Affairs Minister S. Jaishankar was famously quoted saying "No agreement is better than a bad agreement". In fact, a day after the RCEP was signed, official sources told the press that India would rather focus on developed nations such as EU and the US as opposed to entering into agreements which are actually trade pacts by stealth. Although the official stance continues to be that Indian goods and services would be more competitive in EU, US and other developed nations, the members of the RCEP maintain that the door for India to re-join remains open.
On the other hand, international experts believe that a RCEP without India would be more beneficial owing to India's "low ambitions" vis-à-vis the deal, and the high level of integration among the other countries of East and Southeast Asia which are a part of the RCEP. However, the nationalist rhetoric aside, there is strong merit to India's decision to stay out of the deal. It is indeed true that Indian local manufacturers would be crushed if they had to compete against cheaper Chinese products being flooded into Indian markets. The same holds true for agricultural and dairy products which would have been coming into India tariff free from Australia and New Zealand. However, it must be highlighted that such protection will serve beneficial only in the short run. A continued absence from RCEP for India will have more than just economic ramifications. It will also affect India's standing in South-Asia. As one of the biggest players in the region, and a direct competitor of China, India cannot afford to sit out for too long. Doing so may result in a drop in exports for Indian producers, while at the same time hitting the pockets of the Indian consumer hard. Continued protectionism will only prove costly for India, especially considering that India's exports to emerging economies has increased significantly over the past decade, while that to developed economies has gone down. Therefore, to abstain from partaking in freer trade with some of the fastest developing nations in South-East Asia for a prolonged period of time may prove counter-productive.
However, the real consequence of the RCEP is yet to be seen because before it comes into force, the signatories to it need to ratify it. Such ratification, especially for FTAs such as the RCEP, usually take some time. Therefore, at this junction, it is safe to say that it will be at least a year before the FTA comes into force. Thereafter, it will be another few years' before its benefits begin accruing to all member States. This realistically gives India two to three years to strengthen its most vulnerable domestic producers and prepare them to compete with the world at large. India must use this time in a constructive and efficient fashion.
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