Regional Comprehensive Economic Partnership (RCEP) : UPSC Notes

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Regional Comprehensive Economic Partnership (RCEP) : UPSC Notes

Regional Comprehensive Economic Partnership is shortened to “RCEP.”The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) between the ten countries of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and its five FTA partners (Australia, China, Japan, New Zealand, and the Republic of Korea).

• About 30% of the world’s population (2.2 billion people) and 30% of the world’s GDP ($29.7 trillion) live in the 15 member countries. This makes it the biggest trade bloc in history.

• RCEP is the first free trade deal between China, Indonesia, Japan, and South Korea, which have the largest economies in Asia. It will be signed in November 2020.With the help of all the members, this agreement was made to improve business cooperation in the area. India was a part of the RCEP until 2019, when it quit because of bad things that were happening.

• RCEP lets its member countries sign free trade agreements to improve regional cooperation in economic activities, trade services, technical collaborations, dispute resolution, and other related areas. • RCEP wants to lower tariffs, open up trade in services, and encourage investment to help emerging economies catch up with the rest of the world. It also talks about private property, but not about protecting the environment or workers’ rights.


Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia are ASEAN members. Australia, China, Japan, New Zealand, and South Korea are FTA partners.

How important is RCEP?

• RCEP will cover about 30% of the world’s $26.2 trillion (€23.17 trillion) gross domestic product (GDP) and about 2.2 billion people, or about a third of the world’s population.

The RCEP will finally get rid of about 90% of the trade tariffs within the bloc. It will also set common rules for trade, intellectual property, e-commerce, and competition.

History Behind this Partnership

• Free trade deals make it possible for countries in East Asia to trade and do business with each other.

• The Association of Southeast Asian Nations (ASEAN) has free trade deals with six countries: the People’s Republic of China (ACFTA), the Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA), Australia and New Zealand (AANZFTA), and the People’s Republic of China (ACFTA).

• The RCEP was set up by the leaders of the 16 participating countries in order to broaden and deepen the involvement of the parties and to increase the parties’ involvement in the economic growth of the area.The RCEP was built on top of the existing ASEAN+1 FTAs with the goal of strengthening economic ties, improving trade and investment, and helping to close the growth gap between the countries.

• The Regional Comprehensive Economic Partnership (RCEP) was first talked about at the 19th ASEAN Summit, which took place from November 14–19, 2011, in Bali, Indonesia.

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• In November 2012, at the 21st ASEAN Summit and other related meetings in Phnom Penh, Cambodia, the RCEP talks between the 10 ASEAN member states and the six ASEAN FTA partners began.

Major FTAs Signed by India

South Asia Free Trade Agreement (SAFTA), India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA), India-ASEAN Comprehensive Economic Cooperation Agreement (CECA), India-Korea Comprehensive Economic Partnership Agreement (CEPA), and India-Japan CEPA.

• Asia Pacific Trade Agreement (APTA)

The RCEP and India

• India has left the RCEP at the ASEAN+3 meeting in November 2019 for the following reasons:

Unfavourable Balance of Trade: Since the Free Trade Agreement with South Korea, ASEAN countries, and Japan, trade has increased, but India’s imports have grown faster than its exports.

o A paper from NITI Aayog says that India has a trade imbalance with most of the countries that are part of RCEP.

China’s Point of View: India has already signed FTAs with every RCEP country except China. According to trade data, India’s trade imbalance with China, with whom it does not have a trade agreement, is higher than that of all the other RCEP members combined.

o This trade imbalance is India’s biggest worry, since cheaper goods from China would have flooded the Indian market after they signed RCEP.

o Also, from a strategic point of view, RCEP is led by China or is meant to increase China’s power in Asia.

Auto-trigger Mechanism Was Not Accepted: India had been looking for an auto-trigger mechanism to deal with the rise in goods that was coming.

o The Auto-trigger Mechanism would have given India the ability to raise taxes on goods when imports went over a certain level.

o Other countries in the RCEP, on the other hand, were against this idea.

Protection of Domestic Industry: India was also said to be worried about lowering or getting rid of tariffs on dairy, steel, and other goods.

o For example, Australia and New Zealand are expected to give the dairy business a lot of trouble.

o The average bound tariff for dairy goods in India is 35% right now.

o The RCEP requires countries to get prices down to zero over the next 15 years.

Lack of Agreement on Rules of Origin: India was worried about “possible circumvention” of rules of origin.

o Rules of origin are the things that are used to figure out where a product comes from.

o According to reports, the deal’s current rules don’t stop countries from sending goods to India through other countries, even though India would charge higher taxes on those goods.

