EDITORIALS & ARTICLES

India and RCEP

Four years after India''s exit, neighboring nations Sri Lanka and Bangladesh are considering joining the Regional Comprehensive Economic Partnership (RCEP).

Regional Comprehensive Economic Partnership (RCEP)

  • It is a free trade area (FTA) consisting of 10 ASEAN members (Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam) and five of the bloc’s dialogue partners— China, Japan, South Korea, Australia and New Zealand.
  • The landmark agreement was signed in November 2020 and It came into force in January 2022.
  • Together, these RCEP participating countries account for about 30% of the global GDP and 30% of the world population.
  • The purpose of RCEP was to make iteasier for products and services of each of these countries to be available across this region.

India’s withdrawal from RCEP

  • India was a founding member of the RCEP. In 2019, India decided to withdraw from the RCEP negotiations.
  • Reasons : The fundamental reasons for India not joining RCEP was non-consideration of five key demands, namely,
    • Amendments in tariff differentials,
    • Alterations in the base rateof customs duty,
    • Modifications to the most favoured nation (MFN) rule,
    • Incorporation of certain exemptionsinto ratchet obligations within the agreement, and 
    • The recognition of India’s federal character in investment determinations.

Auto Trigger Mechanism in RCEP

  • To protect the domestic industry, India proposes the‘auto-trigger’ mechanism to check import surges.
    • According to it, in case there is a flood of imports (once duties are eliminated or reduced for RCEP members), after reaching a certain threshold,the auto-trigger of safeguard duties on imports should be initiated.
    • Through this India can accord some protection to its local industry.
  • India is opposed to the proposed Investor-State Dispute Settlement (ISDS) body, as it does not want its domestic laws to be challenged outside India.
    • However, RCEP countries are in favour of ISDS, because of certain issues faced by companies in India like:
      • Operational permits of international investors in telecom companies were cancelled by the Supreme Court in the wake of the 2G scam.
    • India is pushing for stringent norms for ‘Rules of origin’to prevent goods being routed through nations with lower duties
      • India is apprehensive that after signing of RCEP, the Indian market will be flooded with the cheap import of the third country which is not a member of RCEP but has signed FTA with other RCEP member.

Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.

  • Apart from this India wants greater market access in the services sector.

China Factor 

  • The crucial factor behind India’s withdrawal from RCEP was the presence of China— a country with which India already has a substantial trade deficit even without a formal FTA.
  • The fear was that India’s trade deficit could widen further if it opened its markets to cheaper Chinese goods without commensurate market access for Indian products in other RCEP countries.
  • There was increased opposition from various industry segments and bodies, raising doubts about how RCEP would bring about a difference considering that comparable benefits hadn’t materialised from certain existing FTAs.

Analysis of withdrawal

  • Analysing exclusively from the standpoint of BoT with China, initial data indicates that India’s decision to abstain appears to be one of foresight.
  • Early trends indicate that this stance was crucial in safeguarding India’s domestic manufacturing base, especially the MSME sector.
  • Opening up the Indian market to RCEP members, particularly China, could have had an adverse impact on the country’s manufacturing sector and some of the flagship initiatives of the government like the Production Linked Incentive (PLI) scheme.
  • There is also a growing view that it would serve India’s interest to invest strongly in negotiating bilateral agreements with the US and the EU, both currently a work in progress.
  • Now India along with some countries is getting into the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF)

Benefits of RCEP

  • Promotes economic growth and regional stability.
  • Encourages investments
  • Enhances competitiveness and innovation
  • Streamlines trade procedures and regulations.

Road ahead

  • It must be noted that the impact of an FTA cannot be assessed relying solely on the movement of goods; services and investments must also be considered.
  • Given the prevailing political tensions with China, it appears sensible for India to maintain a level of autonomy in its supply chains.
  • Relying heavily on China, especially for crucial inputs, could potentially undermine our ability to assertively address any misconduct by that nation.
  • Thus, by ensuring a degree of self-sufficiency, India can not only safeguards its economic interests but also take a firm stance in response to any unfavourable actions by China.






POSTED ON 03-05-2024 BY ADMIN
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