essay on india pulling out of rcep

The RCEP minus India: Reasons and Implications

• February 19, 2020
• Asia Pacific , Economics , Policy & Politics , Regional

Introduction

At the ASEAN Summit in Cambodia in 2012, ASEAN countries and six additional partners including India, China, Japan, South Korea, Australia, and New Zealand launched negotiations for a multilateral free-trade agreement. The objective of this agreement, dubbed the Regional Comprehensive Economic Partnership (RCEP), was to increase economic integration by facilitating trade in goods and services, investments, technical cooperation, competitiveness, and intellectual property rights. The RCEP was to be a potent vehicle to support the spread of global production networks and reduce the inefficiencies of the multiple prior Asian trade agreements. Once effective, the RCEP would be the world’s largest economic bloc. As of 2018, the combined population of the member states is 3.5 billion and the total GDP (PPP) is $27.48 trillion. [1]

In early September 2019, several weeks prior to the RCEP’s planned conclusion in November 2019, the trade ministers of the participating countries met in Bangkok to finalize details. The core of the negotiating agenda covered trade in goods and services, investments, economic and technical cooperation, as well as dispute settlement.  The countries released a joint statement declaring their collective desire to resolve outstanding and contentious issues, while affirming the importance of deepening the value chains between the RCEP countries. [2]

Despite the collective commitment of the member states, within India there were several protests and anxieties expressed by farming and industrial constituencies. After two months of deliberations by the Indian government, on November 4, 2019, India decided against joining the RCEP. Invoking Gandhi’s talisman [3] , the interests of his Indian citizens, and his own conscience, Prime Minister (PM) Narendra Modi declined India’s membership in the RCEP. [4]

Major Reasons for India’s Refusal to Join the RCEP

India’s decision to stay away from the RCEP stemmed from efforts to incorporate the concerns of its domestic constituencies. Addressing these domestic push factors will be necessary for resolving the trade disruption and moving forward in beneficial multilateral discussions. 

First, India has been cautious of its trade deficit, given that India’s trade deficits have always widened with nations after signing free-trade-agreements (FTAs) with them. [5]  Further, India’s trade deficit with countries with which it has an FTA has almost doubled over the past six years­­–from $54 billion in 2013-14 to $105 billion in 2018-19. Increasing the trade deficit would deplete India’s foreign exchange reserves. [6]  In 2018-19, 20% of India’s exports went to the RCEP countries and India received 35% of its imports from them. [7]  India has trade deficits with Australia, China, Indonesia, Laos, Myanmar and the Philippines. The following figure shows India’s trade balance with the RCEP countries in 2018-19. 

Second, the RCEP currently has a provision to call on the member countries to lower tariffs and import duties for each other. However, India believes that the RCEP would open the “floodgates for Chinese goods” to enter India, further raise India’s trade deficits, and weaken its anti-dumping duties that it has imposed on Chinese items from the chemicals, iron, and steel industries. [8] , [9]  China is the largest exporter to almost all countries of the group, including India. India already perceives China as enacting “market imperialistic” predatory behavior, which has deepened India’s apprehensions about the RCEP. Further, India suspects that China unfairly subsidizes its exports to India to capture the market. [10]  The RCEP, if made effective in its current state, would lead to three-quarters of future Chinese goods entering India duty free, thereby raising India’s trade deficit with China beyond the current $63 billion. [11]

While there had been no discussions on the requisite tariff cuts from China, India has often sought greater market access in the Chinese market for its goods and services like pharmaceuticals, information technology, and agricultural products; but with limited successes. [12]

India’s dilemma is also exaggerated by fears over the competitiveness of its economy. Once the deal comes into effect, India would need to eliminate the tariffs on 25% of its traded goods and about 35% in a phased manner. Indian industry is wary of the possibility of these cuts, especially in the dairy, metals, electronics, chemicals, and textiles sectors. [13] , [14]  The prevailing slowdown in the economy has been cited as one of the reasons for India’s refusal to join the RCEP. [15]  The International Monetary Fund’s latest World Economic Outlook cut its estimates for India’s growth for 2019 from 7% to 6.1%. Even the 2019 Economic Survey of India calculated economic growth to be 7.2% during 2018-19, which is slightly higher than previous fiscal year, 6.8%. [16] ,  [17] ,  [18]  India needs to sustain a real GDP growth rate of 8% to achieve its objective of becoming a $5 trillion economy by 2024-25. [19]

India has always sought to capitalize on its labor force and wants freer movement of information technology and other skilled professionals among the RCEP members. [20]  Whereas China, Vietnam, and Thailand having strong manufacturing sectors and Australia and New Zealand lead in dairy and agriculture that benefit from the reduction in tariffs,  India feels that its ability, or lack thereof, to export its ‘skilled’ labor force has not been reciprocated in a similar fashion. [21] ,  [22] ,  [23]  India is not comfortable with such a bias, as it wants its workforce to gain from improved access to employment opportunities abroad if it is losing competitiveness in other exports due to the RCEP. [24] ,  [25]

Finally, there are fears that India’s agricultural sector, already in distress, would succumb to RCEP pressures. [26]  India’s farmers would be faced with competitive dairy and agricultural produce, driving them out of profitable businesses. Its large informal economy and its small and marginal farmers constituting a population of around 300 million would be the major victims of market-competition [27] . For example, Rastriya Swamsevak Sangh’s affiliate Swadeshi Jagran Manch (SJM), India’s largest dairy producer, praised India’s decision to withdraw. [28] Yogendra Yadav, a proponent of farmers’ rights, welcomed the government’s step, saying it was a “much needed, and bold decision”. He thanked Prime Minister Modi for the decision taken in the “larger national interest”   . [29]

Reactions of other RCEP member countries on India’s decision

After India’s decision to withdraw from the RCEP in November 2019, the joint statement of the other member countries mentioned that all participating countries would work to solve outstanding problems in a mutually satisfactory way. [30]

Perhaps anticipating India’s withdrawal decision, in September 2019, the Foreign Minister of Singapore Vivian Balakrishnan remarked that the RCEP was poised to be a game-changer, with the potential to secure the prosperity of the members against the anti-trade and anti-globalization winds in the world. [31]  He highlighted the objective of this pact to expand the middle class and inculcate the next generations with a sense of optimism, and that the RCEP members had the responsibility to ensure this through this deal. As a major proponent of this trade deal and a major foreign investor in India and China, Singapore urged the two countries to resolve the issues in their trade relationship. 

Initially, questions were raised whether the RCEP would move forward with or without India. [32]  It now appears that the RCEP will indeed take shape without India. Nonetheless, a few countries have expressed their willingness to work with India to resolve its concerns so that it could join the RCEP when it is ready. [33]  The Chinese foreign ministry officially mentioned that China is willing to continue to negotiate and resolve the problems facing the negotiations with India in the spirit of mutual understanding and accommodation, and that India was welcome to join the RCEP when ready. [34]

Japanese Trade Minister Hiroshi Kajiyama said that Tokyo would work toward a deal including India, and it might consider backing out of an  RCEP minus India. [35] ,  [36]  Success would keep the world’s most populous democracy within the RCEP framework and be in line with Prime Minister Shinzo Abe’s policy of bolstering ties with India along with Australia and the United States, to balance Beijing’s growing naval and territorial expansionism.   [37]  Indonesian Foreign Minister Retno Marsudi  said  that RCEP members would work together to solve India’s problems in a mutually satisfying way. [38]

Had India joined the RCEP,  then …

If India’s concerns and demands are acknowledged and incorporated by the RCEP members and its concerns regarding trade inequality are addressed, then India could join the trade deal. [39]  In such a scenario, India would likely see a manifold increase in the size of its middle class (which at present constitutes its largest demographic) as  access to economic opportunities expand in pursuit of becoming a $5 trillion economy. [40] ,  [41]

Singaporean Foreign Minister Balakrishnan’s remarks on the RCEP’s potential to secure prosperity for its member-states would hold true for India as well. [42]  It would therefore enable India’s move towards attaining the ‘no poverty’ goal under the first Sustainable Development Goal of the United Nations, to which it is a signatory. Through the RCEP, India could stand against the prevailing global trends of protectionism and unilateral policies. [43] ,  [44]

India could utilize the RCEP as a platform to raise grievances over the economic malpractice of other countries with which it has trade relations. Steady discussions and negotiations could lead to changes in foreign economic policies that are not consistent with international trade laws.

Out of the RCEP: Implications for India

The importance of the RCEP cannot be overstated. Due to the withdrawal of the US from the Trans-Pacific Partnership agreement, a move that greatly reduced its scope and efficacy, and the counterbalancing nature of the RCEP as the first trade bloc that groups large economies of the developing world in the Asia-Pacific, the RCEP is the primary support of the entire trade bloc. 