India, which has a lot of people to offer and is a big service provider, doesn’t want to just sign a deal about good trade. The trade deal for only goods, not services or investments, will hurt India’s economic policy, not help it.

• The areas that are not happy with the deal are:

Dairy: India needs dairy because milk and other dairy products are important in Indian homes.

o New Zealand is an exporter of dairy goods, and milk powder and fat products will be the main things they want to sell to India. So far, India, which is one of the biggest users of milk and milk products, has been able to meet its own needs and has even sometimes made more than it needs. If New Zealand joins, things could be different.

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o In 2018, nearly 93.4% of New Zealand’s milk powder, 94.5% of its butter, and 83.6% of its cheese were shipped overseas. India does not send enough milk products.

o It could cause 50 million people to lose their jobs in rural areas, which will increase the need to import.

Cars: The RCEP could give China a “back-door entry route” for car parts.

Textiles: The free entry of polyester fabrics from China, Vietnam, Bangladesh, and other countries could make textiles cheaper, which would hurt an industry that is already struggling.

o India’s textiles and clothing trade imbalance with China is likely to get worse, which could hurt India’s textile manufacturers.

Steel: The steel business is also worried about China because too many imports could hurt the U.S. market.

o It will hurt India’s export competitiveness because the country’s trade balance is already out of whack.

Agriculture: The biggest group of tea, coffee, rubber, cardamom, and pepper growers said that RCEP would make the already bad situation in the sector even worse.

o There will be a lot of competition for the goods, and the number of imports into the country is likely to rise over time.

Benefits of joining RCEP for India

• Better access to markets and easier trade: The RCEP is expected to give suppliers from member countries more chances to do business in each other’s countries and make it easier to do business by improving the import facilities at the entry point.

• Technological progress: Countries like Japan and South Korea can help India make up for its lack of high-end products in terms of technology. They can also help with strategic progress, especially when it comes to building defence skills.

• Investment from China: Despite the security risks, Indian companies have gotten money from China. Because of this, it is very important that no door that can help the economy grow is shut for good.

• Global value chains: RCEP can make India an important part of trade chains around the world. This makes more sense when you look at the Supply Chain Resilience Initiative (SCRI), which is a new project from Japan. (see inset)

• Strategic Considerations: Like India, Japan wants to keep China from taking over the RCEP. So, it wants India to join RCEP, even if it’s just as an observer. Aside from that, the fact that India left the RCEP even though Japan and Australia, two important members of Quad (Quadrilateral Strategic Dialogue), were still there may show that Quad members are not working together well.

• Protecting India’s markets abroad: Countries like Vietnam are in a good situation to replace India’s textile exports because tariffs have gone down in RCEP member countries. If India doesn’t join RCEP, it might have to deal with more of these kinds of losses.

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• India’s huge domestic market: India can take advantage of its huge domestic market because the other RCEP members know that it’s not just India that will gain from being a part of RCEP. If India joins the group, everyone will gain, not just India. India’s service industry is growing quickly, and people are making more money, which means they have more money to spend. This makes India a good market for exports from any country.

The Next Steps

• Strengthen the agreements that are already in place. This includes trade and investment agreements with ASEAN, Japan, and Korea, as well as bilateral deals with Malaysia and Singapore.

• Marketing Products: The marketing of Indian products to existing favourable markets and to other countries where India doesn’t have much of an export presence. Since Indian products are competitive and liked in these markets, the Indian industry can benefit from targeted promotional strategies.

• Export Diversification: Increasing exports in Africa, which is rising quickly and already makes up almost 9% of exports, as well as in Latin America, which only makes up 3% of exports right now.

West Asia is also a growing area where India has found ways to work together.

India needs a two-pronged plan for exports that focuses on both making the country more competitive and doing targeted promotional activities.

• Deeper Economic Reforms: These need to start, especially in the markets for land, labour, and capital, which are called “factors.”

It will give a much-needed boost to investments in industry as a whole.

For local manufacturing, lowering business costs, building the right infrastructure, making sure trade is made easier and faster at the borders, etc., are all important.

• Targeted Export Promotion: Give their makers and exporters, especially small businesses, information about their markets and help them with their marketing.

Create specialised agencies and set up offices abroad with professional marketers who will work to promote exports and connect buyers with Indian exporters in the world’s major markets.

• External Integration Strategy: The country needs to make sure that its wants are taken into account.

India already has trade and business agreements with 12 RCEP member countries, so there is still a lot of room for its exports to those countries to grow.

Our markets and exports will be more diverse if we make better use of the agreements we already have and look for new possibilities in other places.