RCEP - RCEP - India, Out On A Self-Reliance Walk, Tossed A USD25 Trillion Market. Here's What Others Got. - The Economic Times

02/12/2020 RCEP: RCEP: India, out on a self-reliance walk, tossed a USD25 trillion market. Here’s what others got.
et. Here’s what others got. - The Economic Times
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TRADE
RCEP: India, out on a self-reliance

walk, tossed a USD25 trillion
market. Here’s what others got.
00:00 02:21
Getty Images
Concept by Muhabit ul haq
Synopsis
Pulling out of the RCEP deal created an opportunity for India to strengthen its domestic industries. However, as
many thought, the biggest winner might not be China. Other members of RCEP may bene t even more.
Experts believe staying out of RCEP will exclude India from regional supply chains and further entrench its
inward-looking character. Should India do a rethink?
BACK TO TOP
It took nine years, many sleepless nights of intense
negotiations, gargantuan mugs of co ee to stay awake,
https://economictimes.indiatimes.com/prime/economy-and-policy/rcep-india-out-on-a-self-reliance-walk-tossed-a-usd25-trillion-market-heres-what-others-got-/prim… 1/14
02/12/2020 RCEP: RCEP: India, out on a self-reliance walk, tossed a USD25 trillion market. Here’s what others got. - The Economic Times
Home and a sea of paperwork. Even as Donald Trump was

ETPrime Markets News Industry RISE Politics Wealth MF Tech Jobs Opinion NRI Panache ET NOW More
busy looking for ways to nd holes in US presidential

election results, a bunch of seasoned negotiators and BY
Madhavankutty G
o icials on the other side of the globe diligently
14 MINS READ
stitched what would create world’s most-powerful Nov 27, 2020, 12:01 AM IST
trade bloc. Signed on November 15 by 10 ASEAN

countries and their trade partners, the Regional
Comprehensive Economic Partnership (RCEP) can Share This Article
deal a body blow to any global trade grouping.
Is India losing out on something big? Or was it just in

its decision to pull out of the negotiation? 7
FONT SIZE SAVE COMMENT
Before we get there, let’s rst understand what RCEP is

all about and what makes it a deal to watch out for.
The need for striking a trade deal has grown more

urgently for ASEAN as its members grapple with the
economic impact of the US-China trade war. RCEP
can be bene cial for countries seeking to stabilise their
economies amidst the ongoing uncertainty. Given the
growing restiveness over the US dominance, trade
liberalisation seems to be the most potent weapon
among the many options that the ASEAN grouping
could use during a political transition in the world’s
largest economy.
The new trade grouping which comprises 10

Association of Southeast Asian Nations (ASEAN)
members — Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand,
and Vietnam — and their trade partners — Australia,
China, Japan, South Korea, and New Zealand —
signi es a gradual shift of gravity towards Asia. If these
economies coalesce and leverage their supply-chain
e iciencies, RCEP can set a new world order.
The RCEP was rst proposed at the 19th ASEAN meet

in November 2011 with an aim to create a consolidated
market for the 10 member countries and their trade
partners.
“The objective of launching RCEP negotiations is to

achieve a modern, comprehensive, high-quality, and
mutually bene cial economic partnership agreement BACK TO TOP
among the ASEAN member states and ASEAN’s FTA
Home (free-trade agreement) partners,” the guiding

principles of the RCEP reads.
It aims to create a “liberal, facilitative, and competitive

investment environment” in the Asia-Paci c region.
The RCEP was later conceived by the ASEAN members

and China as a response to the US-led Trans-Paci c
Partnership (TPP) — later renamed as Comprehensive
and Progressive Agreement for Trans-Paci c
Partnership (CPTPP) — after the US opted out of the
deal in 2017. The TPP was established during US
President George Bush’s term. President Donald
Trump had, however, pulled out of the deal saying it
was a “potential disaster” for America and will harm
manufacturing in the US.
The key drivers that make RCEP what it is

