Why India not join RECP??| trade deal is good or bad
India is the only one not to join RECP
The Regional Comprehensive Economic Partnership (RCEP) is a
free trade agreement between the 10-member Association of Southeast Asian
Nations (ASEAN), and a few other partner countries. The agreement seeks to
create the world’s largest free-trade bloc by strengthening ties and reducing
trade barriers between the 16 member countries.
It’s all very simple really. With a free trade agreement in
place, Indian manufacturers will be able to ship goods and sell them elsewhere
without having to worry about, say a 30% tariff. This way prices can remain
competitive and Indian manufacturers can actually have a shot at selling a lot
of these goods abroad. On the flip side, India will also have to open up its
borders and that’s a contentious topic. But we will get to that bit in a while.
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Anyway with RCEP, India will have a new free-trade agreement
in place with 15 other countries including the likes of Malaysia, China &
Australia. And considering this little group is responsible for close to 40% of
all international trade, the RCEP agreement is kind of a big deal.
At least, it would have been, if India actually went through
with it.
At the RCEP summit in Bangkok, Prime Minister Modi refused
to partake in the agreement. His argument was that India had been proactively contributing
to the RCEP discussions in the hope of pursuing a mutually beneficial outcome.
But he felt that the current agreement did not fully reflect the basic spirit
of free trade, and that it did not address India’s outstanding concerns
satisfactorily.
Wait, what concerns?
For one, opening up the country’s domestic markets has
repercussions. Imagine cheap Chinese goods and agricultural produce from
Australia and New Zealand flooding Indian markets. It would obviously hurt
local producers. So India wanted a tariff structure that wouldn’t exactly open
the floodgates.
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Yes, we are going to open up our borders. But the tariffs
can’t be too low. That's the mantra here.
Also, RCEP countries account for almost 27% of India’s total
trade. However, India imports more from RCEP countries than it exports.
Economists call this — “running a trade deficit”. Ideally, when you open up
your borders you would want to reduce the deficit and help boost the country’s
export engine. But here’s the thing, China alone accounts for over 60% of the
deficit and the “Red Dragon” isn’t like other countries. It’s very hard to
export to China, even if you had a free trade agreement in place. For instance,
most of our exports are service-based, like IT. But services don't factor prominently
in these trade agreements. So how does one expect India to bridge the gap?
And even if it did, how would India contain the free flow of
goods coming in from China. In fact, we already predicted such an eventuality
and wanted safety measures in place. The idea was to include an auto-trigger
mechanism — so when the volume of imports crosses a certain threshold,
safeguard duties would suddenly kick in to contain the dump. Unfortunately, we
couldn’t get the member countries to budge
And finally, even if all our concern were heard, this would
still be a bit of a gamble. If the deal didn’t work miracles within a year or
two, the political repercussion would be unimaginable. For the BJP, that is.
So we are out of the deal, at least for now.
But then that begs another question. If we were relatively
certain that we couldn’t negotiate better terms. Why did we pursue it for so
long?
Well, we can’t say for sure. However, it's possible that
India was holding its cards close to its chest in the hope that other countries
would pressurize China into accepting India’s terms. India is a big market and
without India, this whole RCEP thing looks a bit like a damp squib. So maybe we
thought we could get member countries to come around?
It’s possible.
But for now, the remaining 15 countries have concluded
text-based negotiations and are ready to sign the pact (maybe next year). And
if India’s issues are resolved at a later date, maybe we can still be a part of
this deal. But until then, we wait and watch from the sidelines.
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