Not Joining RCEP

Why? And the Consequences…

Not Joining RCEP
Not Joining RCEP

In November 2019, India had finally opted out of the Regional Comprehensive Economic Partnership (RCEP). This decision was taken after several rounds negotiations in the last seven years. The main reason that was cited by India was “Inadequate protection against surge of imports”. Additionally, India has a huge trade deficit with the participating nations and mainly with China which was another major reason for New Delhi not being interested to join at this stage. The decision was appreciated by several Indian citizens as it is a good step to walk away from bad deal instead of signing it due to fear of isolation. But the crucial question for New Delhi at present is: “What now?” In this article we will definitely discuss on this question, but before we move on with it, let us once recall what RCEP is.

The RCEP

The Regional Comprehensive Economic Partnership or RCEP is a free trade agreement in the Asia-Pacific region that was being negotiated between sixteen nations. It includes the ten member nations of the Association of Southeast Asian Nation (ASEAN) – Brunei, Cambodia, Singapore, Indonesia, Malaysia, Laos, the Philippines, Myanmar, Thailand & Vietnam, and their six FTA (Free Trade Agreements) partners – India, Japan, South Korea, Australia, New Zealand & China. The aim of the agreement is to develop an “integrated market” that will extend over to all sixteen countries. This would make the availability for products & services of each country easier across the entire region. Additionally, the RCEP was envisaged to be the ‘largest’ trading agreement in the region with the nations involved accounting for almost half the population of the world, contributing more than a quarter of world export and forming up approximately 30% of the global GDP.

The idea of RCEP was first mooted after the failure of East Asia Summit and subsequently introduced during the 19th ASEAN Summit of November 2011. East Asia Summit (EAS) was the first grouping which was created on the basis of this ‘ASEAN countries plus six FTA partner nations mechanism’. However, the US and Russia also joined the group subsequently and as a result the constituency changed. EAS changed from an economic grouping to a political assembly which ultimately lowered its potentiality. Meanwhile, there was also the failure of Trans Pacific Partnership (TPP). Several members of RCEP were also members of the TPP.  The manner in which the US was negotiating during 2014, the other members of the TPP felt that their concerns might not be addressed and thus a number of these countries started thinking about an alternative. Since the mechanism of ‘ASEAN plus Six’ was already there in the RCEP, they agreed to join it. The final agreement of the RCEP was first anticipated to be signed in December 2016 but due to the loggerheads between India & China, the agreement was not properly negotiated and hence was not able to be signed. Later in 2018, the first draft was designed. However, from the first draft itself there were negative impressions against the way RCEP negotiation had gone over and hence, New Delhi thought RCEP might not be conducive for India. Finally, in 2019, New Delhi took the decision to opt out from the RCEP.

Why India Withdrew?

All the nations participating in the RCEP (except India) have agreed to the negotiations of the proposed deal and issues concerning their market access. It is expected that the fifteen nations are going to sign the pact in 2020.

However, after having years of negotiations to develop the world’s largest free trade region, New Delhi chose to withdraw itself from the pact because joining the deal at its present form would bring adverse effect over the country’s national interest. At the 3rd RCEP summit held in Bangkok between 31st October and 3rd November, PM Narendra Modi deduced that the proposed agreement fails to fulfil the basic guiding principles of the RCEP. Further, PM Modi also mentioned that there are significant outstanding issues & concerns which the agreement fails to address satisfactorily. And therefore in such circumstances it would not be possible for India to join agreement. He asserted, “When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhiji nor my own conscience permits me to join RCEP”.

In the light of Modi’s comment, RCEP issued a joint statement – “India has significant outstanding issues, which remain unsolved. All countries participating in RCEP shall work together in resolving these outstanding issues in a mutually satisfactory way. The final decision of India will depend on satisfactory resolution of these issues.”

The key issues concerning India which remained unresolved are:-

  • Inadequate protection against import surges – Indian industries were afraid that if New Delhi signed this agreement then Indian market will get flooded with cheaper Chinese products. New Delhi had been seeking for an auto-trigger mechanism which would enable it to raise the tariffs on products in such occasions where the imports surpass certain threshold.
  • No credible assurances over non-tariff barriers – India was not given any credible assurances in spite of New Delhi’s demand for greater market access & its concerns over non-tariff barriers. Non-tariff barriers were previously used by RCEP participants like China to restrict India from increasing its exports. This means countries like China will flood our market with their products but will not allow India corporates to access their market. Such examples can be seen especially in mobile sector where products from Chinese industries like Xiaomi and Oppo have flooded the Indian market. If India entered RCEP with no credible assurance over non-tariff barriers then there are possibilities that similar things will happen in other sectors also.
  • Reduction of Tariffs – At several occasions India had also expressed its apprehensions on lowering & eliminating tariffs on various products & services from the country.
  • Possible circumventions – India had also raised its concern on “possible circumvention” of guiding principles. This criterion determines the national source of a product which was not addressed satisfactorily.

India opting to withdraw itself from the RCEP was due to the combination of these factors. To analyse it more, RCEP is a free trade agreement between its member nations. From among its member nations, Japan is no doubt a technological superpower and also a developed nation. Similarly, Australia & New Zealand is a known for its dairy industry and its products and how cheap products from China flourish the market is very well known. At this situation when other nations have so much capability, we also need to look at the drawback of India. Indian economy is facing a massive recession since last eight quarters. Each and every sector in Indian economy has been struggling hard to maintain their profits. There had been almost one million job losses in the automobile sector and nearly ten million in the textile sector of India. At this scenario if India joins a free trade agreement like RCEP and opens up the market to the major powers like Japan, Australia, South Korea and China, the impact on Indian economy can be drastic. Indian market will be flooded with cheaper products from these countries which for the government would be very difficult to control. As a consequence, Indian domestic industries will have to suffer massive loss and simultaneously will be forced to go for liquidation and closure of businesses which would again be the reason for mor jobs to be lost at stage when not enough jobs are being created. Hence, considering all these factors, the Government of India decided that it would not be the correct time to join such free trade agreement and therefore it opted to withdraw itself from the pact for safeguarding the national interest.

The Aftermath

Round the globe, today, there are numerous regional trade agreements. The World Trade Organizations itself recognises over 400 RTAs. Hence, the impact of India’s withdrawal from the RCEP might not bring in any massive effect to the country because India is already in a Free Trade Agreement with the ASEAN. Similarly, India is also having FTAs with Japan, Bangladesh, Sri Lanka and South Korea and is also trying to negotiate a trade agreement with Australia & New Zealand. The agreements are far better negotiated in these trade pacts than RCEP. Simultaneously, India aggressively perceives the European Union and Britain separately because post Brexit there are possibilities of having two new massive markets – one is European Union and the other is Britain. All such trade agreements also cover similar grounds as that of RCEP. All such agreements address trade in goods and also includes trade facilitation & classification, trade in services, intellectual property, non-tariff barriers, investment policy, competition policy and dispute resolution.

Another aspect which we must consider while looking into the aftermath of RCEP is the 15 member group who are going to signing the RCEP agreement in February 2020, have kept the doors open for India and are hoping for future negotiation with New Delhi in a far more conducive way. Hence, India might not be joining the RCEP as a founding member but there are possibilities and hopes that India will be part of the RCEP in the future. Hence, if we analyze all the other trade agreements that India presently have with other nations, we can see that withdrawing from the RCEP will not bring in adverse effect over the Indian economy neither in short run nor in long run. Hence, considering the national interest at large, New Delhi’s decision to opt out of the agreement seems to be an intelligent decision considering the present scenario of the Indian economy.

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