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RCEP – India’s timely pull out?

Regional Comprehensive Economic Partnership (RCEP) was declared during the 21st ASEAN summit in Nov 2012 in Phnom Penh, Cambodia. On 4th Nov 2019, 7 years after India joined the negotiations, Prime Minister Shri Narendra Modi in his statement at the RCEP said: “Neither Talisman of Gandhiji nor my own conscience permits me to join RCEP”.

What’s the big DEAL?

Free trade agreements (FTA’s) give nations access to more markets in the global economy, increase GDP, invite investments, increase efficiency and competition for the domestic players. RCEP is one such proposed FTA that aims to create the world’s largest free-trade region with 10 ASEAN countries, Japan, India, Australia, South Korea, China, and New Zealand. These 16 countries contribute almost 40% to the world GDP and are home to almost half the world’s population.

Key reasons for India’s pull out – Chinese games as usual?

  1. Economic Slowdown - RCEP would have exposed the Indian businesses and agriculture to fierce competition from some export heavy countries like China.

  2. Inadequate protection against surges in import - When there are no tariffs, China tends to dump its cheap goods in various countries and there was no clause to counter this (Anti-dumping duty).

  3. Possible circumvention on “Rules of Origin of goods” - China diverts its goods via other countries so as to give a false impression of “under control deficit”, which is not the case.

Base year conflict, the impact of the established dairy industry in Australia and New Zealand and exclusion of service-oriented sectors like IT were also the key concerns.

Brave or cowardly Decision?

Since liberalization, Indian economy has become more robust but other economies have become even stronger. Few countries have developed significant capabilities and competitiveness in the key sectors. In comparison, our competitiveness has eroded in a number of products.

The government has said it is not averse to joining RCEP and some members are also keen on India joining the RCEP. However, unless Indian producers gain confidence that they can take on the competition, it is unlikely the government will change its decision before favorable terms are negotiated. 

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