Reflection on the RCEP

This is a response to the editorial, “The Economy without RCEP” (EPW, 9 November 2019). On 4 November 2019, India decided to opt out of the Regional Comprehensive Economic Partnership (RCEP) pact. All the 15 countries decided to conclude the RCEP trade agreement and have kept the door still open for India to work on a bilateral basis on the pending issues. The RCEP is a proposed free trade agreement (FTA) between the 10 member states of the Association of Southeast Asian Nations (ASEAN—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and its five FTA partners (China, Japan, South Korea, Australia and New Zealand). The RCEP is aimed at lowering tariffs and barriers to the trading of goods and services among these 15 countries. The negotiations on the RCEP began in November 2012 at the ASEAN Summit in Cambodia and all the 15 countries plus India worked through all the chapters for seven years. The 15 nations aim to sign the RCEP trade pact in early 2020.

With the country facing an economic slowdown coupled with high unemployment rates, declining private consumption and rural distress, it would have been risky for India to open up the markets to cheaper goods from China and with low priced agricultural commodities from the ASEAN countries. For joining the RCEP, India would have had to eliminate tariffs for around 90% of items from ASEAN, South Korea and ­Japan and 74% from Australia, China and New Zealand. Though the RCEP would have substantially increased India’s access to these 15 countries, the domestic employment generating sectors, such as agriculture, dairy and textiles would have been severely affected by cheaper goods from these nations. Though India is the largest dairy producer in the world, the dairy industry needs tariff protection against cheap import of dairy powder and cheese from New Zealand and Australia. Similarly, the steel and chemical industries are concerned about cheap imports from China. The question that arises is: How long will Indian industries need tariff protection to compete with the RCEP countries? Staying out of the RCEP provides an opportune time for the policymakers to reflect on the competitiveness of our domestic industries. There should be renewed vigour on enhancing the competitiveness so that the local industries are able to compete globally and not within the local boundaries. The only difference is that competitiveness should not be measured within the boundaries of the country, but on a global scale.