India’s image for supporting multilateralism could be greatly affected by its withdrawal from the RCEP. In addition to giving the appearance that the decision was principally motivated by concerns over China, the decision to withdraw could allocate significance to a multilateral platform consisting of other important countries like Japan, South Korea, Australia, and the ASEAN member-states. India has healthy bilateral relations with each of these countries. Although the joint statement of the RCEP reads that the member countries would work towards resolving India’s concerns, the questions of “when” and “how” remains a mirage. The ambiguity in the process and timeline that member countries have in working towards resolving India’s concerns could eventually lead to an understanding-deficit between India and the other RCEP members. This was lucidly stated by the Indonesian Minister of Trade Enggartiasto Lukita, saying that the RCEP negotiations have reached the “point of no return” and tensions among countries could lead to a loss in the momentum capable of driving positive changes in the world economy. [45]

In a globalized world, competitive economies will find it increasing difficult to keep themselves closed and restrict economic forces. Rather than keeping itself out of the RCEP, India needs to focus on its strengths and areas where it has leverage. Major arguments against joining the RCEP have been that it would destroy local industries, particularly agriculture, dairy, and fisheries, and would worsen the trade deficit. In reality, these industries would still operate and will instead have access to larger markets and cheaper inputs. Consumers would benefit through freer trade, cheaper goods, reliable prices, and newfound influence on domestic producers to produce quality goods at competitive rates. The concerns of India’s industries being flooded with cheap goods with RCEP membership seems unwarranted because it would also gain access to a new market with a population of around 2.5 billion. [46]  Such concerns are direct reflections of the shortcomings of Indian policy in improving domestic infrastructure for primary goods, and imparting skills and competencies to the manufacturing sector. [47] ,  [48] , [49]

While contending that the RCEP would have enormous strategic and foreign policy implications, India underscores the fact that its merits cannot be separated from its economic imperatives. On the brighter side, India would gain from the RCEP membership as it could open the doors for labor-intensive manufacturing in the country. Movement of inputs without tariffs and frictions across borders of 16 countries would make any multinational company established in India doubly competitive.

If operationalized, the RCEP could be the “deal of the Indo-Pacific”. As a multilateral and a pan-regional model with its center of gravity in the Indo-Pacific, it will create enormous opportunities for the member states and promote trade and economic integration under fair trade rules. 

Instead of worrying about the pitfalls of joining the RCEP, New Delhi should use this regional trading bloc to further domestic reforms and remove structural bottlenecks hurting its exports so that it can leave a bigger footprint on the world market. India should not risk getting isolated in the region and must deliberate on getting its concerns addressed to balance its economic and strategic calculations, all while preparing itself to one day spearhead a rules-based “Indo-Pacific century”. [50] , [51]

[1]  The World Bank, Population Total,   https://data.worldbank.org/indicator/sp.pop.totl , Accessed on November 10, 2019

[2]  Association for South East Asian Nations, Joint Statement of the 7th Regional Comprehensive Economic Partnership (RCEP) Ministerial Meeting,  https://asean.org/joint-statement-7th-regional-comprehensive-economic-partnership-rcep-ministerial-meeting/ , Accessed on November 12, 2019

[3]  Gandhi’s talisman:  Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her].

[4]  Association for South East Asian Nations, Joint Statement of the 7th Regional Comprehensive Economic Partnership (RCEP) Ministerial Meeting,  https://asean.org/joint-statement-7th-regional-comprehensive-economic-partnership-rcep-ministerial-meeting/ , Accessed on November 12, 2019

[5]  A Note on Free Trade Agreements and their Costs [5]  by NITI Aayog analyzes multiple FTAs that India has signed over the past decade. See: Saraswat, V.K., P. Priya and A. Ghosh, A Note on Free Trade Agreements and Their Costs, NITI Aayog,  https://niti.gov.in/writereaddata/files/document_publication/FTA-NITI-FINAL.pdf , Accessed on November 12, 2019

[6]  Lokeshwarri, S.K., Worrying signs on the forex reserves front,  The Hindu BusinessLine , August 19, 2018, https://www.thehindubusinessline.com/opinion/columns/lokeshwarri-sk/worrying-signs-on-the-forex-reserves-front/article24731553.ece , Accessed on December 17, 2019

[7]  Department of Commerce, Ministry of Commerce and Industry, Government of India, 2019

[8]  Shah, Amit, View: By saying no to RCEP, PM Narendra Modi has kept India first, The Economic Times, November 13, 2019,  https://economictimes.indiatimes.com/news/economy/foreign-trade/view-by-saying-no-to-rcep-pm-modi-has-kept-india-first/articleshow/72028437.cms?from=mdr , Accessed on December 17, 2019

[9]  Ministry of Commerce & Industry, Impact of Cheap Imports on Industrial Production, Press Information Bureau, February 11, 2019,  https://pib.gov.in/PressReleasePage.aspx?PRID=1563769 , Accessed on December 17, 2019

[10]  ibid

[11]  Ghosh, Nilanjan, Pal, P., Chakrabarty, J. and R. Ray, China-India Relations in Economic Forums: Examining the Regional Comprehensive Economic Partnership, ORF Occasional Paper,  https://www.orfonline.org/wp-content/uploads/2018/08/ORF_OccasionalPaper_162_RCEP.pdf , Accessed on November 13, 2019

[12]  Sen, A. China should give India greater market access to improve trade ties: Sitharaman,  The Hindu Businessline , January 16, 2018,  https://www.thehindubusinessline.com/economy/china-should-give-india-greater-market-access-to-improve-trade-ties-sitharaman/article9214597.ece , Accessed on December 29, 2019

[13]   Rajya Sabha TV , India’s World: RCEP – Challenges & Way Forward,  https://www.youtube.com/watch?v=bGvN2uqNGoo , Accessed on October 22, 2019

[14]  Nataraj, G., RCEP an opportunity before Asian giants to show a united front,  Live Mint , October 23, 2019,  https://www.livemint.com/opinion/online-views/opinion-rcep-an-opportunity-before-asian-giants-to-show-a-united-front-11571771846921.html , Accessed on December 17, 2019

[15]  Dutta, P.K., 5 reasons why PM Modi pulled out of RCEP in Bangkok,  India Today , November 5, 2019,  https://www.indiatoday.in/news-analysis/story/5-reasons-why-pm-modi-pulled-out-rcep-in-bangkok-1615825-2019-11-05 , Accessed on November 21, 2019

[16]  Ministry of Finance, Government of India, Economic Survey of India 2019-20, Department of Economic Affairs, Economic Division, New Delhi.

[17]  International Monetary Fund, World Economic Outlook, Global Manufacturing Downturn, Rising Trade Barriers, Washington D.C. p. 10.

[18]  Ministry of Finance, Government of India, State of the Economy in 2018-19 – A Macro View, Press Information Bureau,  https://pib.gov.in/newsite/PrintRelease.aspx?relid=191212 , Accessed on December 17, 2019

[19]   The Economic Times , Budget 2019: FM Nirmala Sitharaman lays down 10-point vision for $5 trillion economy, July 5, 2019,  https://economictimes.indiatimes.com/news/economy/policy/budget-2019-fm-nirmala-sitharaman-lays-down-10-point-vision-for-5-trillion-economy/videoshow/70086488.cms , Accessed on December 17, 2019

[20]   The Hindu Business Line , India convinces RCEP members to commit on easing worker movement, September 4, 2018,  https://www.thehindubusinessline.com/economy/india-convinces-rcep-members-to-commit-on-easing-worker-movement/article24865778.ece , Accessed on December 17, 2019

[21]  Felipe, Jesus, Utsav Kumar and Arnelyn Abdon, 2018, Exports, Capabilities, and Industrial Policy in India, Working Paper No. 638, Levy Economics Institute,  http://www.levyinstitute.org/pubs/wp_638.pdf , Accessed on December 29, 2019

[22]  Lomas, M., Which Asian Country Will Replace China as the ‘World’s Factory’?,  The Diplomat , February 18, 2017,  https://thediplomat.com/2017/02/which-asian-country-will-replace-china-as-the-worlds-factory/ , Accessed on December 29, 2019

[23]  Xu J, Wu Y., 2018, A Comparative Study of the Role of Australia and New Zealand in Sustainable Dairy Competition in the Chinese Market after the Dairy Safety Scandals. International Journal of Environmental Research and Public Health. 15(12):2880

[24]   The Hindu Business Line , India convinces RCEP members to commit on easing worker movement, September 4, 2018,  https://www.thehindubusinessline.com/economy/india-convinces-rcep-members-to-commit-on-easing-worker-movement/article24865778.ece , Accessed on December 17, 2019

[25]  Mitra, D. Why India needs to rethink its decision to opt out of RCEP, The Economic Times, November 15, 2019,  https://economictimes.indiatimes.com/news/economy/policy/why-india-needs-to-rethink-its-decision-to-opt-out-of-rcep/articleshow/72061734.cms , Accessed on December 16, 2019

[26]  Biju, K.V., Don’t drive Indian farmers to suicide through RCEP, Down To Earth, November 3, 2019,  https://www.downtoearth.org.in/blog/economy/don-t-drive-indian-farmers-to-suicide-through-rcep-67565 , Accessed on December 17, 2019

