Context:

The Niti Aayog CEO proposed that India should join the Regional Comprehensive Economic Partnership (RCEP).

About Regional Comprehensive Economic Partnership (RCEP)

RCEP	It is an economic agreement formed by the Association of Southeast Asian Nations (ASEAN) and their Free Trade Agreement (FTA) partners. 10 ASEAN countries: Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos, and Vietnam. 5 FTA partners: China, Japan, South Korea, Australia, and New Zealand. It is the world's largest trading bloc established to promote economic integration, trade liberalization, and cooperation among its members. RCEP member countries collectively accounted for more than 30% of global GDP and about one-third of the world population. The RCEP negotiations started in 2012, officially signed in November 2020, and came into effect on January 1, 2022.
Objectives	Promoting trade and investment among member countries. Reduce or eliminate tariffs and non-tariff barriers to promote seamless trade.
India Participated in RCEP but withdrew	India was initially involved in the RCEP negotiations, but withdrew in 2019 due to several concerns: India's decision was in line with the global "China Plus One" strategy, which aims to diversify trade and supply chains, and reduce dependency on China. There was concern about the arrival of low-cost Chinese products, which could harm domestic industries. India was concerned that joining the RCEP would increase its trade deficit, as seen in other member countries, such as ASEAN's growing trade deficit with China. ASEAN's trade deficit with China grew from USD 81.7 billion in 2020 to USD 135.6 billion in 2023. India's trade deficit with China had already reached $ 85 billion in 2023-24 raising concern that RCEP would increase the imbalance. India was concerned about rules of origin provisions, worried that goods could avoid Indian tariffs by passing through other countries. There were concerns about the impact on domestic industries, especially dairy and steel, as they could face stiff competition as tariffs were to be reduced from 35% to zero. India wanted to protect its domestic industries from being stressed by cheaper imports from countries such as Australia and New Zealand.

Should India Join RCEP?

Arguments by NITI Aayog CEO

Joining the RCEP will greatly benefit India's micro, small, and medium-sized enterprises (MSMEs), which account for 40% of the country's exports. It would give Indian MSMEs greater market access, allowing them to be more competitive globally.

India has underutilized the "China plus one" strategy, a global trend of diversifying supply chains away from China. Other countries, such as Vietnam, Indonesia, Malaysia, Turkey, and Mexico, have successfully capitalized on this trend by attracting investment and trade, however, India has not fully capitalized on the opportunity, therefore, India should adjust its economic structure to reap the benefit.

India's higher-than-average tariffs lead to trade bottlenecks, limiting its participation in global value chains. 70% of global trade flows through these value chains, and India's current tariff levels make it difficult for the country to access them, thus India needs to adjust its policies such as rationalizing trade barriers (tariff and nontariff) to integrate its economy with the global value chain.

World Bank

The World Bank in its India Development Update report suggested India to consider rejoining RCEP. According to the report, RCEP membership could benefit India by increasing trade, attracting more investments, and promoting GDP growth.

Way Forward

India's membership in major trade agreements such as RCEP could increase foreign investment in domestic industries, it can improve trade liberalization, and expand global market access for Indian industries. The partnership could also strengthen the economic status of India by allowing it to play a major role in the global supply chain and establish strategic economic alliances.

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Source:

INDIAWRITES

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