An Explainer on the RCEP trade deal and India’s position 2020

Learn what is RCEP and India’s decision of not signing the RCEP trade deal: RCEP was in talks this year for a “biggest free trade agreeme… the RCEP trade deal

RCEP, or Regional Comprehensive Economic Partnership is a proposed Free Trade Agreement (FTA) that is an umbrella to 10 member and 5 FTA partner states (total 15 after India chose to opt-out on November 4th 2019).

RCEP was in talks this year for a “biggest free trade agreement”. It would enhance trade networks across the member states. This trade deal, in essence, will result in a decrease in tariffs for the member and partner nations. This will result in the reduction of their expenses to sell their products across these states and hence will motivate them to produce more over the coming years.

rcep nations
Why did India opt-out of the RCEP Trade deal?

Before we understand why we left the deal, let’s understand the pros of this deal, had India not opted-out off RCEP.

Pros of RCEP:
  1. RCEP itself as an organization is a huge growing body. Before India left, 40% of all trade around the world was processed via RCEP member nations. The combined population of this body was 8.4bn and the combined GDP accounted for US$ 17 Trillion
  2. It would have given India a first mover’s advantage. India being a start-up hub for IT, Healthcare and product companies; small companies could’ve used the zero or no tariff deal to their advantage and could’ve grown a lot faster
  3. India would have been a part of the leadership team that could’ve had the ability to frame the rules and regulations of this deal
  4. Could have improved India’s relationship with the ASEAN and other member countries part of this deal

The news report claimed that the high-level panels that analyzed the deals indicated that they were in support of the deal and that India should opt-in in the deal. Furthermore, judging by the pros that we see above, India should’ve taken the deal. So, what, possibly, were the reasons behind India not taking up the deal, then?

Let’s understand the cons, had we been the part of this deal.

Possible Cons of RCEP:
  1. The one big threat. Had India become a part of this deal, it would have proved to be a gateway for all the Chinese products to fly-in India. India has been zealously trying to reduce the number of Chinese products in the country for the past few years and this deal would have let all the efforts in vain
  2. Furthermore, they expect to have no tariffs for over 90% of tariff lines, which would mean complete destruction for the small local Indian firms and hurt the MSME sector
  3. Other sectors that would take a hit would be Steel, Aluminium, copper, textiles, and pharmaceuticals. Since these will now enter our country cheaper, this would have taken the toll on local players yet again
  4. Trade deficit with China stands at -53%, and negative with almost every RCEP partner states. If we sign this deal, we’ll have to buy more from them and hence this will grow, which is one of the biggest concerns
  5. Agriculture and Dairy sectors will take a hit since both these may lose the earned self- sufficiency, that was earned after the white and green revolution. These players will now get less for their exports and also may lose out because of the cheap imports
Writers take:

From what we understand, while there were problems with the deal, and yes bigger ones, after the MSMEs and dairies promised protests if this deal was signed. We need to understand, India being a significant part of this deal, could’ve had entered the deal with some exceptions:

  1. Dual- tariff structure, where-in it would apply tariffs on some countries and not on other countries. 
  2. It could have sought some sort of a differential treatment based on the economic development, that is if we have 10% tariffs now, as the RCEP countries grow so would the tariffs.
  3. Or, also, add checks and balances on dumping goods in the country.

Being a part of this deal, India could’ve leveraged their goal of $5 trillion economy by 2024 and tried to keep a check on the ever-growing influence of China on the Asian countries. The deal will now be signed anyway with the other 15 members. It could’ve motivated the members to allow exceptions for India. So, while we’re not part of this deal right now, the RCEP member countries have shown optimism towards India, if it wants to join the deal in the future – since India is a growing economy and RCEP overall would benefit if India becomes the part of this entire deal.

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