Regional Comprehensive Economic Partnership agreement.

Regional Comprehensive Economic Partnership (RCEP) is world’s largest plurilateral trade agreement. It was first being negotiated between 16 ASEAN members and countries with those who have free trade agreement (FTAs) i.e. India, Japan, Korea, China, Australia, New Zealand.

RCEP was aim to make it better for each of these countries goods and services to be accessible throughout the country. Negotiations for this agreement had been ongoing since 2013, and India had been planning to sign before its decision last November.

PROS of RCEP for India:

• The growing trend of protectionism in the United States and Europe, as well as the possibility of higher tariffs, could further erode India's competitive advantage. Those of India's rivals that have preferential trade deals in effect will use them to demand credit for tariff increases or raised trade barriers. India, on the other hand, would not be able to do so without FTAs.

• India's competitive advantage is its skilled labour force, as well as the capacity for remittances from its diaspora. From India's perspective, the RCEP agreement would be a win-win if the other economies agree to significantly expand their access to services trade, even in the field of easing worker mobility, which means faster and more work visas. The rising wave of anti-immigrant sentiment highlights the importance of expanded labour mobility for populated economies like India.

CONS of RCEP for India:

• Since Indian exporters do not take advantage of preferential routes as well as their trading partners' exporters, India's trade balance with its FTA partners continues to worsen. In reality, FTAs account for a very small portion of India's foreign trade. According to the Asian Development Bank, FTAs are only used about a quarter of the time, which is among the lowest in Asia. The Indian export market is fractured, with little capacity to incur the enforcement costs needed to sort out the complicated rules of origin requirements. This is the primary reason for the underutilization of current FTAs. The traditional path is preferred by exporters. Aside from tougher root laws, erroneous obligations and a lack of knowledge are also major stumbling blocks.

• High transaction costs make Indian exporters less competitive in the global market. Supply-side bottlenecks, such as oil constraints and higher logistics prices, limit their price responsiveness. According to the NITI Aayog, logistics costs in India are roughly twice as high as in developing countries. In India, logistics costs account for about 15% of GDP, although they account for about 8% in developing countries.

• Cheap Chinese imports could flood the Indian market once the RCEP is completed. India's total trade deficit with China has increased thirteen-fold in the last ten years. India's trade deficit now accounts for half of the country's total. The essence of goods traffic adds to the exchange asymmetry. India primarily exports raw materials such as ores, minerals, and cotton. China's exports to India are mostly a diverse range of advanced goods higher up the value chain, which have higher profit margins and generate more jobs.

My Views

Politicians defended the decision by arguing that recent free-trade negotiations had "harmed" India. This will lead to increase imports in India rather than exports from India. 

• India clearly cannot continue to ignore trade in this manner. For one thing, India's domestic demand is insufficient to sustain its development. The Indian market may be large, but “foreign demand will still be bigger than domestic demand,”

• The pandemic, as well as tensions between the United States and China, have threatened the global trading order. New supply chains are being investigated, new links are being developed, and long-term trade infrastructure is being constructed. India could be shut out of several years of development if it fails to draw any of the infrastructure.