REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP
Why in News?
The CEO of NITI Aayog, B.V.R. Subrahmanyam, recently proposed that India should reconsider its position and join the Regional Comprehensive Economic Partnership (RCEP).
- His remarks mark a significant departure from the Indian government’s stance since it opted out of the trade pact in 2019.
- Subrahmanyam also highlighted India’s missed opportunities in leveraging the China-plus-one strategy, which could have provided an alternative to China’s dominance in global trade.
- His comments coincide with suggestions from the World Bank and an ongoing Economic Survey that advocate for greater integration of India into regional supply chains, including those involving China.
ABOUT RCEP
RCEP is a free trade agreement (FTA) that brings together 16 countries:
- 10 ASEAN members: Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos, and Vietnam.
- 5 FTA partners: China, Japan, South Korea, Australia, and New Zealand.
RCEP aims to promote trade in goods and services, facilitate investment, enhance intellectual property rights, and regulate e-commerce, among other areas.
OBJECTIVES
To create an integrated market with 16 countries, simplifying trade and boosting economic cooperation across the Asia-Pacific region.
India’s Position on RCEP: Historical Context
- India had initially engaged in RCEP negotiations for 6 years, but in 2019, it chose to back out of the agreement.
- The decision was largely driven by concerns that joining the RCEP would disproportionately benefit China, further intensifying India’s trade deficit with its neighbor, which already stood at $85 billion at the time.
- There were also apprehensions about the free trade agreement with China that would accompany RCEP, potentially leading to unfair competition for Indian industries.
WHY INDIA SHOULD JOIN RCEP? (MR. SUBRAMANYAM’S TAKE)
- Missed Opportunities in the ‘China-Plus-One’ Strategy: Subrahmanyam, who was formerly India’s Commerce Secretary, said that countries like Vietnam, Indonesia, Malaysia, Turkey, and Mexico have capitalized on the China-plus-one strategy, benefiting more than India.
- This strategy involves shifting some production out of China to other countries, thus diversifying the supply chain.
- India, he argued, has not leveraged this opportunity to the same extent.
- US Tariff Threats and India’s Trade Barriers: Subrahmanyam emphasized that India’s high tariffs on industrial and agricultural goods have hindered its ability to engage meaningfully in global trade.
- With the potential return of Donald Trump as US president, India may face greater pressure to reduce tariffs and increase market access to avoid additional tariffs on its exports to the US.
- Integration with China’s Supply Chains: India’s Economic Survey 2024 suggests that India should reconsider joining RCEP to integrate more effectively with China’s supply chains.
- India has bilateral trade worth $118 billion with China, but this trade is heavily skewed in China’s favor.
- Subrahmanyam argued that by engaging with RCEP, India could improve its position and mitigate the risks of being excluded from the evolving global supply chains.
CONCERNS ABOUT CHINA’S DOMINANCE
- Trade Deficits and China’s Gains: After RCEP’s implementation, several countries have experienced growing trade deficits with China. For instance:
- ASEAN countries’ trade deficit with China increased from $81.7 billion in 2020 to $135.6 billion in 2023.
- Japan’s trade deficit with China also rose from $22.5 billion in 2020 to $41.3 billion in 2023.
- South Korea might even face a trade deficit with China for the first time in 2024.
- According to the World Bank, these trends suggest that the economic benefits of RCEP are disproportionately skewed in favor of China.
- This has validated India’s concerns about unfair competition under the terms of RCEP.
- China’s Dominant Role: India’s fear of China’s dominance in the trade bloc is compounded by an analysis from the Global Trade Research Initiative (GTRI), which shows that after joining RCEP, China has secured the lion’s share of trade benefits.
INDIA’S CURRENT TRADE AGREEMENTS
- Bilateral and Multilateral Agreements: India already has bilateral FTAs with several RCEP countries, except for China. Notably:
- Australia: The Economic Cooperation and Trade Agreement (ECTA) is operational, and a Comprehensive Economic Cooperation Agreement (CECA) is in advanced stages.
- New Zealand: Negotiations for an FTA are ongoing.
- Future Prospects: India is working on free trade agreements with the EU, UK, and other regions.
- However, the need for tariff reductions and market access is critical to integrate into global value chains and capitalize on opportunities within larger trade blocs like RCEP.
SUBRAMANYAM’S ADVOCACY FOR CPTPP
- Alongside RCEP, Subrahmanyam also suggested that India should aim to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes Japan, Vietnam, Australia, Canada, Mexico, and several other countries.
- This agreement offers significant trade advantages and integration with the global economy, particularly for the manufacturing sector.
- India has not been part of the CPTPP negotiations.
- However, its membership could provide a more balanced opportunity to engage with the Asia-Pacific region without being unduly influenced by China, given the US’s withdrawal from the pact in 2017.
GLOBAL & REGIONAL PERSPECTIVE
- World Bank’s Recommendation: The World Bank has suggested that India reconsider its position on RCEP, citing potential benefits like increased trade, investment, and GDP growth.
- Despite India’s trade deficit with China, RCEP could offer long-term economic integration that might outweigh immediate concerns about unfair trade practices.
- Government’s Cautious Stance: However, key government officials, including Finance Minister Nirmala Sitharaman, have highlighted the sensitivities surrounding traderelations with neighboring countries, especially China.
- There is a recognition of the need to balance national interests with the demands of global trade integration.
CONCLUSION
India’s participation in RCEP is a complex decision that involves weighing the economic benefits of greater trade integration against the risks of increased competition from China. While joining RCEP could potentially unlock new markets and investment opportunities, the trade imbalances with China remain a significant concern.
India’s current strategy of negotiating bilateral FTAs with RCEP members and focusing on alternative trade agreements with countries like the US and EU seems to be a more cautious approach. However, the World Bank’s recommendation and Subrahmanyam’s call for greater regional integration indicate that India must eventually decide how to engage with global trade networks to maximize growth while managing its economic sensitivities.
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