Ongoing discussions on the Regional Comprehensive Economic Partnership (RCEP) include the ASEAN10 bloc (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) together with its six FTA partners – India, China, Japan, South Korea, Australia, and New Zealand. Since the US withdrew from the Trans-Pacific Partnership (TPP) agreement in 2017, the Asia Pacific bloc has been keen to expedite the RCEP as a viable alternative for global trade with lower trade barriers. Plans were conceptualized in 2012 and found a renewed vigour in the past two years. Trade ministers are due to meet in Bangkok on October 10-12, with plans to conclude negotiations by the ASEAN summit meeting in November.
Push and pull factors to join the RCEP
With trade conflicts and protectionist policies dominating the narrative, multilateral free trade agreements reinforce benefits from a wider market access and enjoy preferential or lower trade barriers. Cumulatively, the bloc accounts for a third of the world GDP, half the world’s population, a quarter of world trade and nominal GDP surpassing the US. Once completed, the agreement is expected to lower trade and non-tariff hurdles, liberalize service trade, ease part of regulatory hurdles in regional trade and improve investor protection, amongst others.
There are also push factors. Better market access to other countries could help offset slowing domestic growth, just as the trade environment gets more challenging. This will a window to deploy excess domestic capacity, improve resource utilization and provide a leg-up for the exporting community.
India’s negotiating position has emerged as a challenge, particularly due to its stance that it has witnessed limited benefits from prior trade agreements.
Reticence to participate in trade agreements on a broader note has been on three grounds: a) For RCEP, India already runs a trade deficit with all the member countries. China single-handedly makes up ~60% of the total; b) previous FTAs have not materially improved India’s trade math; c) certain unfavourable provisions have turned to be sticking points.
Negotiations are ongoing, challenges but benefits aplenty
While being a part of the RCEP carries challenges but it will also open India and rest of the proposed members to numerous opportunities. The early phase of adjustment will be an uphill task as few import tariffs will have to be dismantled, leading to higher competition from imports and in turn hurting export competitiveness. Opportunity cost of non-participation is significant as multilateral trade agreements will help improve India’s integration to the global supply chains and market access opportunities.
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