Trade potential — India should reconsider its RCEP decision

Source: This post has been created based on the article “Trade potential — India should reconsider its RCEP decision” published in Business Standard on 23^rd October 2023.

UPSC Syllabus Topic: GS Paper 2 International Relations – Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

News: This article discusses the need for India to reconsider its position on the RCEP considering the recent developments.

What is the RCEP?

RCEP is a trade deal that created one of the world’s largest trading blocs.

Its members include:

10 Association of Southeast Asian Nations (ASEAN) members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

5 other FTA partner countries of ASEAN: Australia, China, Korea, Japan, and New Zealand.

RCEP members account for about 30% of the global GDP and 1/3^rd of the world’s population.

What are the ongoing developments with respect to RCEP?

Slower economic growth and increasing geopolitical fragmentation has led to slowdown of global trade.

In light of this, Sri Lanka and Bangladesh are considering joining the Regional Comprehensive Economic Partnership (RCEP).

For Sri Lanka, which is dealing with an economic crisis, easier access to regional markets could help it become more competitive.

For Bangladesh, RCEP could help compensate for export loss as it exits from the group of least developed countries.

Their joining the RCEP will also open markets for China in India’s neighbourhood.

What has been India’s position regarding the RCEP?

India exited the RCEP 4 years ago due to various concerns. These include:

1) Potential increase in the import of cheaper goods from member countries, particularly China.

2) Geopolitical and national-security considerations: Especially with respect to China.

3) Lack of safeguards: India had cited the grouping’s refusal to accede to its requests on safeguards as a deal breaker.

What is India doing to counter the impact of not joining the RCEP?

India has been working with a different strategy of higher tariffs, along with fiscal incentives for large manufacturers.

Additionally, India is working on various free-trade agreements (FTA).

Why should India reconsider its position?

1) Countries such as Australia and Japan have joined RCEP despite ongoing geopolitical tensions with China.

2) Lost opportunity to become part of the world’s largest and most dynamic trading bloc, which has the potential to enhance transnational economic integration.

3) India’s trade deficit with China has been increasing significantly despite India not joining.

4) It would give India the opportunity to deal with trade-related issues more effectively, besides opening markets of member countries.

5) Opportunity to become part of large global value chains: This will improve participation in global trade, which is critical in boosting local manufacturing and generating employment.

6) Limited gains through FTAs.

Question for practice:

India needs to rethink its stand on multilateral trade agreements like the RCEP considering the recent geopolitical and economic developments. Discuss.