[27]  Department of Agriculture and Cooperation, Government of India, Agriculture Census 2015-16, National Informatics Center,  https://agcensus.nic.in/document.html , Accessed on January 24, 2020

[28]   The Hindu   Business Line ,  https://www.thehindubusinessline.com/economy/agri-business/fervent-appeals-pay-dairy-players-rejoice-centres-rcep-decision/article29886142.ece , Accessed on November 2, 2019

[29]   The Hindu   Business Line ,  https://www.thehindubusinessline.com/economy/agri-business/fervent-appeals-pay-dairy-players-rejoice-centres-rcep-decision/article29886142.ece , Accessed on November 2, 2019

[30]  Association for South East Asian Nations, Joint Leaders’ Statement on the Regional Comprehensive Economic Partnership (RCEP), 4 November 2019, Bangkok, Thailand,  https://asean.org/storage/2019/11/FINAL-RCEP-Joint-Leaders-Statement-for-3rd-RCEP-Summit.pdf , Accessed on November 5, 2019

[31]  Garekar, B., RCEP will be game changer, says Vivian Balakrishnan, urging India to join the mega trade deal,  The Strait Times , September 9, 2019,  https://www.straitstimes.com/singapore/rcep-will-be-a-gamechanger-says-vivian-balakrishnan-urging-india-to-join-the-mega-trade , Accessed on October 29, 2019

[32]  Mahadevan, R. and A. Nugroho, RCEP must move forward, with or without India,

East Asia Forum, September 19, 2019,  https://www.eastasiaforum.org/2019/09/19/rcep-must-move-forward-with-or-without-india/ , Accessed on December 16, 2019

[33]  The Japan Times, India’s exit from RCEP leaves Japan and China unsure about future direction of free trade pact, November 5, 2019,  https://www.japantimes.co.jp/news/2019/11/05/asia-pacific/asian-rcep-nations-effectively-give-year-end-goal-free-trade-deal/#.Xfi-QtYzY1g , Accessed on December 16, 2019

[34]   The Hindu ,  https://www.thehindu.com/news/national/will-resolve-outstanding-issues-raised-by-india-for-not-joining-rcep-china/article29889318.ece , Accessed on November 5, 2019

[35]  India’s exit from RCEP leaves Japan and China unsure about future direction of free trade pact,  The Japan Times,  November 5, 2019,  https://www.japantimes.co.jp/news/2019/11/05/asia-pacific/asian-rcep-nations-effectively-give-year-end-goal-free-trade-deal/#.XcZsZ0UzY1g , Accessed on November 6, 2019

[36]  Reynolds, I. Japan not in the mood to join RCEP if India doesn’t come on board,  Business Standard , November 28, 2019,  https://www.business-standard.com/article/economy-policy/japan-not-in-the-mood-to-join-rcep-if-india-doesn-t-come-on-board-119112900271_1.html , Accessed on December 16, 2019

[37]  Abe, S. 2012, Asia’s Democratic Security Diamond,  Project Syndicate , December 27, 2012,  https://www.project-syndicate.org/onpoint/a-strategic-alliance-for-japan-and-india-by-shinzo-abe?barrier=accesspaylog , Accessed on December 16, 2019

[38]   New Strait Times , India’s Exit from RCEP Leaves China and Japan at Odds, November 6, 2019,  https://www.pressreader.com/malaysia/new-straits-times/20191106/281797105802954 , Accessed on November 10, 2019

[39]   The Hindu , Could join RCEP if demands are met, says Piyush Goyal, November 5, 2019,  https://www.thehindu.com/news/national/could-join-rcep-if-demands-are-met-says-piyush-goyal/article29891273.ece , Accessed on November 7, 2019.

[40]  Krishnan, S. and Hatekar, 2017. Rise of the New Middle Class in India and Its Changing Structure,  Economic and Political Weekly , 52(22): 40-48

[41]  Federation of Indian Chambers of Commerce and Industry (FICCI), 2019. India’s vision of $5 trillion economy is doable, possible and shall be done – Piyush Goyal,  http://www.ficci.in/pressrelease-page.asp?nid=3574 , Accessed on January 20, 2020

[42]  Garekar, B., RCEP will be game changer, says Vivian Balakrishnan, urging India to join the mega trade deal,  The Strait Times , September 9, 2019,  https://www.straitstimes.com/singapore/rcep-will-be-a-gamechanger-says-vivian-balakrishnan-urging-india-to-join-the-mega-trade , Accessed on October 29, 2019

[43]  United Nations Development Program, Sustainable Development Goal 1, 2019. Available at:  https://www.undp.org/content/undp/en/home/sustainable-development-goals/goal-1-no-poverty.html , Accessed on October 29, 2019

[44]   The Economic Times , RCEP: Jaishankar says India concerned over “enormous” trade deficit with China, September 9, 2019,  https://economictimes.indiatimes.com/news/economy/foreign-trade/rcep-jaishankar-says-india-concerned-over-enormous-trade-deficit-with-china/articleshow/71051623.cms?from=mdr , Accessed on December 16 2019

[45]  Hejimans, P. and R. Rahadiana, Stalled Asia Trade Pact at ‘Point of No Return,’ Indonesia Says,  Bloomberg , September 9, 2019,  https://www.bloomberg.com/news/articles/2019-09-10/stalled-asia-trade-pact-at-point-of-no-return-indonesia-says , Accessed on November 1, 2019

[46]   The Telegraph , Dumping fears grip firms, November 4, 2019,  https://www.telegraphindia.com/business/dumping-fears-grip-firms/cid/1716865 , Accessed on January 20, 2020

[47]  Lal, S. and A. Patwardhan, Can experimental research techniques cure the problem of infrastructure contract failure in India?, World Bank Blogs, December 23, 2019, https://blogs.worldbank.org/governance/can-experimental-research-techniques-cure-problem-infrastructure-contract-failure-india, Accessed on January 20, 2020

[48]  Chenoy, D., S. Mishra Ghosh and S.K. Shukla, 2019. Skill development for accelerating the manufacturing sector: the role of ‘new-age’ skills for ‘Make in India’,  International Journal of Training Research , 17(sup1), 112-130,  https://www.tandfonline.com/doi/pdf/10.1080/14480220.2019.1639294?needAccess=true , Accessed on January 20, 2020

[49]  Majumdar, S., 2008. Asian Development Bank Institute, Workforce Development in India-Policies and Practices, Asian Development Bank Institute (ADBI), Japan,  https://www.adb.org/sites/default/files/publication/159351/adbi-workforce-dev-india.pdf , Accessed on January 20, 2020

[50]  Scott, D. India and the Allure of the ‘Indo-Pacific’,  International Studies , 49(3&4): 1–24

[51]  Brewster, D. The Indo-Pacific century, Policy Forum, August 10, 2016,  https://www.policyforum.net/indo-pacific-century/ , Accessed on December 17, 2019

Simi Mehta holds a PhD in American Studies from the School of International Studies, Jawaharlal Nehru University, and was a Fulbright Fellow at the Ohio State University. She serves as the CEO and Editorial Director of the Impact and Policy Research Institute (IMPRI). Her areas of research include US' and India’s agriculture and foreign policies, international security studies, sustainable development, climate change, gender justice, urban environment and food security.

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INDIA’S EXIT FROM RCEP: THE RIGHT AND THE WRONG

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15 Asia-Pacific countries — with a combined gross domestic product (GDP) of over $26 trillion and com-prising nearly one-third of the world's population — signed the the Regional Comprehensive Economic Partnership (RCEP), on November 15. The study examines India’s economic reasons for not joining the world’s biggest trade agreement and the debate around it; the strategic context to India staying out of the RCEP; that growth would be ‘suboptimal’ without RCEP; at stake would be India’s Act East policy and Indo-Pacific strategy etc

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Understanding India’s Withdrawal from RCEP

Syllabus: GS 2/International Relations 

Key Points 

• Following the implementation of RCEP, China saw notable enhancement in its trade surplus with nations where it previously maintained a positive trade balance.
• Simultaneously, there was a substantial reduction in the trade deficit with countries that previously exhibited a negative trade balance.

Regional Comprehensive Economic Partnership (RCEP)

• It is a free trade area (FTA) consisting of 10 ASEAN members ( Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam) and five of the bloc’s dialogue partners — China, Japan, South Korea, Australia and New Zealand.
• The landmark agreement was signed in November 2020 and It came into force in January 2022.
• Together, these RCEP participating countries account for about 30% of the global GDP and 30% of the world population.
• The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region.

India’s withdrawal from RCEP

• India was a founding member of the RCEP. In 2019, India decided to withdraw from the RCEP negotiations.
• Amendments in tariff differentials,  
• Alterations in the base rate of customs duty,
• Modifications to the most favoured nation (MFN) rule,
• Incorporation of certain exemptions into ratchet obligations within the agreement, and 
• The recognition of India’s federal character in investment determinations.

