What is Regional Comprehensive Economic Partnership (RCEP)?
RCEP stands for Regional Comprehensive Economic Partnership. The Regional Comprehensive Economic Partnership is a proposed agreement between the member states of the Association of Southeast Asian Nations (ASEAN) and its Free Trade Agreement (FTA) partners. The pact aims to cover trade in goods and services, investment, intellectual property, etc.
Regional Comprehensive Economic Partnership (RCEP) is a comprehensive agreement, covering trade in goods and services, investment, intellectual property, economic and technical cooperation, e-commerce (digital trade), competition, government procurement, dispute settlement/legal and institutional issues.The Regional Comprehensive Economic Partnership (RCEP) was introduced during the 19th ASEAN meeting held in November 2011. The Regional Comprehensive Economic Partnership negotiations were kick-started during the 21st ASEAN Summit in Cambodia in November 2012. There are 15 countries involved in RCEP: the 10 members of ASEAN – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam and the five countries with which ASEAN has Free Trade Agreements—Australia, China, Japan, South Korea and New Zealand. These five countries are known as the ASEAN free trade partners. India had also projected to join the deal but pulled out in November 2019.
The Regional Comprehensive Economic Partnership (RCEP) is billed to be the “largest” regional trading agreement. RCEP will create the world’s largest trading bloc, with its Asia-Pacific members accounting for nearly a third of Gross Domestic Product (GDP). Without India, the 15 negotiating parties account for 30% of the world’s population and GDP to just under 30% of the worldwide figure. China is the key member of RCEP, which will give it the upper hand in influencing the rules of trade in Asia-Pacific.
Objectives of RCEP
Its objective is to create an integrated market with 15 countries.
It is easier for products and services of each of these countries to be available across this region.
The negotiations are focused on the following;
- Trade in goods and services
- Intellectual property
- Dispute settlement
- Small & Medium enterprises, and
- Economic cooperation.
India withdraws from RCEP
On 4th November 2019, Prime Minister of India, Narendra Modi announced while speaking at the 2019 RCEP Summit in Bangkok. The Regional Comprehensive Economic Partnership (RCEP) summit saw participation from many world leaders. Prime Minister of India, Narendra Modi, in his speech, said “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.”
Thus, India decided against joining the Regional Comprehensive Economic Partnership (RCEP) trade agreement as India didn’t receive any credible assurance on market access and non-tariff barriers. India quit mainly because of the large trade deficit with China. The fear among farmers and Indian industries is that if tariffs were brought down to zero, there would be an enormous surge of imports into India, and eventually, the farm sector and industry would suffer.
India had proposed rigid and stricter rules of origin and hoped that safeguard duties would kick in. These were not approved by the other members and, therefore, India decided to opt-out of the agreement. However, India is still in the game because the other countries have said that they would work on addressing its concerns. If this happens to New Delhi’s satisfaction, India could still be part of the Regional Comprehensive Economic Partnership (RCEP).
Reasons for India’s Withdrwal
India has a trade deficit with at least 11 out of 15 RCEP countries. It has doubled in the last 5 years from 54 billion USD in 2013-14 to 105 billion USD in 2018-19, of this China alone accounts to 53 billion USD. Signing the Regional Comprehensive Economic Partnership will widen the trade deficit and will empty foreign exchange reserve of India at a faster rate.
India had also reportedly expressed apprehensions on lowering and eliminating tariffs on several products like steel, dairy, etc. For instance, Australia and New Zealand are in search of free access to the market for their dairy products. Similarly, Vietnam and Indonesia are looking for places to dump their less quality rubber. India being the largest market in the world, dumping such inexpensive goods will affect domestic goods of India. The RCEP binds countries to reduce the current level of tariffs to zero within the next 15 years.
The China Factor
The RCEP deal is in favour of China. China is now looking for greater access (as alternate) to the Indian market with the trade war with the United States. A failure to find an alternate will have a cascading effect on the Chinese economy and its worldwide ambitions. India by not signing the RCEP deal has declined to be a willing dumping ground of China’s trade imperialism.
Non-acceptance of Auto-trigger Mechanism
To deal with the imminent increase in imports, India had been seeking an auto-trigger mechanism. Auto-trigger Mechanism would have allowed India to raise tariffs on goods in instances where imports cross a certain threshold. Although, other countries in the RCEP were against this proposal.
Lack of Consensus on Rules of Origin
India was concerned about a “possible circumvention” of rules of origin. Rules of origin are the criteria used to determine or ascertain the national source of a product. Current provisions in the agreement reportedly do not prevent countries from routing, through other countries, products on which India would maintain higher tariffs.
