The future of trade

News: Regional comprehensive Economic partnership (RCEP) which was signed in 2020 , came into force on New Year’s Day. India was part of the RCEP process but eventually pulled out of joining. 

RCEP’s arrival is a reminder that the future of the international trading architecture increasingly seems to be coalitions of the willing i.e. plurilateral or regional trade pacts. 

Why India didn’t join the RCEP? 

India has its reasons for not joining the RCEP like,

– The excess influence China will have in the pact

– Apprehensions regarding its impact on dairy sector 

– Presence of a broader pessimism about trade may also be an underlying reason

However, some recent happenings show that India is softening its approach towards trade agreements.  

What are these positive developments? 

Renewal of discussion on FTAs, such as with the European Union, Israel and the United Arab Emirates, UK. 

Attempts at “early harvest” agreements with larger and more problematic trading partners like the UK

Though these will have a limited effect as compared to joining a trade pact like RCEP. 

What is the way forward?

India’s continued observer status in the RCEP can be utilised to examine its pros and cons for the Indian economy, if India joins it in the future.

Also, there is need for a keener understanding of the domestic reforms necessary to become part of the value chains of the future. 

Govt should work towards introducing reforms and tariff rationalisation. New-age trade agreements are as much about “behind the border” adjustments such as regulatory harmonisation as they are about tariffs.

Lastly, the tendency to increase tariffs on average in the Union Budget must end.

Source: This post is based on the article “The future of trade” published in Business Standard on 4^th Jan 2022.