“What has driven RCEP is economic logic and business
opportunity,” says Simon Tay, associate professor,
National University of Singapore. He says high trade
volumes a irm that strong economic
interdependencies already exist among the ASEAN
economies – accounting for 28% of global trade. “The
agreement will make interconnections more seamless
in preferences and rules of origin, to further facilitate
the ow of intermediate components as well as nal
products. That connectivity is also supported by
provisions for improved Customs procedures and trade
facilitation,” he says. BACK TO TOP
Home According to a Brookings Research study, RCEP will

connect about 30% of the world’s populace and output,

and generate signi cant gains. According to computer
simulations, the trade grouping could add USD209
billion annually to global incomes, and USD500
billion to world trade by 2030. It is also estimated that
RCEP and CPTPP together will o set global losses
from the US-China trade war. The new agreement is
expected to make the economies of North and
Southeast Asia more e icient, linking their core
competence in technology, manufacturing, agriculture,
and natural resources.
Even minor changes in trade-policy instruments under

RCEP are likely to have signi cant impact on trade
ows to ASEAN nations.
Three key RCEP drivers that can lead to the growth of

ASEAN’s trade in goods include its comprehensive
coverage, the large market size, and the strong
economic linkage via trade and investments.
First, RCEP covers comprehensive trade and non-

trade issues that can lead to further trade
liberalisation in the ASEAN region.
The trade agreement consists of 20 chapters to this

e ect. Some of these, such as rules of origin, technical
barriers to trade, trade in services, electronic
commerce, and intellectual property, have been
included in the Blueprint 2025 of the Asean Economic
Community (AEC), which the RCEP is likely to catalyse
further. Till date, ASEAN countries have been desirous
of implementing the guideline of non-tari measures
to eliminate non-tari barrier, but with little progress
so far.
RCEP commitments will bene t consumers and

businesses in the ASEAN region by reducing
unnecessary costs that can often be imposed on them
via trade restrictions, by mandating common rules of
origin, and by stimulating innovation with stronger
protection of intellectual property rights.
BACK TO TOP
Second, RCEP o ers opportunities in the form of a

huge market of USD24.8 trillion and over 2.3 billion
people.
In 2018, for instance, the combined gross domestic

product (GDP) of RCEP (on a purchasing power parity
basis) was greater than that of other trading blocs such
as the European Union (EU) and North American Free
Trade Agreement (NAFTA). In Asia, the combined GDP
of RCEP is about ve times the members of the ASEAN
Free Trade Area (AFTA), and about three times of other
Asian countries, including India.
Third, ASEAN and its dialogue partners have a

strong economic relationship through trade and
investment.
In 2018, ASEAN’s total trade in goods — imports plus

exports — stood at USD2.8 trillion, 34% of which was
accounted for by the bilateral trade between ASEAN
and ve of its dialogue partners, while 23% was
accounted for by intra-ASEAN trade. Moreover, total
in ows of foreign direct investment (FDI) in ASEAN
was USD152.8 billion in 2018 – 25% of which was
sourced from its dialogue partners and 15% from
ASEAN countries. Taken together, intra-RCEP trade
and investments account for 57% of total trade and
40% of total FDI in ows into the region.
Now, let’s take a look at why RCEP is ahead of other BACK TO TOP
trade pacts.
There are
" hat has driven RCEP is three
economic logic and business factors that
explain why
opportunity. High trade
RCEP has
volumes a irm that strong more
economic interdependencies repower
already e ist among the ASEAN than the
existing
economies – accounting for 28%
ASEAN
of global trade." free-trade
— Simon Tay, associate professor, National agreements.
University of Singapore. First, this is
a regional
agreement
to consolidate the existing ASEAN FTAs and hence
reduces the negative impact of complicated rules of
origin on trade ows. This means fewer procedures
and easier movement of goods.
Second, the threshold for tari reductions in RCEP

is comparable to other regional FTAs such as the
CPTPP, which aims for 99% tari elimination.
Third, the RCEP will be an FTA in itself, and the

reductions of tari and non-tari barriers among
RCEP countries will be more comprehensive and
more general than those in existing FTAs.
As we have already told you, RCEP has everything that BACK TO TOP
can make a trade deal e ective. Then why is India not
Home part of it?

