Home Economy and Finance All you wanted to know about the RCEP, the trade deal forming the world’s largest economic block

All you wanted to know about the RCEP, the trade deal forming the world’s largest economic block

India has to decide whether the country wants access to a huge international market, or whether it wants its domestic market remains protected.

The Congress party’s attack on the proposed RCEP agreement continued with former president Rahul Gandhi tweeting an article by The Wire alleging that the FTA will flood India with cheap goods. He tweeted that this will result in millions of job losses and will cripple the economy. Before this Sonia Gandhi had alleged that the RCEP deal with China will deal a body blow to the Indian economy. “We can ill-afford to become a dumping ground. India being made a dumping ground of Chinese goods is catastrophic. In the past 72 years, no country has signed FTA with China,” she had said.

The government, on the other hand, is denying these allegations and said that the proposed agreement will be beneficial to India. The central government has also said that India’s trade deficit with other countries has been increasing as a result of various Free Trade Agreements (FTA) signed by previous UPA government. The FTAs signed with most countries have proved to be unfavourable for India, as a result of which India’s trade deficit doubled since 2011 to ₹12.86 trillion in 2018-19.

Government claims that the RCEP agreement will be far better placed to protect domestic interests than the previous deals signed by the Congress government with ASEAN bloc, and interest of domestic industry and the people of India will be protected before entering into any free-trade agreement.

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The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the ASEAN (Association of Southeast Asian Nations) and its six FTA partners. The ASEAN members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, and the six FTA partner states are India, China, Japan, South Korea, Australia and New Zealand.

RCEP
Map of RCEP member countries

The negotiations for the formation of RCEP had started in 2013, and India had joined the discussions at that time itself. This means that the preparations for joining the RCEP had started during the Congress-led UPA government. Then prime minister Manmohan Singh had attended the ASEAN summit held in Cambodia in November 2012, where the RCEP negotiations were formally launched.

All sixteen members of the RCEP aim to finalise the RCEP deal by November this year, for which Commerce Minister Piyush Goyal is in Bangkok for the eight RCEP ministerial meeting.

When formally finalised, the RCEP will be world’s largest economic block, covering nearly half of the global economy. It is estimated that by 2050, the GDP of RCEP member states is likely to be around 250 trillion USD, with the combined GDPs of India and China making up more than 75% of the amount. The RECP is planned to create an integrated market which will make it easier for trade in products and services among the member countries. The RCEP’s objective is to remove trade barriers and improve market access for businesses in the region.

The proposed RCEP would cover almost every aspect of the economy such as goods, services, investment, economic and technical cooperation, intellectual property rights (IPR), rules of origin, competition and dispute settlement.

Also Read: Congress messed up the FTA they signed and are now blaming others

The RCEP will provide the Indian industry with a large market with low trade barriers. Industries that are competitive will certainly benefit from it.

As the RCEP, like any FTA, involves removing trade barriers, several domestic industries in India are worried that there will be a negative effect of the agreement on them, as they expect that goods from the member countries will be available at cheaper rates in India due to this. Several sectors like dairy, steel, automobile, textile etc are worried about the deal. Most apprehension is the result of China being a part of the RCEP, the global manufacturing powerhouse with whom the Indian manufacturers can’t compete.

Indian industry was not able to take the benefit of the previous FTAs that India signed with other countries, leading to India importing more than its exports to the FTA partners. India’s trade deficit with several countries went up after FTAs were signed with them. And that’s why several industry players are not very optimistic about the RCEP deal.

Due to such apprehensions, India is seeking several changes to the deal, which is delaying the formal signing of the RCEP. It was supposed to be finalised during the ongoing ASEAN meet in Bangkok where PM Modi is present, and while the rest 15 nations are ready with the agreement, India is not ready to sign it yet. According to reports, India is particularly not ready to reduce or eliminate the tariff on several items, fearing threat of cheap imports from China.

India also wants that the base year for determining tariff should be 2019, the year when the deal is going to be finalised, but other nations want it at the 2013 level, when the RCEP talks had started. India had raised tariffs on several items in 2014, which means if 2013 levels are accepted, India will have to accept lower customs duties.

India also wants an auto-trigger mechanism, where in case of a sudden surge in import from a particular country due to the agreement, it can decline the concessions on tariff for some products as per its decision.

There are several other issues where India is seeking modifications of the terms of the agreement, and that’s why more rounds of talks will take place before a final decision is arrived at.

According to some reports, the RCEP members are split over India, while some want to conclude the deal without India, others don’t want a RCEP without India. Malaysia, which is had criticised India over the Kashmir issue, wants to finalise the deal, but the key countries in the ASEAN bloc are not willing to form the RCEP leaving India out.

If India fails to agree with the terms, the rest 15 countries may move ahead and sign the deal without India. That will mean that India will not have to lower tariff for these countries, but it will also mean that Indian industry will not have easy access to this huge market as there will be high trade barriers for India’s exports. So, it is a decision India has to make, whether the country wants access to a huge international market, or whether it wants its domestic market remains protected.

Defending the RCEP, Commerce Minister Piyush Goyal has said that India cannot stay isolated in a globalised world and that it cannot stop its engagements and trade with the rest of the world. “If India remains out of RCEP, we will be left isolated from this large trading bloc. The trade among RCEP countries is about $2.8 trillion. If India sits outside RCEP, whether it is in our interest or against our interest, it is also the responsibility of the government to see. You will want us to engage to find solutions which is in national interest,” he said.

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