India’s decision to opt out of the Regional Comprehensive Economic Partnership (RCEP) has been a much-debated topic not just in India but also across South East Asia in the recent past. Happily Trade Exim, the leading import export market research company, analyses the factors prompting India to take this daring decision.
Before we analyse, here is a brief about RCEP.
RCEP is a proposed free trade agreement (FTA) between the 10 member states of the ASEAN — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam — and its six FTA partners, China, Japan, India, South Korea, Australia and New Zealand.
RCEP member states account for 3.4 billion people with a total GDP of $49.5 trillion, approximately 39 per cent of the world’s GDP, with the combined GDPs of China and India making up more than half that amount.
To Boost Home Agricultural and Dairy Sectors
The trade withdrawal means safeguarding the interests of the farmers and agricultural traders which create employment for a major chunk of our rural workforce. This FTA would have severe implication on the rural economy. You should know that the All India Kisan Sabha has announced a nationwide protest on November 4 against RCEP.
To Safeguard India’s Small and Medium Businesses
RCEP has a provision where India was required to eliminate tariff on the import of about 90 per cent of items from the ASEAN, Japan and South Korea, and over 74 per cent from China, Australia and New Zealand. Doing this would have severely eroded the ground of competitiveness of our domestic products. The dominance of Chinese goods in India is not a hidden fact, and signing in the treaty would have given a further free rein to Chinese businesses.
To Help India Reduce Its Trade Deficit
India’s trade deficit (difference between imports and exports) widened with 25 major countries in 3 years as per the Ministry of Commerce as reported by The Economic Times. As of 2017 India had a negative trade balance of $125B in net imports. As compared to their trade balance in 1995 when they had a positive trade balance of $340M in net exports. With China alone, the trade deficit stands at $53 billion, down $10 billion from the previous year. Accepting RCEP on the current terms would have further increased this deficit as the elimination of tariff means more import. This imbalance between India and China caused by RCEP could have an impact on India’s strategic interests in Southeast Asia. It would also affect India’s standing against China as a competitor.
Concern of Indian Import Export Businesses Involved with RCEP Member Nations
Trading with ASEAN Member Countries
However, the decision is to hardly affects trading with ten member states of the (ASEAN) Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) who are also part of this agreement. India already enjoy trade agreement with allies in ASEAN. Establishing intergovernmental, economic, political, military, educational and socio-cultural cooperation is already enshrined in its philosophy.
Trading with Non-ASEAN Member Countries
It’s not-so-good for traders in India importing goods from a few RCEP members out of AEAN. As discussed earlier that the involvement in this economic partnership meant India had to eliminate tariff on more than 74% of items in trade with China, Australia and New Zealand. So, this would have given Indian importers a chance to save on that part and become more profitable. Major import items from China include telephone equipment, computers, semiconductor devices. Likewise, Indian importers of combustible biomass material (e.g. charcoal, sawdust, wood chips), dried legumes, gold, aluminium and more from Australia might be disappointed with the decision.
Hence, opting out doesn’t amount to make India less competitive. However, only time will tell as how effective would be this decision in serving the national interest.