RCEP: Decision to stay out pragmatic

Prime Minister Narendra Modi in a group photo with other world leaders at the 3rd RCEP Summit in Bangkok, Thailand, Monday.

Prime Minister Narendra Modi’s decision to keep India out of the Regional Comprehensive Economic Partnership (RCEP) is a welcome move. The decision will satisfy many constituencies in the country that had gone on protest in apprehension that the government was about to sign on the dotted line. It also gives India’s industrial and agricultural sectors time to get their act together. The RCEP was to be the largest trading bloc, comprising of the ASEAN countries and China, Japan, South Korea, Australia, New Zealand and India.

Indeed, the RCEP is being driven by China as a counter to the other big trading bloc, the Trans-Pacific Partnership, which was driven by the United States, until President Donald Trump withdrew the US from it, and is now led by Japan. It should be remembered that China, the export giant in the RCEP, already has free trade agreements (FTA) with almost all of the players in the grouping, and it was only India that it does not have an FTA with. Thus, in a real sense, the RCEP had become about China gaining untrammelled access to the Indian market. This, when even without an FTA, India has an annual trade deficit of over $50 billion with China.

 It would have been in nobody’s interest to rush into a bad agreement that does not support India’s trade interests. India had placed several demands, including a longer period for zero tariffs to kick in, access to the RCEP markets for India’s services sector, stricter rules of origin of goods, and automatic cut-off of imports beyond agreed levels. None of these demands were met. The deal on the table in Bangkok had every potential to turn India into a dumping ground for Chinese goods. Indeed, it was estimated that had India entered into agreement, its trade deficit with the RCEP countries, currently pegged at $105 billion, would have doubled in the first three years after the pact came into force. 

Yet, India cannot forever stay out of regional and free trade agreements, which are fast replacing the World Trade Organisation-regulated global order. India already has bilateral trade pacts with the ASEAN, South Korea and Japan. Delhi should take stock of these pacts and rework them in preparation for future opportunities to enter the RCEP or other trade arrangements, including trade pacts with the US and Europe. Meanwhile, domestically, the government and industry must come up with a multi-year programme focusing on key sectors to increase India’s export competitiveness and thus stand ready to negotiate trade pacts from a position of strength.  

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