RCEP and Indian Apprehensions

Singapore’s Foreign Minister Vivian Balakrishnan recently said that he hoped India would “reassess” its stand on regional trading agreements such as the Regional Comprehensive Economic Partnership (RCEP) pact that India withdrew from in 2019.


Described as the “largest” regional trading agreement to this day, RCEP was originally being negotiated between 16 countries — ASEAN members and countries with which they have free trade agreements (FTAs), namely Australia, China, Korea, Japan, New Zealand and India.

The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region. Negotiations to chart out this deal had been on since 2013, and India was expected to be a signatory until its decision last November.

RCEP was officially signed on 15th November,2020 in Indonesia and Leaders of ASEAN Member States, Australia, China, Japan, Republic of Korea and New Zealand witnessed the signing of the Regional Comprehensive Economic Partnership (RCEP) Agreement.

The virtual signing by ministers took place following the conclusion of the 4th RCEP Summit on 15 November 2020.

The 15 countries involved in the Regional Comprehensive Economic Partnership include the ten Association of Southeast Asian Nations member States as well as five of their free trade agreement partners – Australia, China, Japan, New Zealand, and the Republic of Korea.

One of the original RCEP negotiating countries, India, did not sign the deal

Relevance of RCEP:

RCEP deepens trade and investment relations between member countries mainly through reductions in non-tariff barriers (NTBs) on goods and services trade. The agreement focuses on NTBs as import tariffs were already relatively low among RCEP members. (Low import tariffs are the result of the global trend of unilateral tariff liberalization over the past decades and a web of existing trade agreements among RCEP members, such as the ASEAN-China FTA, ASEAN-Australia-New Zealand FTA, China-Australia FTA and Japan-Korea FTA.) It harmonizes the provisions imposed by countries on the trade in goods, providing more certainty for traders and investors.

Why did India walk out?

On November 4, 2019, India decided to exit discussions over “significant outstanding issues”. According to a government official, India had been “consistently” raising “fundamental issues” and concerns throughout the negotiations and was prompted to take this stand as they had not been resolved by the deadline to commit to signing the deal. Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector. According to officials, the current structure of RCEP still does not address these issues and concerns.

India’s apprehension on RCEP before quitting:

a.Importance given to products rather than to services

Emphasis of RCEP is on trade in goods, largely on manufacturing where China, Vietnam, Thailand etc. have comparative advantage. India’s comparative advantage  is in services sector, where the RCEP loses focus.Hence, India is contending that services should be treated like commodities in RCEP trade. Also, our competitiveness in manufacturing will worsen further if we alter the protection that we provide. This will lead to dumping of goods from China which will further worsen the 53$ Billion deficit with China and the almost 100$ Billion with ASEAN.

b.Investment Flaws

As per India, the investor state dispute settlement (ISDS) of RCEP should first use the remedies available in the country, before an investor can take country for a dispute at international forum.

c.Dumping of Cheap goods from China

Even if India manages to keep tariffs on certain items being imported from China higher than that for other RCEP members, with low value addition requirement Chinese items can be dumped into India at lower duties via other RCEP countries. Hence, India asked for strict RoO in RCEP as a safety wall to domestic producers against cheap Chinese goods.

Moreover, in the wake of US-China trade war, there is might possibility of increased flow of goods from China.

d.Investment Flaws

As per India, the investor state dispute settlement (ISDS) of RCEP should first use the remedies available in the country, before an investor can take country for a dispute at international forum.

e.Concerns Regarding the Dairy Sector:

Dairy is a sector that has seen tremendous growth in India. This has happened largely by taking two steps:Checking Imports and Secondly, a large share of market price actually goes to the farmer(as high as 61% of Market Price). This has taken India to be the largest milk producer in the world.

The National Dairy Development Board (NDDB) has recommended the government to keep the dairy sector out of the purview of negotiations under RCEP as cheap import of dairy products will adversely affect the livelihood of Indian farmers.

In this context, New Zealand is pushing for dairy imports in RCEP as it has capacity to produce milk 6 times higher than its consumption.

f.Stringent IP

India argues to remove the Stringent intellectual property (IP) agreement out of the RCEP agreement.

Countries like Japan and South Korea are pushing for Intellectual Property Rights (IPR) Policy which will make Indian pharmaceuticals much costlier and hit consumers around Asia.

g.Tariff Reductions

Tariff on  28 % of items will have to be brought down to zero immediately and more than 35% of the goods in phases when the pact is implemented.  Indian entrepreneurs will hardly have time to adjust to the new challenges that the competition would generate.

India is under pressure to agree to eliminate import tariffs on more than 90 per cent of traded goods for the 10-member ASEAN, Japan and South Korea

What can the decision cost India?

There are concerns that India’s decision would impact its bilateral trade ties with RCEP member nations, as they may be more inclined to focus on bolstering economic ties within the bloc. The move could potentially leave India with less scope to tap the large market that RCEP presents —the size of the deal is mammoth, as the countries involved account for over 2 billion of the world’s population.

Given attempts by countries like Japan to get India back into the deal, there are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific.

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