China Factor 

• The fear was that India’s trade deficit could widen further if it opened its markets to cheaper Chinese goods without commensurate market access for Indian products in other RCEP countries. 
• There was increased opposition from various industry segments and bodies, raising doubts about how RCEP would bring about a difference considering that comparable benefits hadn’t materialised from certain existing FTAs.

Analysis of  withdrawal 

• Analysing exclusively from the standpoint of BoT with China, initial data indicates that India’s decision to abstain appears to be one of foresight.
• Early trends indicate that this stance was crucial in safeguarding India’s domestic manufacturing base, especially the MSME sector.
• Opening up the Indian market to RCEP members, particularly China, could have had an adverse impact on the country’s manufacturing sector and some of the flagship initiatives of the government like the Production Linked Incentive (PLI) scheme.
• Now India along with some countries is getting into the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF)

Benefits of RCEP

• Promotes economic growth and regional stability.
• Encourages investments
• Enhances competitiveness and innovation
• Streamlines trade procedures and regulations.

Conclusion and Way Forward 

• It must be noted that the impact of an FTA cannot be assessed relying solely on the movement of goods; services and investments must also be considered.
• Relying heavily on China, especially for crucial inputs, could potentially undermine our ability to assertively address any misconduct by that nation. 
• Thus, by ensuring a degree of self-sufficiency, India can not only safeguards its economic interests but also take a firm stance in response to any unfavourable actions by China.

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Argument: Why India Refused to Join the World’s Biggest Trading Bloc

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Why India Refused to Join the World’s Biggest Trading Bloc

New delhi chose protectionism over the rcep. history suggests it made the wrong call..

• Sumit Ganguly

On Sunday, Nov. 15, 15 Asian nations representing nearly a third of the global economy signed the Regional Comprehensive Economic Partnership (RCEP), forming the world’s biggest trading bloc. But one Asian economic giant was missing: India. Despite protracted negotiations, New Delhi refused to join the accord.

Once implemented, the RCEP will either reduce or eliminate tariffs on a range of goods and services and set up rules on investment and competition, and ensure protections for intellectual property. Economists and policy analysts have argued that India would in fact benefit from joining the RCEP. Besides the obvious upside to domestic consumers in the form of cheaper and higher quality products, the specific advantage of the RCEP lies in the opportunity it provides Indian firms to participate in global value chains and in attracting foreign investment. India’s experience with past free trade agreements shows that these deals have led to increases in exports to Thailand, Cambodia, Vietnam, Malaysia, and the Philippines. Cheaper imports of goods and industrial supplies from countries such as Japan have increased India’s productive capacity. Analysts have further argued that joining the RCEP would create jobs and sustain economic growth. There were compelling political reasons for joining the RCEP as well: Being a signatory would have given India the opportunity to shape the agreement in the future. And staying out of the deal isolates India, limiting its ability to shape the emerging trade architecture.

The potential benefits notwithstanding, India’s refusal to accede to the agreement was not entirely surprising. For decades, New Delhi has followed a highly protectionist set of economic policies as part of its historic commitment to a strategy of import-substituting industrialization. It was only in the aftermath of an unprecedented financial crisis in 1991 that the country gradually moved to dismantle an array of tariff barriers. Even though India’s integration into the global economy increased dramatically during the last 30 years, New Delhi’s rhetoric in trade negotiations has remained mostly protectionist. And this tone has become more pronounced during the administration of Prime Minister Narendra Modi, which focused on a “Make in India” strategy early in its tenure. Most recently, even before the coronavirus pandemic cratered the Indian economy, it announced a policy of economic self-reliance— atmanirbhar in Hindi—designed to boost domestic industry. In some ways, these policies harked back to a previous era when the pursuit of economic self-reliance was an integral component of India’s developmental strategy.

India’s refusal to accede to the agreement was not entirely surprising.

Aspects of India’s experience with free trade agreements have reinforced an ideological narrative of the importance of self-reliance. Even though the government’s own research has shown that India has, in sum, benefited from the trade agreements it has signed in the past, critics have pointed out that as a result of previous agreements, India has negative trade balances with several RCEP member countries. Critics have also linked such agreements, such as FTAs with Japan, South Korea, and ASEAN, to the decline of manufacturing in India. Subrahmanyam Jaishankar, India’s minister for external affairs, recently argued that trade deals have led to deindustrialization, and while the minister did not mention specific sectors, trade associations argue that industries such as electronics and light manufacturing have suffered on account of FTAs. There is no denying that policy and regulatory reforms and the effort to build a supportive infrastructure did not accompany past trade deals, limiting potential gains from FTAs. One of the biggest complaints is that the absence of safeguards in former FTAs have allowed an unchecked flow of Chinese imports into India.

Apart from the legacies of the past, both national political parties, the ruling Bharatiya Janata Party (BJP) and the principal opposition party, the Indian National Congress, despite significant other ideological differences, share a common distrust of free market economics. As a result, the BJP has faced little hostility from its most significant political rival when rejecting trade pacts. In fact, the negative tone of the narrative around past FTAs, many of which were negotiated during the Congress-led administration between 2004-14, might have led the opposition to vehemently oppose RCEP.

Both national political parties share a common distrust of free market economics.  Apart from the ideological distaste of free trade there are at least two other compelling reasons for India’s intransigence. First, rapidly dismantling tariff barriers would prove costly for a number of Indian industrial enterprises that are not globally competitive. Unsurprisingly, significant segments of Indian industry, such as those of steel, plastic, copper, aluminum, paper, automobiles, and chemicals, lauded the decision to steer clear of the RCEP.

Second, India’s politicians are also beholden to India’s vast farm lobby. Many Indian farmers, for legitimate reasons, believe that a swift opening up of the country’s markets to foreign agricultural products could place them at a significant disadvantage. Large-scale reforms could prove costly—and even wipe out—the small, family-owned farms which dot the country’s landscape. Dairy farmers are particularly opposed to offering market access to foreign producers as they fear competition from the competitive, and more industrialized, dairy industries in Australia and New Zealand.

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While there is significant opposition to RCEP from agriculture and industry, one would expect India’s service sector to advocate for joining the agreement. According to World Trade Organization data , India was the world’s eighth largest service exporter and ninth largest service trader in 2018 and is known as a powerhouse in the areas of information technology and business services. Indeed, Indian IT firms have lobbied for greater access into RCEP member country markets. But the nature of India’s IT exports involves cross-border movement of professionals. IT firms have, accordingly, sought concessions relating to restrictive business visa rules, statutory compliance costs, and domestic tax regimes, particularly in China. These issues tend to get embroiled in domestic immigration and regulatory policy debates and have proven to be particularly challenging to negotiate. While the RCEP has promised some service sector liberalization, member countries have not offered concessions on such cross-border movement of professionals, a key interest for India.

In other areas of service trade, India is more defensive and is not yet ready to open its markets. E-commerce is one such example in which India’s policy framework and lack of a regulatory environment prevents it from opening up its market. Other RCEP members have emerged as large service exporters. China, for example, is a prominent exporter of infrastructure, logistics, and technology. According to the same WTO data, China was also the fifth largest and the fastest growing service exporter in 2018. As this analysis of sectoral interests demonstrates, there is no strong constituency in favor of the deal while there are several vocal ones opposed to it.

Crafting a free trade deal with the United States will not be easy either. India’s exit from the RCEP may have as much to do with economic interests as it does with broader trade strategy and geopolitics. The Modi government has sought to reset its approach to free trade agreements by shifting its focus away from Asia to the United States, the European Union, and the United Kingdom. Such a strategy would counter those who argue that leaving the RCEP will isolate India with respect to multilateral trade agreements. However, as past experience has shown, crafting a free trade deal with the United States will not be easy either. Washington usually demands much higher standards in its trade agreements than what is present in RCEP, a requirement that is particularly true of issue areas such as investor-state disputes and intellectual property rights.

New Delhi has gambled that by not joining the RCEP and building a self-reliant India, it would be in a position to craft future FTAs from a position of strength. That is an unlikely scenario. As China’s accession to the World Trade Organization demonstrated, joining an existing deal requires paying a higher price in terms of trade concessions. Further, not joining RCEP robbed India of the chance to play a role in setting norms in new issue areas in trade such as e-commerce.

Building an economically strong India requires reforming New Delhi’s policy and regulatory environment and revisiting and renegotiating past agreements. Staying out of new ones is not the answer.

Surupa Gupta is professor in the department of Political Science and International Affairs at the University of Mary Washington.

Sumit Ganguly is a columnist at Foreign Policy and visiting fellow at the Hoover Institution at Stanford University. He is a distinguished professor of political science emeritus at Indiana University Bloomington.

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India’s Out of RCEP: What’s Next for the Country and Free Trade?

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India’s foreign trade policy must be aligned to its self-reliance goals. But it also needs to work towards making domestic industries competitive.

