01/12/2020 - International Relations

KEY POINTS

·        The discordant narrative in the country surrounding the RCEP reflects the different views on India’s participation in any free trade agreement (FTA)—though India has, over the last two decades, signed over 65 preferential FTAs including several comprehensive economic partnership agreements with important trade partners.

·        Driven by the global trends of increasing protectionism in the last few years, India has chosen to move down the path of atmanirbharta (self-reliance). India will become more ‘vocal for local’, it will continue to remain engaged with the world for trade and investment.

·        It is important to note that the RCEP has only been signed and now countries will have to ratify it before the agreement is launched. This may give India some more time to consider if it will take up the offer of joining the RCEP at a later date.

·        The tariff preferences under the RCEP will come into effect over a 3-20 year period, giving India time to build competitiveness in these sectors. In this context, it may be worthwhile to look at a NITI Aayog study on FTAs that had stated India’s exports are more responsive to income changes as opposed to price changes, and hence a cut in tariffs does not necessarily boost India’s exports significantly.

RCEP strategy without formally joining the grouping

·        First, India needs to continue the work of building on standards across sectors. The government has already identified close to 500 products where it is creating mandatory standards, and this list needs to be expanded.

·        Second, cut logistics cost for internal and external trade. The NITI Aayog study shows that the average logistics costs in India are about 15% of GDP, while such costs in the developed countries are about 8%. Third, consider sector-specific FTAs with countries where complementarities exist as these may be more beneficial than comprehensive FTAs.

·        Finally, don’t look at FTAs as a diplomatic tool, but use these to build competitiveness across sectors.

The Regional Comprehensive Economic Partnership (RCEP) - a plurilateral trade agreement between 15 countries—the 10 ASEAN member nations, China, Australia, New Zealand, South Korea and Japan. 

India - one of the founding member of RCEP not joined the agreement as it felt that the membership of the RCEP would harm many sensitive sectors in the country. 

>>> India can build a RCEP strategy without formally joining the grouping :-

* Sector-specific FTAs : India can consider sector-specific FTAs with countries where complementarities exist to build competitiveness across sectors. 

* Strategic partnerships : India can build strategic partnerships with likeminded countries in the region based on security concerns as against having limited economic deals.

* Policy measures : The recent policy measures, such as import bans on several products to focus more on being "Atmanirbhar(Self- reliant and self -sufficient)", with the agenda of 'make for world' along with 'make in India' - can not only enhance economic diplomacy, but also  increases India’s presence in regional value chains.

       Further, India needs to focus on ;

- building standards across sectors

- cutting logistics cost for internal and external trade,

in order to pull more investments into the country instead of adopting a free trade model. 

However, RCEP provides India a reason to focus on some critical aspects to ensure that the country remains connected to the global markets. 

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