What's the buzz around RCEP? And, why is India out of it?
India is not a part of the LARGEST trade agreement in the world. Why?😲
On November 15, 2020, 15 Asia-Pacific countries signed the world’s largest Free Trade Agreement (FTA) called the Regional Comprehensive Economic Partnership.
What’s amazing about RCEP is its sheer size! The nations signing the agreement represent 45% of the world’s population and account for 30% of total world GDP. Imagine.
But RCEP has an interesting story in itself.
RCEP aims to improve trade relations among Asian and Australian nations. This is not new, though.
Along with the launch of RCEP in 2012, the TPP (Trans-Pacific Partnership), under Obama, was also conceptualized. The TPP (negotiated in 2015) included nations like the US, Japan, Mexico, Malaysia, Australia, New Zealand and Canada covering close to 40% of the world’s economy.
But the Trump administration pulled out of TPP in 2017 citing unfair trade practices (hah!). A new agreement excluding the US called the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) was signed. The US is currently out of both CPTPP and RCEP.Â
Analysts believe that Washington’s disengagement in the two largest trade groups can mean their reducing dominance over the world.
So, why is India not a part of this?
Well, India was initially a part of the deal. But then we backed out. Why?
PM Narendra Modi and the MEA Diplomats echoed that significant issues remained unresolved and not joining the agreement was in India’s better interest. When the negotiations for the deal began in 2013, India’s reluctance to open markets was viewed as a major obstacle.
The Indian diaspora firmly believed that signing the agreement would flood the markets with cheap China imports and heavily hurt the local manufacturers.
The dairy companies and also the agricultural sector expressed their deep concerns on the same. India already has a trade deficit with 11 of the 16 countries of the RCEP agreement including FTA partners.
Mr Piyush Goyal (Cabinet Minister) presented the argument on RCEP in the Indian Parliament representing the pleas of local manufacturers and firm reasoning to opt out for the same.
The Galwan clashes with China further cemented India’s stand for exclusion from RCEP. A report by PIIE claims that India could have gained a 1.1 percentage point increase in real GDP had it stayed back. A few analysts claim that India could suffer major trade redirections and risk investment inflows.
Others have argued that the RCEP agreement would not significantly impact India. It already suffers from the FTAs going south as our trade deficits are mammoth. It’s a problem we haven’t been able to crack for a long time now. Take a look:
But wait, is the door closed forever?
Nah.
The RCEP agreement is open for India any time it expresses its desire to join.
India can also participate as an observer and lend economic co-operations as undertaken by the RCEP Signatory States.
China is at loggerheads with the US and India. Interestingly, both these countries are not a part of the RCEP agreement.Â
So, will India have a special Trade Agreement with the United States? Or will the cost of opting out prove to be too high?Â
Only time will tell. Till then, ReadOn.
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Noob’s Corner:
Free Trade Agreement:Â It is an agreement between two or more nations to allow free movement of goods and services - which means restrictions like import duties, documentation requirements, investment upper limits etc. are removed (or relaxed) and it becomes easier to trade.
Trade Deficitfor Country AÂ = Imports by Country A from Country B - Exports to Country B from Country A.