The Regional Comprehensive Economic Partnership (RCEP), a mega free trade agreement (FTA) was  signed recently by 15 nations, namely the 10 ASEAN states, Japan, South Korea, China, Australia, and New Zealand. India had decided to walk out of trade pact in November 2019 , when Prime Minister Narendra Modi stated: “Whenever I try and gauge India’s interest in light of her joining RCEP, I do not get an answer in the affirmative; neither Gandhiji’s policy of self-reliance nor my wisdom allows me to join RCEP.”

India’s decision to exit the mega trade deal was taken after negotiating the deal for seven years in the backdrop of several unresolved issues concerning market access for China, non-tariff barriers faced by Indian exporters, services trade, and rules of origin criteria, among other issues. While India was often tagged as the “troublemaker” in the deal negotiations, Indian policymakers stood their ground firmly when it came to the interests of domestic producers, especially regarding Chinese exports of subsidized goods to India. Apart from economic factors, India’s decision to not join RCEP had a strategic dimension given China’s domination of, and leading role in, the pact. Since Modi’s announcement, the Line of Actual Control standoff with China in Ladakh has sealed India’s decision to stay firm and leaves no space for any further trade negotiations involving its northern neighbor.

Make no mistake, India had no option but to exit the pact. RCEP in its present form would have not served any purpose for the country. A NITI Aayog paper titled “India’s FTAs and Its Costs,” which we have co-authored with Dr. V.K. Saraswat, a NITI Aayog member,  highlighted India’s experience with its previous FTAs and its reasons for not joining RCEP. The post-pandemic world trade landscape and its associated challenges; China’s unfair trade practices and its constant endeavor to side-line issues critical for Indian industry in RCEP; and, most importantly, rising border disputes with China reiterate that India did the right thing by staying out of RCEP.

Having exited the mega trade deal, the pertinent question is what next for India on trade strategy? In the following we provide some answers.

Choosing Strategic Partners for Free Trade 

The United States and Europe have been India’s traditional trade partners. Given huge trade complementarities between India and these countries, they are our natural allies for trade. Despite having FTAs with major Asian economies like ASEAN, Japan, and South Korea, India’s exports share in these has declined from 51 percent to 46 percent in the last decade. The U.S. and Europe’s share in India’s exports have, on the other hand, increased from 38 percent to 43 percent even though we do not yet have FTAs with these economies. It is time for India to now kickstart the India-EU trade negotiations that haven’t seen the light of the day due to pending issues when it comes to automobiles, pharmaceuticals, data security, alcoholic beverages, and services trade. With the U.S. too, the incoming Biden administration is expected to bring in more policy stability and the U.S. may not close its doors to a limited trade deal with India (before a full-fledged trade deal) as it plans to build a unified front of democracies against China. Focus on deep bilateral trade deals instead of multilateral ones should be India’s goal for the time being.

Getting India’s House in Order First

India ranks 68th out of 141 countries in the World Economic Forum’s Global Competitiveness Report and slipped 10 places in 2019 compared to 2018, with low overall scores for infrastructure, information and communication technologies adoption, skills, labor market, and business dynamism. That India’s manufacturing sector has been an under-performer is no secret. The share of manufacturing in overall GDP has stagnated at around 16-17 percent in the past decades. The manufacturing sector is critical to economic development in a vast and populous country like India as the multiplier effect leads to two to three additional jobs created in other sectors for every job created in the sector. Thus, first and foremost India requires a well-crafted industrial policy to address key concerns of the manufacturing sector, including addressing critical issues deterring industrial competitiveness. Multiple factors have led to India’s poor manufacturing performance and low competitive score, including cost and quality of power, high logistics cost (14-15 percent of GDP compared to the 9 percent global benchmark), low labor productivity, and low R&D expenditure (0.7 percent compared to 2-4 percent globally). A targeted industrial policy addressing these issues is the need of the hour.

Incentive Schemes – While Welcome – Are Not Enough

The Production Linked Incentive (PLI) scheme is a good initiative by the government as it incentivizes investment by manufacturers by providing them with an incentive of a certain percentage on the incremental sale of goods based on certain eligibility criteria for five years. This is a step in the right direction, and India is doing this at an opportune time when multinational companies are looking to establish manufacturing bases outside of China. The scheme is expected to give a boost to sectors where India has a comparative advantage and help India integrate into the global supply chain. The finance minister recently expanded the scheme to 10 new sectors from three initial sectors (pharma, mobile manufacturing and medical devices) under the AtmaNirbhar Bharat (“Self-Reliant India”) program. The 10 new sectors include battery storage, electronics, solar PV modules, auto & auto components, telecom and networking products, textiles, food processing, specialty steel and white goods (air conditioners and LED devices). The PLI scheme also focuses on specific sectors that have been chosen based on their inherent potential and ability to scale up globally. However, business decisions are not taken purely on incentive-based manufacturing but on the overall business and macro environment. Thus, PLI is no alternative to addressing inherent structural issues plaguing India’s domestic manufacturing sector.

Phasing Out Import Duty Protection Gradually 

Safeguarding domestic interests is imperative in the post-COVID world. However, AtmaNirbhar Bharat does not mean resorting to protectionism as good quality imports are inevitable in sectors where domestic capability is lacking. Indian industry needs to be made aware that unlimited protection will do it more harm than good; gradual phasing out import tariffs from time to time, especially with strategic trade partners, should be the norm as critical/champion sectors grow with government hand-holding over time. This does not, however, mean opening India’s markets to trade partners who resort to unfair trade practices and dumping of goods.

Aligning Foreign Trade Policy with AtmaNirbhar Bharat

India’s foreign trade policy for the next five years (2021-25) is also due. India is also revamping its export subsidy (Merchandise Exports from India Scheme, MEIS) scheme to a WTO compliant scheme, the Remission of Duties or Taxes on Export Products (RoDTEP), which will reimburse taxes like electricity duty, VAT on fuel, coal cess (and additional tax) etc. that are not refunded under any other existing scheme. The government has itself stated that MEIS did not fulfill its stated objective of boosting exports. Hence it is necessary that RoDTEP rates and the targeted sectors meet the stated objective. Aligning the goals of foreign trade policy to the AtmaNirbhar Bharat goals is critical at this juncture. Trade facilitation, compliance, and ease of trading are issues that need to be addressed for exporters such that the manufacturing sector can realize its full potential.  

The Indian industry needs to rise to the occasion now and make full use of government’s concerted efforts toward scaling up the manufacturing value chain through schemes like PLI, champion sector reforms, RoDTEP, and many more. However, efforts to raise domestic competitiveness by addressing issues related to logistics, power, labor market productivity, and R&D should be continuous and sustainable. Short-term schemes like the PLI are helpful but cannot be a long-term alternative to structural reforms.

RCEP is over for India, but free and fair trade is not.

Prachi Priya is a Mumbai-based economist; Aniruddha Ghosh (Twitter: @ani_econ) is a Ph.D. student at Johns Hopkins University. Views are personal.

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India’s RCEP exit a setback, but not a disaster

With an India–China deadlock out of the way, the path is clear to finalise the historic regional trade agreement.

India’s decision to withdraw from the Regional Comprehensive Economic Partnership (RCEP) agreement has been framed as a catastrophe. Coming at a time of growing rivalries among the major global powers, most analysts have argued it augurs poorly for political cooperation and economic integration in the Indo-Pacific.

But while India’s RCEP exit is definitely a setback, it is not a disaster. And if it clears the way for this landmark trade agreement, it may have silver lining.

RCEP is a very large agreement with systemic impact on regional and global trading systems. Now comprised of 15 economies with a combined 29% share of world GDP, it is on par with NAFTA and larger than the EU. It also brings together a diverse range of countries, from developing economies in Southeast Asia to global powerhouses such as Japan, Korea, and China.

RCEP runs against the prevailing tide of hostilities and sends a strong message that regional governments are committed to a cooperative, multilateral, and rules-based economic order.

Somewhat understandably, this required a devilishly complicated process. Since first mooting in 2011, there have been 29 rounds of formal negotiations and dozens more intersessional dialogues and ministerial meetings. Brokering consensus among many governments over trade rules for tens of thousands of products is neither a quick nor easy task.

In recent years, progress began to slow, due to a growing rift between India and China. India, which maintains some of the most protectionist trade policies in the region, expressed concerns that its market would be flooded by Chinese imports. Its requests for special India-China arrangements have been opposed, as this would not be in keeping with RCEP’s design as a genuinely multilateral bloc.

Whether Indian fears of a Chinese “import surge” are valid or not, it has become clear that India is neither comfortable nor ready to join a multilateral trade agreement with other major economies.

India’s withdrawal is certainly a heavy blow. India is a major regional economy and will be one of the world’s fastest growing in the next 20 years. It is also a strategic partner for many countries in the Indo-Pacific, and will now find itself on the outside of a core piece of the regional architecture.

India’s departure, however, also clears the way for negotiations. With China-India negotiations at a deadlock, there was no feasible landing point that would produce a robust RCEP agreement. The remaining 15 members have declared their intent to finish the final arrangements – without India – and sign the agreement in 2020. For the first time in RCEP’s history, the finish line is now in sight.

