The Regional Comprehensive Economic Partnership (RCEP) is one of the world’s largest free trade agreements (FTAs), comprising 15 nations, including major economic powerhouses like China, Japan, South Korea, and Australia. Through the years, RCEP has been devoted to trading better, increasing economic unity, and diminishing the tariffs throughout the Asia-Pacific region.
Back in 2019, India had a crucial choice to make: to be a part of the wide economic bloc or to be out of it? After careful consideration, India chose the latter. Then, the negotiations were halted by India according to the apprehension of local industries which might face the negative economic impact and the inflow of too many Chinese products.
However, as we move further into 2024, the question arises again: should India reconsider its decision to join RCEP? Recent reports from institutions like the World Bank suggest that rejoining could help India realize its ambitious goal of achieving $1 trillion in exports by 2030. However, it is not a light matter, and both benefits and risks must be assessed neutrally.
In this article, we’ll explore whether India should rethink its stance on RCEP, evaluating the pros and cons of joining this influential trade bloc.
What is RCEP?
The Regional Comprehensive Economic Partnership (RCEP) is a comprehensive free trade agreement involving 15 countries across the Asia-Pacific region. The group consists of ten member countries of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) together with five of their largest trading partners—Australia, China, Japan, New Zealand, and South Korea.
However, the countries mentioned above compose almost 30% of the world’s population and approximately 30% of global GDP. RCEP's primary purpose is to cut down tariffs, bring the trading regulations in uniformity, and thus facilitate the goods and services transfer among the member countries. This massive economic pact is often seen as a way for its members to integrate into global supply chains more effectively and gain a competitive edge in international markets.
For countries like India, which aspire to become global manufacturing hubs, participating in such a trade bloc could offer significant advantages. In spite of this, the fact enriches the scenario.
Why India Chose to Stay Out of RCEP in 2019
India’s decision to withdraw from RCEP in 2019 wasn’t made lightly. The option given was put out due to quite a few things and most of them are still used today.
1. Concerns Over Trade Imbalance
One of the key reasons India chose to step back was the risk of exacerbating its trade deficit, particularly with China. India has already established a major trade deficit with China in a way that imports China are larger than exports. Joining RCEP would have meant further reducing tariffs on Chinese goods, potentially worsening this deficit and flooding the Indian market with cheaper Chinese products.
2. Impact on Indian MSMEs
India’s micro, small, and medium enterprises (MSMEs) were the other key consideration. The fear was that reducing tariffs on imports from RCEP member countries would expose Indian MSMEs to fierce competition from foreign companies, especially in industries like manufacturing and agriculture. More and more Indian firms lack the proper means to confront global competition, which is why the easy access to foreign products could have endangered their belonging.
3. Lack of Dispute Mechanisms
Another concern was the lack of a robust mechanism within the RCEP framework to address trade disputes and other issues. Without clear protections in place, India feared being overwhelmed by imports without having the means to protect its own industries effectively.
4. Agriculture and Dairy Sector
India’s agricultural sector, which employs a significant portion of the population, was particularly vulnerable. Opening up to RCEP could have led to a surge of agricultural and dairy imports, affecting domestic farmers and producers who would struggle to compete with more efficient international players.
The World Bank’s Call for India to Reconsider Joining RCEP
In 2024, the World Bank reignited the debate about whether India should join RCEP, offering several compelling reasons why it could benefit the country’s economy. Their key argument revolves around the notion that RCEP could play a critical role in helping India meet its $1 trillion export target by 2030.
1. China's Shift to More Sophisticated Manufacturing
From the data, the World Bank indicates that the recent development in China are such that low skills of workers are gradually replaced by high-quality of workers in job creating industry which laid more control on labor-intensive than value-added ones. The rise in salaries, with a greater stress on technology and innovation, in China provides India the chance to fill up the space in the industries like textile, apparel, and footwear. These are sectors where India already has a presence, and expanding that could create millions of jobs, particularly in the formal manufacturing sector.
2. Expanding Global Supply Chain Participation
By joining RCEP, India could better integrate into global supply chains. One of RCEP’s key advantages is how it handles the “Rules of Origin” and the “Cumulation Rule,” which help businesses qualify for lower tariffs across the region. By participating, Indian manufacturers could more easily export products across RCEP nations, benefiting from simplified trade rules and lower costs.
