RCEP – To sign or not to sign

 

India’s reluctance to sign the RCEP agreement has been debated nationally and internationally for a long time. However, the government has its apprehensions as regards the impact of the membership on Indian industries. The RCEP (Regional Comprehensive Economic Partnership) envisages reduction/abolition of trade barriers between member countries. Member countries will have to reduce or abolish custom duties, and other monetary/administrative trade barriers which will ensure a free flow of goods and services in all member countries.

In case of India the main reason for worry was that Indian industries are less competitive in terms of cost of production and in some cases quality. India had very little incentive to sign on the dotted line.

India already has signed Free Trade Agreements with most of the ASEAN (Association of Southeast Asian Nations) members, so entering into another treaty with the same countries jointly did not make sense. More importantly, RCEP membership would give large scale manufacturer like China an unrestricted access to the Indian market.

India aired some of its major concerns at the RCEP meetings:

RCEP does not allow anti-dumping duties on partner countries. Cheap goods will flood the market putting local industry in peril. The same applies to agricultural produce.

India did not get any assurances on access to market for its services sector like Software/Analytics/Backend work, Design, etc. where it has a lot of strength.

Non-Tariff barriers can be used by member countries. The Chinese have often used this to stop Indian goods entering Chinese markets. The barriers have resulted in trade deficit tilted in China’s favour.

Base year for tariff reduction was taken as 2013 when Indian duties were less as compared to 2014 when the current government increased the duties.  India could not agree to this as the duties in 2013  are less compared 2014 as the base year.

The ‘rule of circumvention’ problem has not been addressed in RCEP. With the free flow of goods, it becomes difficult to identify the country of origin for a particular product. Products are assembled in many countries where value is added and then shipped to the market. China has in the past re-diverted its goods through third countries to take advantage of trade agreements which it itself does not enjoy.  

India already has trade deficit with 11 of the 15 RCEP partners. Thus, opening up the Indian economy by signing the agreement would hurt the nascent Indian industry which cannot compete with the manufacturing powerhouses of ASEAN. The trade imbalance would become even more unfavourable.

Considering India’s earlier FTAs with ASEAN members, signing into the RCEP treaty would be like agreeing to give the partner countries, especially China, an unrestricted access to the Indian market. Moreover, in a free trade environment, a country's industry needs to be extremely competitive to derive any benefits from the membership.   As the way things stand, India cannot compete with China in manufacturing in terms of volume or price, so this would have been a one-way road with India getting no benefits from the agreement. Hence India took the decision to not become a member of the RCEP.