Australian audiences should remember there had been suggestions the China-India deadlock could be circumvented by reducing RCEP to the ASEAN Plus Three only. This would have removed India, Australia and New Zealand from the negotiations. India’s unilateral exit this week keeps Australia at the table.

RCEP will also be an important piece of the regional economic architecture. While it will likely contain only modest market access gains for Australian exporters, it must be remembered that RCEP is primarily a developing-country trade bloc. These economies must manage developmental challenges in a number of sensitive sectors, such as agriculture and services. Measured by the reform capability of its membership, RCEP is reasonably ambitious.

Perhaps more importantly, RCEP will deliver a single and integrated set of trade rules for the Indo-Pacific. This will put the region on par with North America and Europe, who have had integrated trading arrangements for over two decades. It will also help unlock cross-border value chains, which need region-wide trade rules to manage industries spread over multiple countries.

Finally, we should remember the geopolitical context in which RCEP is being created. The world today is beset by trade warfare and economic conflict, with global growth spluttering as a result. Meanwhile, trusted international institutions such as the World Trade Organization are crumbling under protectionist attacks. RCEP runs against the prevailing tide of hostilities and sends a strong message that regional governments are committed to a cooperative, multilateral, and rules-based economic order.

India’s RCEP withdrawal is disappointing for the Indo-Pacific. But in the current climate, a successful agreement is too important to the region to delay.

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EFSAS Commentary

India’s sound decision to exit the china-led asia-pacific rcep.

One of the biggest free trade deals ever, the Regional Comprehensive Economic Partnership (RCEP) was signed on 15 November between the ten member-countries of the Association of Southeast Asian Nations (ASEAN) and five of its six trade partners, China, Australia, Japan, South Korea and New Zealand. The sixth, India, had in November last year opted out of the RCEP after participating in 28 out of the 31 rounds of negotiations over its formation ever since the proposal to create the economic grouping had been mooted in 2011. India said that its decision had been dictated by the RCEP’s inability to “address satisfactorily India’s outstanding issues and concerns” . The signing of the RCEP last Sunday has, quite expectedly, again ignited a vibrant debate on whether India’s decision to stay out will only serve to inhibit the potential rapid economic recovery and growth that a post-COVID-19 world will shriek out for. The counter argument has been that India’s decision to prioritize the immediate-term protection of its own farmers and businesses cannot at all be faulted, and that the desirability of exercising caution against any Chinese-dominated grouping had morphed into an imperative for India after the recent Chinese belligerence along the Line of Actual Control (LAC) in Ladakh.

The RCEP covers in excess of 2.2 billion people, and it accounts for 30 percent of the world’s economy. It was first proposed at the 19th ASEAN meet in November 2011 with the aim of creating a consolidated market for the 10 ASEAN member countries and their trade partners. It was formally announced in Phnom Penh, Cambodia in November 2012 as an initiative to encourage trade, and negotiations on RCEP involving all 16 countries that began in 2013. The guiding principles of RCEP state that “The objective of launching RCEP negotiations is to achieve a modern, comprehensive, high quality and mutually beneficial economic partnership agreement among the ASEAN member states and ASEAN’s FTA (free trade agreement) partners” , and that the RCEP aims to create a “liberal, facilitative and competitive investment environment” in the Asia-Pacific region. The RCEP is slated to progressively lower tariffs over the next 20 years, and it aims to counter protectionism, boost investment and allow freer movement of goods within the region. It also includes rules on intellectual property, telecommunications, financial and professional services, and e-commerce.

At the time that the RCEP was announced in 2012, talks for another major trade pact for the Asia-Pacific, the Trans-Pacific Partnership (TPP) led by the United States (US), were already underway. The key features of TPP included comprehensive market access, regional approach to commitments, inclusive trade, regional integration, and addressing new trade challenges. Even though RCEP negotiations were led by ASEAN, some observers viewed the RCEP as a Chinese counter to the increasing US influence in the region. US President Donald Trump, much to the delight of China, decided to pull the US out of the TPP in 2017 while describing it as a “potential disaster” for America, one that would harm manufacturing in the US. The remaining 11 countries in the TPP, however, went on to renegotiate the pact, and signed the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018.

Analysts believe that the RCEP is a weaker trade deal when compared to the CPTPP. They base their view on the fact that tariffs among many RCEP member countries are already low given the existing bilateral or smaller multilateral trade deals among them. This will mean that the direct economic benefits will be limited. Gareth Leather, senior Asia economist at consultancy Capital Economics, for example, pointed out that more than 70 percent of trade among the 10 ASEAN countries is conducted with zero tariffs. Hence, additional tariff reductions under RCEP “will only come into force gradually, and it will be years before the treaty is fully operational” , Leather added. Others have opined that while China and some of the other larger economies of the RCEP could gain from the grouping, the potential benefits for smaller economies remained uncertain.

Most of the key countries in the RCEP wanted India on board, and they still do. Not only were India’s huge population and its huge market seen as being economically enticing, countries with a democratic inclination such as Japan and New Zealand, to name just two, also valued the strategic balance against communist China that India would provide within the grouping. Hence, other members of the grouping expressed hope that India would eventually join at a subsequent stage, even after Indian Prime Minister Narendra Modi told the RCEP Summit in Bangkok on 4 November 2019 that he had come to the conclusion based on the possible impact that the RCEP would have on the “lives and livelihood of all Indians, especially vulnerable sections of the society” that “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, it is not possible for India to join the RCEP agreement” . Singapore Prime Minister Lee Hsein Loong, for example, said that he was “hoping that India too will be able to come on board at some point” . The other member nations have also maintained that the doors will always remain open for India’s participation in the RCEP.

India’s reasons for opting out were many. The direction in which the negotiations were proceeding led it to assess that participation in the RCEP would expose Indian producers and manufacturers to a flood of cheap and mainly Chinese-made imports, which were often State-subsidized. The resultant unequal trade flow would have jeopardized millions of local businesses, industries and jobs. India’s exports, on the other hand, are often blocked by China’s recourse to non-tariff barriers. China already enjoys a huge trade surplus with India, which as per official Indian statistics hit $48.6 billion in the 2019-20 fiscal year.

Indian officials have revealed that India’s proposal to have an automatic trigger of increasing tariffs at a particular level of imports was not acceded to during the negotiations, nor was its request for tough rules of origin to prevent circumvention by China and consequent flooding of Indian markets with cheap Chinese goods. E-commerce and trade remedies were among other key areas of concern that were not satisfactorily addressed. Data localization under RCEP deal was also an issue for India, which wanted all countries to have the rights to protect data. An Indian government official was quoted by BusinessLine as saying that “India’s concerns were straightforward and were articulated several times during the negotiations. They remain the same. India could not join an agreement where its primary concerns were ignored” . 

India’s textiles, agriculture and dairy sectors, which employ hundreds of millions of workers, were seen as the most vulnerable to Chinese and other RCEP signatory imports. The vast majority of workers in these sectors are among the poorer sections of Indian society. Under the RCEP, India would have been required to steadily drop tariff levels. India was keen to have 2019 as the base year for tariff reductions, as against 2014 that the other countries finally agreed upon. This gave India the feeling that it was up against inflexibility. Further, Indian steel, machine tools, paper, automobiles, chemicals and tyre industries, to name just a few, are all protected in varying degrees from foreign imports and would face sudden stiff competition from RCEP nations if India joined the grouping. India’s large dairy industry, similarly, feared that Australian and New Zealand producers could flood Indian markets and kill off mainly unorganized small-scale Indian producers.

The Indian government’s decision to opt out of the RCEP was welcomed by most sections of the Indian political opposition, and by and large by its people. The farmer’s organization the All India Kisan Sangharsh Coordination Committee (AIKSCC) expressed satisfaction over it, and its convenor VM Singh said, “AIKSCC is happy that good sense has prevailed on this government and its decision to barter away the lives and livelihoods of crores of farmers, workers and small businesses has been averted” . The Indian Steel Association said that India's decision to not join the RCEP came as a “great relief” for the steel industry. It revealed that it had requested the government “that if signing the RCEP was inevitable, then steel items should be kept out of the agreement” . Dairy farmers also welcomed the RCEP news, along with small businesses, micro and small entrepreneurs, copper producers, e-commerce players, and data service providers, among others.

Although not yet a factor at the time last autumn when it pulled out of the RCEP negotiations, the rising anti-China sentiment in India after the 15 June attack by Chinese troops on Indian soldiers in the remote Galwan valley in Ladakh in which India lost at least 20 soldiers has become a major factor for the Indian government in anything relating to China. A deep distrust of China now prevails in the Indian establishment and its population alike. When India had walked out of the RCEP talks in November 2019, the understanding was that it would continue to negotiate the main contentious issues. However, this distrust of China that has taken shape in India, and to some extent the COVID–19 pandemic, meant that the talks did not move ahead.

