The economics of RCEP and potential outcomes for India

The economics of RCEP and potential outcomes for India

News:

1. Importance of RCEP negotiations and concerns raised by India.

RCEP – Comprises the 10-member Asean grouping and its six free trade partners, including China, India, Japan, South Korea, Australia and New Zealand.

ASEAN Members: Brunei, Indonesia, Laos, Cambodia, Vietnam, Malaysia, Singapore, Thailand, Philippines, Myanmar

Important Facts:

2. Widespread debate is taking place whether India should open up its market under RCEP negotiations.
3. Why India has been reluctant to negotiate with RCEP:

• Member countries want India to open up its market for 92% of traded goods.
• Non Acceptance of India’s demand to liberalize services sector and hassle free movement of skilled labors.
• Fear of Steel imports from China and Member countries.
• FTAs with South Korea and Japan have caused substantial increase in imports without any concurrent increase in investments in India.
• Reduction of import duties to promote global value chain will lead to mass layoffs, low wages and further exploitation.
• There is apprehension in India that negotiations may adversely affect its agriculture sector.

4.  India claimed “big success” as members conceded to its demand to liberalize their services market and allow movement of skilled professionals
5. Why RCEP is important to India:

• Enormous export gains could be expected from RCEP.
• Inter-linkages of trade in various sector will enable deeper integration with the region.
• Integration with region will further necessitate the free movement of skilled professionals.
• Low wages skilled labor will enable the establishment of Multinational enterprises in India
• RCEP will provide labor intensive manufacturing industries.

6.  Impact on India if it does not participate:

• Uncompetitive exports price vis-à-vis other RCEP member’s exports will impact India’s trade.
• Trade deficit may lead to foreign exchange shortages and the subsequent depreciation of the rupee.
• Geopolitical situation will make it difficult for India to negotiate easier immigration norms without any comprehensive dialogue

7. What India need to do:

• Adopt balancing approach towards import liberalization without sacrificing domestic interest.
• India could negotiate and bargain to maximize its export due to huge trade deficit.
• Rather than demand to liberalize skilled labor movement, India should focus on skilling its manpower as the aging countries of Asia would anyway need skilled professionals.
• India should be cautious to open the steel sector under RCEP negotiation; otherwise China may dump cheap steels items.
• India should open competitive and efficiency yielding sectors under RCEP negotiation.

8. It has been argued once the RCEP be concluded it will create the largest regional trading bloc.

• Making up 25% of Global GDP
• 30% of Global Trade
• 26% of foreign direct investment (FDI) flows.