For instance, if an Indian company is assembling electronic goods using parts from several RCEP member countries, the cumulative value of these components would count toward qualifying for tariff reductions when selling the finished product across the bloc. This could open up significant export opportunities for Indian businesses.
Economic Benefits of Joining RCEP
If India decides to reconsider joining RCEP, it could unlock several economic advantages. These benefits extend beyond just tariff reductions and market access.
1. Lower Trade Costs and Tariffs
Joining RCEP would allow India to gradually reduce tariffs on goods traded with other member countries. Over the next two decades, India would likely need to slash tariffs on around 90% of its imports and exports within the bloc. In return, RCEP member nations would do the same, offering Indian businesses access to cheaper raw materials and components. This could reduce production costs and make Indian goods more competitive globally.
2. Access to a Larger Market
RCEP is a market Wondrous, and it has a population that occupies the 30% of the whole world. By becoming part of this bloc, Indian businesses would gain easier access to these markets, allowing them to expand their customer base and increase revenue. This could be especially beneficial for industries like textiles, electronics, and automotive, where India has strong export potential.
3. Streamlined Trade Regulations
One of RCEP’s key selling points is the simplification of cross-border trade. By harmonizing regulations and standards across member countries, businesses can save time and money by avoiding complex bureaucratic hurdles. By minimizing the interruption caused by different trade rules, international expansion becomes easier for companies.
Risks and Concerns of Joining RCEP
There are significant prospective advantages which, however, there are also several drawbacks that India has to take into account.
1. Exacerbating India’s Trade Deficit
In India, the major challenge remains the trade disparity between it and China. Joining RCEP would mean opening up India’s markets to goods from all member nations, including China. Given China’s dominance in many sectors, this could flood the Indian market with cheaper imports, further widening the trade deficit and putting pressure on domestic industries.
2. Impact on MSMEs
Indian MSMEs, which form the backbone of the economy, could be severely impacted by the influx of cheaper goods from RCEP countries. Businesses also work in fields like making clothes. On these fields lots of direct challengers are China and South Korea. They are advanced industries. Without adequate protection measures, MSMEs could struggle to survive in this new competitive environment.
3. Challenges in Low-Skill Manufacturing
Although the World Bank believes India could benefit from taking over low-skill manufacturing from China, there are challenges to this assumption. China’s manufacturing ecosystem is highly developed, with world-class infrastructure, a skilled workforce, and deep integration into global supply chains. Replicating this success in India will take time, and it may not happen quickly enough for India to reap immediate benefits from RCEP.
India’s Existing Trade Agreements: Are We Missing Out?
The RCEP is a Free Trade Agreement (FTA) between 15 countries, 13 of which India has already signed, including Japan, South Korea, and the ASEAN countries. India has special deals with other countries. It means we can export our goods more cheaply. This helps our economy.
Given that India already enjoys trade benefits with most RCEP nations, the question remains: is India really missing out on much by staying out of RCEP? The main exceptions are China and New Zealand, with whom India does not have existing FTAs. For China, in particular, entering into a broader trade agreement could pose more risks than benefits, given the current trade dynamics.
The Road Ahead: Should India Rethink RCEP in 2024?
As India looks toward its future economic goals, the decision to join RCEP will require careful thought and consideration. While RCEP offers significant economic advantages—such as access to a larger market, lower trade costs, and better integration into global supply chains—there are substantial risks as well.
India must weigh the benefits of gaining greater access to international markets against the potential risks to its domestic industries, particularly MSMEs and agriculture. The government must make sure that all forthcoming trade agreements provide sufficient safeguards for the local firms, and also they include the mechanisms to solve the trade imbalance.
Conclusion
The question of whether India should reconsider joining RCEP in 2024 is a complex one. While RCEP offers significant economic perks, including access to a vast market and simplified trade regulations, the risks are equally substantial. Opening India’s markets to RCEP nations could exacerbate trade deficits, harm MSMEs, and increase competition in key industries.
Ultimately, India must adopt a balanced approach, carefully negotiating terms that benefit its economy while protecting its domestic industries. Joining RCEP could be a strategic move for India’s long-term growth, but only if done with the right safeguards in place. As the debate continues, India’s leaders must evaluate whether the benefits of rejoining outweigh the risks, keeping in mind the country’s broader economic aspirations and the welfare of its people.
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