India looks Service Pact in RCEP
- Services are becoming a dominant driver of growth in both developing and developed countries.
- Services contribute almost two-thirds of India’s GDP.
- The surplus in services trade finances almost half of India’s trade deficit.
- India is pushing for greater liberalization in services sectors for easier movement of its professionals to RCEP member countries.
What is India’s stand on data localization issue?
- India has proposed locating computing facilities inside the country if it is meant to safeguard its essential security interests and national interests.
- Also, Reserve Bank of India’s in its April 2018 notification mandated “all system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India”. It later clarified that a copy of domestic data can be stored abroad in the case of cross-border transactions or deals.
In the context of the Indian Constitution
The Indian Constitution puts the power to enter into Free Trade Agreement in the hands of the Executive, with no requirement to seek Parliament’s approval before signing, ratifying or enforcing any agreement. Modern trade and investment treaties have a direct bearing on people’s right to life as producers, traders and consumers (as protected under Art.21 of the Constitution) and other areas that the Executive does not have sole (or any) jurisdiction over (like agriculture). Thus, consultation with Indian state governments and legislatures should be required.
How could India have gained from signing the Regional Comprehensive Economic Partnership (RCEP)?
A section of Indian industry felt that being part of Regional Comprehensive Economic Partnership (RCEP) would have allowed the country to tap into a huge market. Some like cotton yarn, pharmaceuticals and the services industry were confident of making substantial gains.
China’s role in RCEP
RCEP was pushed by Beijing in 2012 to counter another Free Trade Agreement that was in the works at the time: The Trans-Pacific Partnership (TPP). The US-led TPP excluded China. However, in 2016 US President Donald Trump withdrew his country from the TPP. Since then, the RCEP has become a crucial and major tool for China to counter the US efforts to prevent trade with Beijing.
Current Scenario of RCEP
- The 29th round of RCEP negotiations was held from 20th to 24th April 2020 as a video conference, due to the current scenario regarding COVID-19 disease. On 30th April 2020, Joint Statement of the 29th RCEP Trade Committee (RCEP TNC) Meeting was issued.
- The 30th round of RCEP negotiations was held from 15th to 20th May 2020 as a video conference, due to the current scenario regarding COVID-19 disease.
Implications of India’s Exit from RCEP
- Exiting RCEP, India still can keep a check on China’s dumping of goods in India. However, from needles to the turbine, Chinese products are all over the Indian market.
- Refraining from RCEP will protect the Indian domestic industry from inexpensive imports.
- Regional Comprehensive Economic Partnership is a China-backed trade deal, signing it without India will further strengthen China’s economic power. It will affect India’s neighbourhood as China already attempt to influence the region through its deep pockets.
- India envisages becoming a manufacturing hub. But, staying out of the RCEP reduces opportunities for trading with these countries, which together account for roughly a third of global trade.
- Manufacturing nowadays requires greater integration with global supply chains.
- Signing the agreement would have signalled an embrace of free trade, which could have aided in the shift of companies out of China to India.
- India’s exit from RCEP may also affect India’s Act East policy.
- India should have used this as an opportunity to push through contentious but necessary reforms that would boost competitiveness.
India’s decision to not sign RCEP will strengthen the Indian farmers, dairy, MSMEs, small businesses and the manufacturing sector, data security, pharmaceutical, steel and chemical industries. India had concerns about getting swamped by imports under the agreement, which will put the farmers and small Indian businesses at risk. According to Commerce Minister, Piyush Goyal, the decision of not joining the RCEP agreement will provide a boost to the ‘Make in India’ initiative.
India was looking for more protection of its domestic industry and agricultural sector from the surge of imports under the agreement, especially from China. Since the agreement could not offer any such specific protection, India decided to not join it to protect the national interest, protect the poor and stop unfair imports. The decision came as the opposition racked up pressure on the government to pull out of RCEP.
India needs to work on reforms and frame policies to prepare the economy for facing worldwide competition. This can be done by:
- Easing land acquisition
- Reforming Labour laws
- Bridging Infrastructure deficit
Ques 1. What is RCEP?
Answer. Regional Comprehensive Economic Partnership (RCEP) is a comprehensive agreement, covering trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, e-commerce (digital trade), government procurement, dispute settlement/legal and institutional issues.
Ques 2. When did Prime Minister announce India’s withdrawal from RCEP?
Answer. Prime Minister, Narendra Modi announced while speaking at the 2019 RCEP Summit in Bangkok on November 4, 2019.