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  • Hamsini Hariharan

What does signing out of RCEP mean for India and international trade?

This article first appeared in CNBC TV-18 on November 25, 2020 and can be accessed here.

Last week, 15 countries signed the world’s largest trade deal, Regional Comprehensive Economic Partnership (RCEP). The agreement that does not contain India amounts to a third of the world’s population and nearly 29 percent of world GDP. But what does the signing out of the deal mean for international trade and has India missed out?

Depending on who you ask, views about the RCEP will differ. One group of scholars point to the signing of the deal as a symbolic win for China and a loss of influence of the United States in Asia. This is primarily because the United States-led Trans-Pacific Partnership (a more comprehensive trade deal involving North American countries) was thrown out of the window.

For the US, this means that the Asia-Pacific is becoming more Asian and less Pacific. Therefore, it's strategic rebalance in the region will suffer unless its new administration can prove that it is a critical security provider.

A second angle to the issue is that the RCEP, which has been in negotiation for the last eight years, is led not by China but by the Association of South East Nations (ASEAN). They want the region to be more integrated economically to leverage ASEAN’s position in the Asia-Pacific region and take advantage of East Asia’s success.

While it might be true that the ASEAN is spearheading the new deal, it is also true that China (and other East Asian countries) stands to benefit the most as it opens new markets for its strong domestic manufacturing sector. Further, as this is the first multilateral FTA that China is part of, it will also set a precedent for future FTAs that the country signs.

Another view to remember is that the finalization of the trade deal is one step in a long-term process that would involve enormous bureaucracy and dither on the part of several countries that need to ratify. Countries like Australia, Thailand, and Malaysia will face challenges in ratification within their national legislatures.

For India, the RCEP allowed an open-door clause, meaning that we can re-join the treaty at any point in time. India backed out of the deal in 2019, citing opposition from domestic players in agriculture, dairy, services, steel, etc. What is the opportunity cost of India not joining the RCEP? On the one hand, the Indian establishments’ voices argue that the deal will make India’s trade deficit higher. They cite India’s past experiences of FTAs with Japan, South Korea, and Australia to illustrate this point.

While it is true that India’s trade deficit has risen, it is also because India has not carried out structural changes to its economy, which would make India more competitive on the global stage. India cannot claim to protect its domestic producers if it does not integrate them into the global supply chain. We cannot label everything that China is part of as a strategic threat.

As the world wakes up to a post-COVID-19 global recession, India needs new measures, more reforms, and to intensify existing partnerships. We need to ask ourselves, If the RCEP is not viable for us right now, what are we doing to be relevant economically on the world stage?

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