RCEP pact signed and why India withdrew

• After eight years of negotiations, 15 East Asian countries have agreed to forge the Regional
Comprehensive Economic Partnership (RCEP), in a move that marked the culmination of the
process initiated by the members of the Association of the South East Asian Nations (ASEAN) in
2012.

• In 2019, RCEP members accounted for nearly 30% of the global output and population, and nearly
28% of global trade in 2019, and coupled with the fact that the region has some of the most resilient
economies, this Free Trade Agreement (FTA) could well emerge as the driver of the global
economy in the post-COVID-19 world.

• RCEP was conceived and launched on the side-lines of the 2012 East Asia Summit. It arose from
a sequence of earlier proposals for a region-wide FTA and, along with the Trans Pacific Partnership
(TPP), and was proposed as a “pathway” to Asia-Pacific Economic Cooperation’s longer-term goal
of creating the Free Trade Area of the Asia-Pacific (FTAAP).

• Last year, India refused to join RCEP citing reservations that goods manufactured by China could
come into India through other member countries under the RCEP, exacerbating its already skewed
trade with China.

• India had justified its decision as protecting its economy from burgeoning trade deficits with a
majority of the 15 RCEP members and had cited the grouping’s refusal to accede to its requests on
safeguards as a deal breaker.

• Another major reason for India pulling out of the RCEP was that the deal would have brought
down the import duties on goods by 80-90 percent. India had raised the issue of unavailability of
Most Favoured Nation (MFN) obligations. Through this, the Indian government would have been
forced to give similar benefits to RCEP nations that it used to give to others.

• India’s trade deficit with the ASEAN block in total distended from $13 billion to $22 billion
between 2014-19. A recent study by ICICI Securities analysed that in 2019, India’s deficit with
RCEP countries stood at around $105 billion with China alone constituting $60 billion.

• One of the primary concerns for India was a probable circumvention of rules of origin which is
criteria used to determine the source country of a product.

• The existing provisions in the pact did not provide any safeguards to prevent countries from
routing, via other countries, products on which India would maintain higher tariffs.

References: https://www.economist.com/finance-and-economics/2020/11/21/who-gains-from-
rcep-asias-new-trade-pact

https://www.moneycontrol.com/news/business/15-asian-nations-sign-china-backed-rcep-heres-
why-india-withdrew-from-the-worlds-biggest-trade-pact-6123061.html