India’s not signing the RCEP along with the 15 countries that did so does not, however, foreclose India’s options. An RCEP statement clarified the position when it said that “India has significant outstanding issues, which remain unresolved. All RCEP participating countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues” . Gareth Leather pointed out that several RCEP member countries such as Japan considered India’s presence important to counter China’s economic weight. For the time being, though, India is not ready, as is underscored by the fact that Indian industry and trade experts have backed its decision not to join the RCEP.

A day after the RCEP was signed, India’s External Affairs Minister S. Jaishankar made it clear that India’s position had not changed. In an ill disguised reference to China he said that those who argue “stressing openness and efficiency” do not present the full picture. He emphasized that this was “equally a world of non-tariff barriers of subsidies and state capitalism” , in which “In the name of openness, we have allowed subsidized products and unfair production advantages from abroad to prevail” . He averred that “The choice was to double down on an approach whose damaging consequences were already apparent; or to have the courage to think through the problem for ourselves” . Subsequently, during a virtual discussion on 18 November at the Centre for European Policy Studies, Jaishankar said: “We saw that a number of our key concerns were not addressed. We had to take a call then whether to enter a trade agreement if our major concerns are not addressed” .

The US, meanwhile, will take satisfaction from the fact that its key regional ally in New Delhi has chosen to remain outside of Beijing’s orbit at a time when even countries in Asia that have strong security alliances with the US, such as Japan and South Korea, have signaled by joining the RCEP that when it comes to economic policy they do not want to choose between the US and China. Analysts have argued that given its deep distrust of China, India must look towards a new version of the competing CPTPP pact, particularly since the incoming US President Joe Biden has hinted that he will reverse Trump’s decision and rejoin the grouping. India’s Foreign Secretary Harsh Vardhan Shringla, while speaking on commercial ties between India and the US on 19 November, echoed the analysts by saying that New Delhi believed that the US was a “natural partner for India” in its quest to build a resilient economy.

India recognizes that it needs to accelerate negotiations on other trade agreements in order to make the country’s exports more competitive. It has already convinced ASEAN countries to review their FTA with India, and it has made similar requests to Japan and South Korea. It is also simultaneously negotiating a trade pact with the US and an FTA with the European Union. In contrast to China, where rules and decision making are opaque and market access tends to be offered based on strategic considerations, India enjoys more economic complementarities with these democracies.

India must also be awake to the reality that it simultaneously needs to shore up its sagging competitiveness through domestic reforms aimed at enhancing its long-term economic strength. While those reforms are being worked out, India has demonstrated through its decision to stay out of the RCEP that it is conscious of the perils of entering into FTAs that would merely provide its vast market for countries such as China to exploit.

In the final analysis, the Indian government fittingly chose sensitivity towards the large and vulnerable sections of its population that would, at least in the immediate term, be severely adversely impacted by its signing the RPEC over the 1.1 percentage points in real GDP   that the think tank Peterson Institute for International Economics has estimated India could have gained by 2030 had it stayed in the pact.

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Why India’s decision to pull out of RCEP has both pros and cons

Synopsis Although overall economic benefits from the deal seem to be negligible, India might have just missed an opportunity to emerge as a key player in the largest trading bloc outside WTO.

Ever since Prime Minister Modi announced India’s decision to pull out from the Regional Comprehensive Economic Partnership (RCEP) agreement, there has been a lot of debate on the merit of this deal for India. To be sure, the RCEP negotiations have neither been completely favourable to India nor has New Delhi been able to emerge as a leader in the deal-making process. Also, Indian negotiators have persisted for seven long years – five years under

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• DOI: 10.5109/7148433
• Corpus ID: 264134499

Why did India Pull Out of Regional Comprehensive Economic Partnership (RCEP)? A Gravity Explanation of the Indian Puzzle

• Gour Gobinda , Goswami , +5 authors Nartam Vivekanand Motiram
• Published in Evergreen 1 September 2023

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The Hindu Explains | Why did India stay out of the RCEP deal?

What were its concerns and is there a possibility of rejoining the grouping later.

November 22, 2020 02:00 am | Updated December 04, 2021 10:32 pm IST

Representatives of signatory countries are pictured on screen during the signing ceremony for the Regional Comprehensive Economic Partnership (RCEP) trade pact at the ASEAN summit that is being held online in Hanoi on November 15, 2020. (Photo by Nhac NGUYEN / AFP)

The story so far: On November 15, the Regional Comprehensive Economic Partnership (RCEP) was signed by 15 countries led by China, Japan, South Korea, Australia, New Zealand, and the 10-country ASEAN group. It is billed as one of the world’s largest Free Trade Agreement (FTA), accounting for nearly 30% of the global GDP covering 30% of the world’s population. After long negotiations, India exited the grouping last November , saying it wanted to protect its economy from rising trade deficits with a number of RCEP members. India’s decision is still the subject of much debate, and the RCEP has left a special window open for India to rejoin at a future date.

Are FTAs bad for India? What are the other objections to RCEP?

Of the 15 countries in RCEP, India had previously signed an FTA with the Association of South East Asian Nations (ASEAN), and also with Japan and South Korea, all three of which are now under review. “If you look at India’s experience with the already signed free trade agreements with the ASEAN group, South Korea and Japan, you will see that India's trade deficit with these countries or groups rose very sharply during this period,” says R. Ramakumar, NABARD Chair Professor at the Tata Institute of Social Sciences, who backs India’s decision to quit RCEP, saying that between 2011 and 2019. “India's trade deficit with ASEAN rose from about $5 billion to about $22 billion, [now pegged at $24 billion, according to government reports in August],” he says. In the last decade, our trade deficit with Japan rose from $4 billion to about $8 billion, he points out, and with South Korea from about $8 billion to $12 billion.

The Hindu In Focus podcast | Was India right to leave the RCEP trade deal?

The trade deficit with China has burgeoned from about $4 billion in 2005-06 to nearly $50 billion today, even without a trade agreement. In fiscal year 2019-20, India’s trade deficit with China was $48.64 billion, which was lower than the trade deficit of $53.56 billion in 2018-19.

Why are trade deficits growing?

Other experts contest the FTA argument on two accounts. In a 2019 paper entitled ‘India’s Trade Agreements and the Future of Indian Trade Policy’, Johns Hopkins University professor, Pravin Krishna, explained that while deficits have increased for India in all foreign trade, India’s FTAs or PTAs (Preferential Trade Agreements) do not account for a bigger chunk of the trade deficit than they did before. “Trade deficits with India’s bilateral partners accounted for 12.6% of the overall trade deficit in the year 2007. In 2017, they accounted for a considerably smaller 7.5%,” said the paper. Another explanation for the growing trade deficits comes from the downturn in India’s GDP since 2016, and the decline in manufacturing. In addition, says Amitendu Palit, senior research fellow at the National University of Singapore’s Institute of South Asian Studies, FTAs are not the only reason imports from RCEP countries, especially China, are rising. “If one looks at China, 75% of the inputs from China on machinery, bulk drugs, chemicals, and other equipment are [goods] that are not available in India in sufficient amounts or at competitive prices. There is this view that imports from China would have flooded had India entered RCEP, but haven’t they already flooded the country?” Mr. Palit asks.

How has the COVID-19 pandemic changed the debate?

The COVID-19 pandemic has left the global economy in a state of disarray. For the first time in 60 years, nearly every country in the RCEP grouping is facing a recession. The fears over individual losses, combined with the trend worldwide against globalisation, are driving countries to formulate smaller trading coalitions outside of the World Trade Organization. In addition, travel between countries is being restricted by the spread of the virus, further promoting local or regional trade and travel bubbles. As the world’s second largest economy and one of the only ones to show GDP growth this year, China offers potential investment to RCEP countries, and that was another incentive for them to conclude the agreement on schedule, without delaying it to a time after the pandemic. On the other hand, India’s tensions with China over the PLA’s (People’s Liberation Army) aggressions at the Line of Actual Control this year, and the continued standoff between their armies have hardened its position on RCEP, and officials say events during the pandemic have only “vindicated” India’s stand on staying out of the grouping.

Editorial | Threat or treat: on RCEP trade deal

Who wants India in?

Several RCEP countries still hope India will reconsider its decision of staying out. For Japan and Australia, the large size of the Indian economy and its negotiating heft would pose a valuable counterpoint to China within the grouping. It is for this reason that Japan led the drafting of the special statement on India, which would waive the 18-month mandatory waiting period if India applied formally to rejoin the group. For ASEAN countries that led the RCEP negotiations, India’s presence would provide weight to the centrality of the ASEAN grouping in the region. The importance of drawing India into the agreement was underlined when leaders of all ten ASEAN countries travelled to India as the Republic Day chief guests in 2018. For China, too, having India within the RCEP tent would not just open up India’s market access for Beijing, but would also provide one more forum on which to cooperate that does not include the United States (U.S.), its biggest rival.

Comment | India’s no to RCEP could still be a no

Finally, there is the question of how the Quad (Quadrilateral Security Dialogue) would operate on economic issues, particularly in terms of securing supply chains, with the U.S. walking out of the Comprehensive and Progressive agreement for Trans-Pacific Partnership (CPTPP), and India exiting the RCEP.

