Revisiting RCEP, world’s largest trade pact
25th Jan, 2022
The Regional Comprehensive Economic Partnership (RCEP) officially came into effect on the first day of the New Year. Even without India, which virtually at the last moment developed cold feet and refused to join the 15-nation trade pact, it is the world’s largest free trade agreement.
- The RCEP was first proposed at the 19th ASEAN meet in November 2011 with an aim to create a consolidated market for the 10 member countries and their trade partners.
- Negotiations to chart out this deal had been on since 2013, and India was expected to be a signatory until its decision last November.
- On November 4, 2019, India decided to exit discussions over “significant outstanding issues”.
- India had been “consistently” raising “fundamental issues” and concerns throughout the negotiations and was prompted to take this stand as they had not been resolved by the deadline to commit to signing the deal.
- Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector.
- The current structure of RCEP still does not address these issues and concerns.
What is RCEP?
- Described as the “largest” regional trading agreement to this day, RCEP was originally being negotiated between 16 countries — ASEANmembers and countries with which they have free trade agreements (FTAs), namely Australia, China, Korea, Japan, New Zealand and India.
- RCEP is essentially a China-led initiative for a regional trading bloc that will comprise one third of the world’s population and 29% of the world’s GDP.
- The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region.
- The purpose of this trading partnership is to give preferential treatment for trade between the member countries either through lower tariffs, preferential market access, customs union or free trade in specific sectors.
How big is it in size?
- It is the world’s largest free trade agreement. It covers a market of 2.3 bn persons or 30% of global population, with an annual output of US $26 trillion and 25% of world’s exports.
- That puts it way ahead in size of the Comprehensive Agreement for Trans-Pacific Partnership (CPTPP), which became operational in December 2018 and has the United States in it.
- China, Japan, Australia and a number of other Association of SouthEast Asian Nations (ASEAN) countries who are in the RCEP, are also its members.
What categories are covered in the deal?
- The deal is extensive across 16 categories.
- These cover conventional items such as tariff reductions on goods and services, market access, investment, dispute settlement, customs and rules of origin, and newer items such as intellectual property rights, small and medium enterprises, and e-commerce.
Why did India opt out of the deal?
- Since the beginning, RCEP presented a platform to India to further its strategic and economic status in the Asia-Pacific region. Since it brought the biggest economies of the region into a trading arrangement for the first time, India felt it would be a singular opportunity to enhance its exports to the region.
- India also did not secure the kind of benefits it had hoped for in the services sector.
- China factor: Escalating tensions with China are a major reason for India’s decision.While China’s participation in the deal had already been proving difficult for India due to various economic threats, the clash at Galwan Valley has soured relations between the two countries.
How beneficial is the organization?
- Increase in income: By 2030, RCEP will increase the income of member economies by 0.6% while adding $245 billion and 2.8 million jobs to the regional economy.
- Greater cooperation: It also stands to promote greater regional cooperation in trade and investment, addressing regulatory issues to ease cross-border movements.
- Increase in regional investment: Regional investment may increase further as RCEP prohibits performance requirements—such as a specified percentage of domestic content or requirement of technology transfer—being placed on investors as conditions for market access, and locks in future easing of measures thus lowering risk of backtracking.
- Digital economy: RCEP takes a pragmatic approach to the digital economy, a sector that rose in importance during the course of the pandemic.
The ramifications of India’s decision to opt out of RCEP will be tested. When India chose to stay out of the Belt and Road Initiative in 2017, there was much commentary that New Delhi might be isolating itself. Three years later, India’s position has been recognised by like-minded democracies, and many have said that India’s decision was prescient.