đ Worldâs Largest Trade Deal is Here
Why did India refuse to be part of the worldâs largest trade agreement?
The beginning of 2022 marks the beginning of a new future for Asia. A future where Asiaâs economies will no longer be just participants, but they will determine the flow of innovation, trade and talent. A future of world dominance.Â
No, we arenât into crystal-ball gazing. The worldâs largest trade agreement: the Regional Comprehensive Economic Partnership (RCEP), entered into by 15 Asia-Pacific countries, went live on January 1, 2022. Yes, itâs even larger than the European Union or the U.S-Mexico-Canada Agreement.Â
Source: Statista.com
Currently, it accounts for 30% of the global population and a combined GDP of $26.2 trillion. In fact, it is projected that by 2050, RCEP could account for 50% of global GDP!
Exciting stuff, right?
But what if we tell you that India is not part of this power group? We tapped out of the deal in 2020 after about 10 years of discussion!
Doesnât it feel like Brexit? That too without even entering the bloc?
Wait, before you sulk with disappointment, hereâs all about RCEP and Indiaâs rationale to stay out. ReadOn!
Understanding RCEP
United we stand, divided we fall. Especially so, when we talk about world trade. No country has all the resources and depends on others to fulfil its needs. This exchange of resources strengthens the economies.
But at the same time, there is a big risk. What if the other nation floods the local market with better and cheaper products? What will happen to the local businesses?Â
Thus, to protect the livelihood of their citizens, nations put various trade barriers in place.Â
With us so far?
Good. This is where it gets complex. But imagine, if a country puts a lot of restrictions on imports, why would other countries give it access to their markets? Â
So, to chalk out favourable conditions, governments sign mutually beneficial deals with each other. Things like, which goods can be imported, what will be the tariff structure, everything is laid out.Â
Imagine how much negotiation would go into signing each of these deals. And imagine what would happen if most of these troubles could be put to rest with just one deal. Â
The 15 nations that have come together to sign the RCEP include the likes of Australia, China, Japan, South Korea, New Zealand, Singapore and Thailand among others. The goal of the agreement is to eliminate tariffs on all transactions among the member nations over the next 20 years.Â
This means the member nations would prefer trading within the bloc before looking elsewhere. And together, they will flourish and chart the path of the world economy.
What makes this deal exceptional is that 3 superpowers of the Asian economy, China, South Korea and Japan will be coming together for the very first time. They did not previously have a free trade agreement with each other. These countries are also set to gain the most from the deal. China is projected to gain $100 bn, followed by Japan ($46 bn) and South Korea ($23 bn).
But why is India out then?Â
All that Glitters is Not Gold
The cost of getting into RCEP far outweighs the benefits for India. Had India entered into RCEP, its exports would grow only by $5.5 billion, whereas imports would grow by $30 billion.Â
If our trade deficit goes up, is there any point in signing up for RCEP? Even as of now, India has trade deficits with 11 out of the 15 RCEP nations.
Add to this the geopolitical tensions with China. India simply could not negotiate a deal that would be beneficial to its economy.Â
Moreover, India already has Free Trade Agreements with many RCEP members. So, the ultimate decision of, âno agreement is better than a bad agreementâ was taken.Â
Way Forward
Protecting the local economy seems the right thing to do. But the question that we need to ask is why is protection even required in the first place?
Is it not because our own capabilities are lacking? If we are scared that imports will overwhelm our markets, it is because we donât trust our local production to be able to compete on a global forum.
So the right thing for us to do will be to strengthen our local ecosystem. How long can we stay in our cocoons? One day India will have to step out and face its competitors only then do we stand to become a global superpower.
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