Reasons India pulled out

According to Rajat Kathuria, director and chief
executive, Indian Council for Research on
International Economic Relations, China will stand to
bene t more than others, both in terms of imports and
exports.
This is something Indian negotiators and the

companies feared, too.
India pulled out of the deal as its core concerns were

not addressed — the threat of circumvention of rules
of origin, the inclusion of fair agreements to address
trade de cits, and opening up of the services sector.
A major plank of the deal was bringing down import

duties on almost 90% of goods. This fueled fear among
the domestic industry that reduced Customs duties
would result in huge imports, especially from China
with which India runs a massive trade de cit.
In the run-up to the negotiations, India had also raised

the issue of unavailability of most-favoured-nation
(MFN) status, which would have forced it to grant
similar bene ts to RCEP countries as it accords others.
Another contentious issue was the move to use 2014 as
the base year for tari reductions.
Pulling out of the RCEP deal created an opportunity

for India to strengthen its domestic industries and
move towards self-su iciency. A wide range of sectors
– from agriculture to automobiles – are apprehensive
of RCEP due to the dominance of cheap foreign goods.
Some sectors of the Indian economy, like the pharma

and IT industries, have found it tough to penetrate and
expand in the Chinese market. Despite India
repeatedly calling on China to ease barriers, Beijing
hasn't taken any substantive measures. And in 2018, in
an attempt to make a cosmetic change to the balance-
of-trade situation with India, China started exporting
goods via Hong Kong. This would be a violation of the
rules-of-origin provisions if a fair free-trade BACK TO TOP
mechanism comes into force. What added to India's
Home reservations was the country's rather unpleasant

experience with the free-trade deal it struck with

ASEAN several years ago.
In 2010, when the ASEAN-India agreement was

signed, the services sector — which is India's forte —
was not included in the agreement. It took the
negotiating parties another ve years to hammer out a
deal on services and investment. India's trade de cit
with ASEAN has widened over the years.
India was also concerned about the RCEP's potential

impact on sectors like agriculture, which would a ect
the country's vast rural population. Indian agriculture
is largely subsistence-based and beset by alarmingly
low levels of modern technology, packaging,
processing, and storage facilities.
Opening it up to competition from much more

advanced agriculture producers in places like
Australia, New Zealand, and Japan would have led to
an economic and social crisis. That would have been
the case even with agriculture-related sub-sectors
like dairy and food-processing.
However, critics argue that while concerns about the

socio-economic impact cannot be overlooked, India's
withdrawal from the RCEP highlights the glaring gap
between the competitiveness of Indian and Chinese
BACK TO TOP
industries, and the slow pace of comprehensive
reforms to make the Indian economy more outward-
Home looking and globally competitive.

The Indian government's decision protects vulnerable

sections of the economy, as well as medium and big
industries, from foreign competition for the time
being, but it might also help India clinch a better deal
as informal negotiation channels are still open,
experts point out.
They believe although the move appears reasonable at

the moment, staying away from RCEP would have far-
reaching implications for India in the long run, and
exclude the country from regional supply chains and
further entrench its inward-looking character.
To be sure, options do exist to rejoin the deal at a later

date.
Let us now understand who all will bene t the most

and who won’t be so lucky.
How the pie will be shared

While the US – as well as Europe – could lose heavily
by not being a part of the new deal, the biggest winner
might not necessarily be China. Other members of
RCEP may bene t even more.
Of course, China will face lower export barriers in the

rest of Asia. But ASEAN, on the one hand — and South
Korea and Japan in particular — will nd it easier to
build their value chains where production is based in
ASEAN countries. In fact, ASEAN has been receiving
an increasing amount of manufacturing FDI from
Japan, South Korea, and Taiwan, which is already
bigger than their FDI into China.
Such sharp increase in investment into ASEAN is not