Did RCEP address India’s concerns?

  India’s concerns over Chinese goods flooding the Indian market through other markets under the RCEP, without clear guidelines on rules of origin, find clear mention and an entire chapter devoted to it in the final RCEP text of 20 chapters, despite the fact that India is no longer in the grouping. There is also a chapter on allowing trade in services (Chapter 8), particularly financial, telecommunications and professional services, which was another key demand by India during the seven years that it continued to negotiate the RCEP. In addition, there is a summary of objections by various RCEP members to different parts of the agreement, which are expected to be resolved in the next few years as the treaty goes through ratification processes across the region. Even so, the Indian government says there is no rethinking the decision to stay out of the RCEP. India has skipped every meeting of the grouping in the past year.

Interview | Leaving RCEP was a short-sighted decision, says former Foreign Secretary Shyam Saran

The next big question is whether India will accept the invitation from RCEP countries to be an “observer” at their meetings. When asked this week, Ministry of External Affairs spokesperson Anurag Srivastava declined a direct reply. “Our position regarding joining RCEP is very well-known. We conveyed our position not to join RCEP as some of the significant issues of core interest remain unresolved,” he said. On November 16, External Affairs Minister S. Jaishankar had said the “mantra of an open and globalised economy” was used to justify unfair trade and production practices against India. “The effect of past trade agreements has been to de-industrialise some sectors. The consequences of future ones would lock us into global commitments, many of them not to our advantage,” he had said. Without mentioning RCEP directly, the Minister was saying that India does not plan to use the special window at present, and rather than suffer trade deficits that had been the outcome of various FTAs India had signed, India would prefer to go it alone, or as he put it, have “the courage to think through the problem for ourselves”.

(With inputs from Ananth Krishnan)

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RCEP & India

• 17 Nov 2020
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• Groupings & Agreements Involving India and/or Affecting India's Interests
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This article is based on “Threat or treat: on RCEP trade deal” which was published in The Hindu on 17/11/2020. It talks about the impact of India’s stance to stay out of the Regional Comprehensive Economic Partnership (RCEP).

Recently, the Regional Comprehensive Economic Partnership (RCEP) was signed into existence by 15 countries led by China, Japan, South Korea, Australia, New Zealand and the 10-state ASEAN grouping, creating one of the world’s largest trading blocs.

India had been a part of negotiations for almost nine years till it pulled out in November 2019 , stating that inadequate safeguards and lowering of customs duties will adversely impact its manufacturing, agriculture and dairy sectors.

However, by staying out, India has blocked itself from a trade bloc that represents 30% of the global economy and world population, touching over 2.2 billion people.

Further, as the summary of the final agreement shows that the pact does cover and attempt to address some issues that India had flagged, including rules of origin, trade in services, movement of persons. Therefore, this makes the case of India to review its decision and look RCEP through the lens of economic realism.

Reasons for India's Withdrawal

• According to a paper published by NITI Aayog, India has a bilateral trade deficit with most of the member countries of RCEP.
• This trade deficit is the primary concern for India, as after signing RCEP cheaper products from China would have flooded the Indian market.
• Further, from a geopolitical perspective, RCEP is China-led or is intended to expand China's influence in Asia.
• Auto-trigger Mechanism would have allowed India to raise tariffs on products in instances where imports cross a certain threshold.
• However, other countries in the RCEP were against this proposal.
• For instance, the dairy industry is expected to face stiff competition from Australia and New Zealand.
• Currently, India’s average bound tariff for dairy products is on average 35%.
• The RCEP binds countries to reduce that current level of tariffs to zero within the next 15 years.
• Rules of origin 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.

Reasons For India to Review

• Further, the RCEP presents a unique opportunity to support India’s economic recovery, inclusive development and job creation even as it helps strengthen regional supply chains.
• India should acknowledge that the trade bloc represents 30% of the global economy and world population, touching over 2.2 billion people, and staying out of RCEP may result in suboptimal economic growth without leveraging Asia-Pacific demand.
• In this regard, India can draw inspiration from Japan & Australia, as they chose to bury their geopolitical differences with China to prioritise what they collectively see as a mutually beneficial trading compact.
• This is necessary to safeguard India’s interests and the interests of several countries that are too small to stand up to the largest member, China.
• Moreover, staying out of RCEP may also affect India's Act East policy .

Acknowledging India’s economic heft and value as a market, the RCEP members have left the door open for India for inviting it to be an observer member and also waived a critical 18-month cooling period for interested applicants.

Given the global economic scenario in present times and the near future, it would be in India’s interest to dispassionately review its position on RCEP and carry out structural reforms that will help India to mitigate some of the repercussions arising from the RCEP.

This editorial is based on “Fertile opportunity” which was published in The Indian Express on November 16th, 2020. Now watch this on our Youtube channel.

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Why did India Pull Out of Regional Comprehensive Economic Partnership (RCEP)? A Gravity Explanation of the Indian Puzzle

2023, Evergreen

: India’s decision to pull out from the Regional Comprehensive Economic Partnership (RCEP) was a surprise to analysts as RCEP is currently the most significant Free Trade Agreement (FTA). This paper examines the rationality of India’s decision. We used gravity set-up and Poisson Pseudo Maximum Likelihood (PPML) estimator to analyse India’s export and import data for nine sectors with 45 trading partners for the period 2001-2021. The results show that India’s export is inelastic to tariff while import to India is elastic to tariff. Export remains positive despite tariff on Indian export while import declines with tariff imposed by India. This rationalizes India’s decision to pull out from RCEP. At the sectoral level, tariff elimination reduces India’s export of vegetables, food, minerals and chemicals, plastics and plastics goods. However, tariff elimination increases India’s export of animal and animal food, leather, wood and wood products, textiles and foot ware. Tariff elimination increases import of vegetable, food stuffs, chemicals, plastic and leather to India. The sectoral results show that India has reason to doubt its gain from joining RCEP as the sectoral results are mixed and the overall gain might not be in favour of India.

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Asian Journal of International Law

Debashis Chakraborty

Since the inception of the WTO in 1995, India enthusiastically explored export-promotion strategies through multilateral trade reforms. However, the country has moved towards the regional trade route since 2004, primarily owing to the slow progress of the Doha Round negotiations. As a result, the whole architecture of international trade law and governance is being redesigned in the Asia Pacific region. This paper focuses on the pivotal role played by India in this rebalancing. Given the stress on services exports and investment requirements, India focused on entering into comprehensive agreements encompassing merchandise and services trade as well as investment provisions. Presently, India is involved in the ongoing Regional Comprehensive Economic Partnership [RCEP] negotiations, where ASEAN remains at the core. The current analysis evaluates the Indo-ASEAN trade patterns and evolving dynamics over the last decade through select trade indices, and comments on the future of the RCEP.

Batnasan Namsrai

This paper analyzes the impact on an economic partnership agreement (EPA) between African countries and Japan through trade liberalization and reduction in non-tariff barriers. This study aims to investigate sectoral interconnections and participation in the EPA that would facilitate further possible opportunities for Japan-African businesses. The methodology employed is the Computable General Equilibrium model integrated with the Global Trade Analysis Project version 10A Multi-Region Input-Output database. We first modified the GTAP’s structure form to develop a long-run closure under steady-state and thereafter examined the African Continental Free Trade Area-Japan Economic Partnership Agreement (AfJEPA) with several EPAs scenarios relying on the quantitative comparison of economic impacts of different technical measurements. As a result, the AfJEPA can provide new possible opportunities for Africa-Japan businesses, such as contributing to the existing African and Japanese mega-re...

Neeraj R S , Surendar Singh

South Asia Economic Journal

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Full Transcript of Kamala Harris’s Democratic Convention Speech

The vice president’s remarks lasted roughly 35 minutes on the final night of the convention in Chicago.

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By The New York Times

• Aug. 23, 2024

This is a transcript of Vice President Kamala Harris’s speech on Thursday night in which she formally accepted the Democratic Party’s nomination for the presidency.

OK, let’s get to business. Let’s get to business. All right.

So, let me start by thanking my most incredible husband, Doug. For being an incredible partner to me, an incredible father to Cole and Ella, and happy anniversary, Dougie. I love you so very much.

To our president, Joe Biden. When I think about the path that we have traveled together, Joe, I am filled with gratitude. Your record is extraordinary, as history will show, and your character is inspiring. And Doug and I love you and Jill, and are forever thankful to you both.

And to Coach Tim Walz. You are going to be an incredible vice president. And to the delegates and everyone who has put your faith in our campaign, your support is humbling.

So, America, the path that led me here in recent weeks was, no doubt, unexpected. But I’m no stranger to unlikely journeys. So, my mother, our mother, Shyamala Harris, had one of her own. And I miss her every day, and especially right now. And I know she’s looking down smiling. I know that.

So, my mother was 19 when she crossed the world alone, traveling from India to California with an unshakable dream to be the scientist who would cure breast cancer.

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