Regional Comprehensive Economic Partnership (RCEP)
In today’s fragile global economy, mega regional trade deals are in vogue. In an environment of falling aggregate demand, such trade deals act as a vehicle to insulate economies from market uncertainties.
Three important mega regionals are currently under negotiation: the Regional Comprehensive Economic Partnership of Asia and the Pacific (RCEP), the Trans-Pacific Partnership (TPP), and the Trans-Atlantic Trade and Investment Partnership (TTIP).
In the year 2012, the 16 Economic Ministers endorsed the Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership (RCEP).
These negotiations were launched by Leaders from 10 ASEAN Member States, namely, Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam and six ASEAN FTA partners, namely, Australia, People’s Republic of China, India, Japan, Republic of Korea, and New Zealand during the 21st ASEAN Summit and Related Summits in Phnom Penh, Cambodia in November 2012.
What is RCEP?
Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) and the six ASEAN FTA partner states.
The chief feature of the RCEP negotiations envelops trade in goods and services, investment, economics, and technical cooperation and dispute settlement.
RCEP from India’s point of view
The RCEP will form a platform to influence its strategic and economic status in the Asia-Pacific region, as when compared to TPP and TTIP, India’s trade share with the RCEP group of countries as a percentage of its total trade has increased over the past decade and half, underlining the importance of its trade with key countries in this group.
It is going to bring the five biggest economies of the region – Australia, China, India, Japan and South Korea – into a regional trading arrangement.
Immediate benefits to India
RCEP promises three immediate benefits:
First, the RCEP agreement would be complementing India’s existing FTA’s with the ASEAN and some of its member countries, as it would deals with Japan and South Korea. It will be helpful in tackling challenges emanating from implementation concerns vis-à-vis overlapping agreements.
The RCEP would help India streamline the rules and regulations of doing trade, thus reducing the trade costs.
India’s goal of greater economic integration with countries East and South East will become smooth through better access to a vast regional market ranging from Japan to Australia. The RCEP can be a stepping stone to India’s “Act East Policy” as India is not a party to two important regional economic blocs: the Asia-Pacific Economic Cooperation and the Trans-Pacific Partnership.
Second, the RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory.
The RCEP is to collaborate trade-related rules, investment and competition regimes of India with those of other countries of the group. Using domestic policy reforms on these areas, Indian companies can plug into regional and global value chains and would be able to project the true potential of the Indian economy. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.
Third, India already in areas such as information and communication technology, IT – enabled services, professional services, healthcare, and education services enjoys a comparative advantage. In addition, the RCEP will create opportunities for Indian companies to access new markets.
The reason behind this is that India is well placed to contribute to other countries in RCEP through its expertise in services, not only consolidating the position of the region as the world’s factory but also developing it as the world’s hub for services.
The concluding remarks will be that it is vital for India to ensure that the RCEP is truly comprehensive and does not just focus on market access for goods. India will be needing second-generation reforms of its domestic economic policies, including those that reform its factor markets, to make its trade more competitive.
Major concerns for India
Firstly, the major bone of contention in bilateral FTA’s, the tariff barriers, will become utmost important in the upcoming rounds of RCEP negotiations.
Secondly, there is huge demand in many member countries of RCEP, for stricter norm and standards concerning environment and labour issues whereas India is willing for a liberal environment and labour norms in the negotiations.
Thirdly, India is in dire need to strengthen its Medium, Small and Micro Enterprises (MSME) sector, equipping it not only to survive the free flow of trade, but also to become a set of more competitive players. Higher investments in R&D and achieving international standards in terms of delivery is the need of the hour.
Fourthly, an internal commerce ministry estimate that signing the 16-country RCEP trade agreement will result in a revenue loss of as much as 1.6% of GDP.
Fifthly,a major difficulty for India will be negotiating terms with China. India has to be firm and calculative in terms of taking tough policy decisions, while working tirelessly on capacity building of its domestic industries.
Lastly, in the 12thround of RCEP talks, the members of RCEP have asked India to either to consent to eliminate tariffs on most products quickly or leave the talks on the proposed Free Trade Agreement (FTA) that is being negotiated by RCEP itself.
Finalizing the RCEP is way too difficlut and these negotiations will have to paas through all the loopholes. Huge economic disparities among the negotiating countries are likely to pose a huge difficulty in negotiations.
Countries have no trust on each other, especially all other RCEP countries remain skeptical of China’s aggressive behaviour and act on territorial disputes, thus posing a major hurdle in negotiations.
The existing 5 ASEAN+1 and 23 ratified bilateral FTAs, varying greatly in their terms, pose a significant hurdle to RCEP negotiations.
Harmonizing all the countries under RCEP will be a task as there is a lack of commonality across FTAs and such unsteady internal policies of countries involved. If negotiated successfully, RCEP would create the world’s largest trading bloc and have major implications for Asian countries and the world economy.