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RCEP: Are India and the US losing ground by staying out of the China-led trade pact?

RCEP, the World's largest free trade deal was approved by 15 nations last weekend. It marked the second free trade pact...

By Sharad Panwar
New Update
RCEP Trade deal all you need to know

RCEP, the World's largest free trade deal was approved by 15 nations last weekend. It marked the second free trade pact over the last several years. The deal has been in the works for about a decade and includes the ten countries of ASEAN plus Australia, China, Japan, New Zealand and South Korea. Collectively, these countries represent nearly ⅓ of the World’s population and around 29% of global GDP.

India was initially one of the negotiating countries, but the Modi govt pulled out of it last year citing that it was not a good deal for the country; called by many experts an instance of India’s new protectionism, which is only worsening with time. Beijing had initially sought to persuade New Delhi into entering the RCEP. However, Indian politicians were cautious of reducing steep tariffs and letting a further deluge of Chinese made goods. China exports $60 billion a year extra in goods to India than it takes.

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What were India’s concerns?

GOI, by experts, is being criticised for not being a member of this global supply chain agreement. They say that this could also result in monopoly and reduced product innovation in the domestic market, especially at a time when India’s exports need a lift to save the economy from falling into a slump. Critics suggest that India ought to have entered the RCEP., notwithstanding its reservations on several aspects of the deal. Besides its economic outlook, it is a far-sighted strategic viewpoint implicit in this overt economic partnership. India's membership was a necessity to counterbalance China.

Those in favour of the decision argue that whenever India is entering into an FTA, small scale industries and the farm sector are serious concerns. The way RCEP. was structured, it would have dealt a blow to our industries, especially at a time when India is in the middle of reorganising and restructuring our economy through schemes like Atmanirbhar Bharat and Make in India. Moreover, some leading economists have pointed out that keeping the cost-benefit analysis in mind; opening up to trade has not proven to be beneficial for the country. India’s FTA experiences have not seen exports going up, but has rather hurt the economy by opening and reducing the tariffs beyond its capacity.

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India for long had been calling for a balance of negotiated interests and the Auto-Trigger Mechanism to be fixed on imports to secure protection against dumping in the local markets as a part of the agreement. But in retrospect, the Modi Government has never acknowledged its failure to make India a conducive economy to bring enough foreign investment. There is an urgent need for a modified judicial system, certainty in FTA policies, tweaked labour and land laws, improved infrastructure, changes in the tax laws, and guidelines in place to curb bureaucratic corruption.

Without a doubt, there are some gains and some losses. Indeed, opening up the economy when the domestic industry is not fully competitive could do more harm than good. However, India cannot use forever to become competitive. It has been 18 years since India's industrial reforms, and yet the Industrial sector is not undergoing the kind of capableness it should. Signing and committing to treatises and then lacking competitiveness is not how it works.

How China dumps its products in India?

China gives subsidies to its companies to help them sell their commodities at cheaper rates in international markets while maintaining a higher price in their domestic market. Chinese competitiveness is mainly the result of efforts and support of the Chinese government. A large number of companies which dominate exports are government-controlled enterprises. China has been long accused of manipulating its currency to maintain export competitiveness. Further, regional provinces in China extend tax incentives and rebates and compete with each other to attract industries in their region. They also promote exports by extending sizable incentives such as logistics compensation for long distance freight, which makes Chinese products cost-effective. The methods adopted for dumping cheap goods in the Indian market include under-invoicing of goods, entry of prohibited goods by mis-declaration, re-routing goods through other countries and smuggling, both at sea and on land

How will the U.S. Adjust to this new reality?

The agreement sealed on Sunday holds as a powerful symbol of Beijing’s expanding economic swing in Southeast Asia at a point of uncertainty over Washington’s economic relations with the region.

“China has been a promoter of RCEP since day one. As the US retreated from the regional stage and pursued a trade policy on unilateralism, Chinese leaders used that vacuum to portray Beijing as the reliable partner of choice for economic growth, trade, and investment,” said Wendy Cutler, Former acting deputy US trade representative.

This is also being interpreted as China’s rebuttal to Trump's protectionism and the doctrine of isolating China. It also arrives after withdrawal by the United States from comprehensive trade deals that reshape global relations. Almost four years ago, President Trump pulled the United States out of the Trans-Pacific Partnership, or T.P.P., a more widespread agreement than the R.C.E.P. that was widely viewed as a Washington-led response to China’s growing sway in the Asia-Pacific region.

To any trade experts, this new contract proves that the rest of the world will not wait for the United States. The EU has also attempted trade negotiations at an energetic speed. As other countries sign fresh deals, American exporters may steadily lose ground. It remains contentious, and Mr Biden has not said whether he would re-up the deal renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership once his term starts. But analysts say it is unlikely to be a high priority for the Biden-Harris administration.

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China’s rising influence in developing Asia:

China has numerous bilateral agreements, but this is its first multilateral regional trade pact. The deal does not reduce as many tariffs as other competitor pacts, but its size makes it meaningful. RCEP is being viewed as a way for China to strengthen its influence in the region, but Beijing views it as a symbolic and strategic win. Benefits of the arrangement may take months or years to be felt as 9 countries still have to ratify it. Some regional scholars reckon that this may be challenging amid growing anti-China sentiment.

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