only a response to China’s rising labour costs, but also
to diversify away from an excessively China-centric
value chain. Due to this reason, Japan, South Korea,
and Taiwan’s trade integration within ASEAN have
been increasing, especially when it comes to
intermediate goods. Against this backdrop, ASEAN will
likely grow its own manufacturing capacity, owing to
huge FDI ows towards these countries, though a good BACK TO TOP
chunk of the nal demand might still come from
Home China.
According to Brookings Research, RCEP will also

accelerate Northeast Asian economic integration. A
spokesman for Japan’s ministry of foreign a airs noted
last year that negotiations on the trilateral China-
South Korea-Japan FTA, which has been stuck for
many years, will become active as soon as they are able
to conclude the negotiation on RCEP. Signi cantly, in
early November 2020, President Xi Jinping promised
to speed up negotiations on a China-EU investment
treaty and a China-Japan-South Korea FTA.
Southeast Asia will bene t signi cantly from the deal

to the extent of USD19 billion annually by 2030 but
less so than Northeast Asia because it already has FTAs
with RCEP partners.
The deal will also facilitate the entry of foreign rms to

the RCEP bloc. This will o er further impetus to a
wider inclusion of small and medium-sized
enterprises (SMEs) in the region to the global and
regional supply chains. According to the ASEAN
secretariat, SMEs in ASEAN employ between 52% and
97% of all workers.
Likewise, technical cooperation with advanced

economies like Japan, South Korea, New Zealand, and
Australia will assist ASEAN SMEs in developing better,
more competitive products. The telecommunication
services and the agriculture sector are likely to see a
boom with businesses competing regionally.
An unequal deal for smaller nations

China is trying to take the centre stage in the RCEP
agreement.
Notwithstanding the long list of bene ciaries of the

RCEP deal, there is no denying the fact that China’s
clout in the new trade order is going to get stronger
due to the early gains made in cementing its position
in the global value chain. Its quick recovery from the
Covid-19 pandemic will act as a catalyst. China’s
supply chain is integrated with the electronics supply-
chain economies of Malaysia, Philippines, South BACK TO TOP
Korea, and Taiwan. China makes up for half of these
https://economictimes.indiatimes.com/prime/economy-and-policy/rcep-india-out-on-a-self-reliance-walk-tossed-a-usd25-trillion-market-heres-what-others-got-/pri… 10/14
Home countries’ overall exports, which are in turn shipped to

every country in the world. Besides, Beijing has signed

24 FTAs globally, of which 16 are fully operational.
Beijing has also signed bilateral trade agreements

with ASEAN (2002), the Eurasian Economic Union
(2018) and 18 other countries globally, besides being a
party to 127 bilateral-investment treaties.
Even though the intent of RCEP is to create trade and

lower tari rates for all members, not all countries
might bene t equally. Some will gain
disproportionately. It is a fact that China is eating into
other’s industrial products. So, the impact of the trade
bloc on smaller countries is uncertain. Stronger
economies like Singapore have a lot to gain. But, for
other smaller countries, it is an unequal relationship.
Moreover, mega-trade agreements are now slowly

losing their allure due to di erent currencies whose
valuations have a lop-sided e ect on their economies.
The bottom line

The RCEP negotiations, initiated in 2012, have had a
log drag. The nal agreement has been watered down
in terms of key liberalisation measures. Not only was
the geographical coverage bigger when the
negotiations started (with India), but the scope in
terms of liberalisation was also wider.
Furthermore, when RCEP started as response to the

TPP, the US-China strategic competition was just
starting o . Today, it is pooling RCEP members in
di erent directions. The best example is the recent
trade frictions between China and Australia. There
could be many others. Also, increasingly pervasive US
sanctions against China may come in RCEP’s way.
While the actual increase in market access will remain

limited among some of the RCEP members (such as
Australia and China), what the world must learn from
this deal is Asia is still dependent on the Chinese
market and Asian countries cannot pass on the
opportunity of improved (even if still limited) market
access to China. As for the relative losers outside of the BACK TO TOP
deal such as the US, we would imagine that the Joe
Home Biden administration will soon react by engaging in

negotiations for a trade deal with Asia.
Having played second ddle to the US in multilateral

trade forums, members of the new bloc would do their
best not to squander away this opportunity.
(Graphics by Sadhana Saxena)
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7 COMMENTS ON THIS STORY
Suresh Datta 3 days ago
India's economy is not competitive and therefore opening its markets to cheaper imports will
damage its domestic economy. India has a trade imbalance with 11 out of 15 RCEP countries
and in the year 2019 had an imbalance of $ 98.26 billion. Most FTAs are a big failure, they are
good on paper but not very effective. Asia already... Read More
Anjan Rajan 3 days ago
in the rst chart there should be China and south korea as well in the RCEP circle
Ashok Agrawal 4 days ago
The writer has done a humongous home work to persuade Indian policy makers to revisit
country's decision to inch away from RCEP. But I think he is acting out of a sponsorship.
Consider a few facts: Japan,Australia, South Korea, Newzealand all have trade surplus with
China. Other small ASEAN countries have either succumbed to arm twisting or bare threat
from... Read More
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02/12/2020 RCEP: RCEP: India, out on a self-reliance walk, tossed a USD25 trillion market. Here’s what others got.

et. Here’s what others got. - The Economic Times

English Edition | E-Paper

RCEP: India, out on a self-reliance

Concept by Muhabit ul haq

Home and a sea of paperwork. Even as Donald Trump was

busy looking for ways to nd holes in US presidential

trade bloc. Signed on November 15 by 10 ASEAN

deal a body blow to any global trade grouping.

Is India losing out on something big? Or was it just in

FONT SIZE SAVE COMMENT

Before we get there, let’s rst understand what RCEP is

The need for striking a trade deal has grown more

The new trade grouping which comprises 10

The RCEP was rst proposed at the 19th ASEAN meet

“The objective of launching RCEP negotiations is to

among the ASEAN member states and ASEAN’s FTA

Home (free-trade agreement) partners,” the guiding

principles of the RCEP reads.

It aims to create a “liberal, facilitative, and competitive

The RCEP was later conceived by the ASEAN members

The key drivers that make RCEP what it is

Home According to a Brookings Research study, RCEP will

connect about 30% of the world’s populace and output,

Even minor changes in trade-policy instruments under

Three key RCEP drivers that can lead to the growth of

First, RCEP covers comprehensive trade and non-

The trade agreement consists of 20 chapters to this

RCEP commitments will bene t consumers and

Second, RCEP o ers opportunities in the form of a

In 2018, for instance, the combined gross domestic

Third, ASEAN and its dialogue partners have a

In 2018, ASEAN’s total trade in goods — imports plus

Second, the threshold for tari reductions in RCEP

Third, the RCEP will be an FTA in itself, and the

can make a trade deal e ective. Then why is India not

Home part of it?

Reasons India pulled out

This is something Indian negotiators and the

India pulled out of the deal as its core concerns were

A major plank of the deal was bringing down import

In the run-up to the negotiations, India had also raised

Pulling out of the RCEP deal created an opportunity

Some sectors of the Indian economy, like the pharma

mechanism comes into force. What added to India's

Home reservations was the country's rather unpleasant

experience with the free-trade deal it struck with

In 2010, when the ASEAN-India agreement was

India was also concerned about the RCEP's potential

Opening it up to competition from much more

However, critics argue that while concerns about the

Home looking and globally competitive.

The Indian government's decision protects vulnerable

They believe although the move appears reasonable at

To be sure, options do exist to rejoin the deal at a later

Let us now understand who all will bene t the most

How the pie will be shared

Of course, China will face lower export barriers in the

Such sharp increase in investment into ASEAN is not

chunk of the nal demand might still come from

According to Brookings Research, RCEP will also

Southeast Asia will bene t signi cantly from the deal

The deal will also facilitate the entry of foreign rms to