RCEP – Strategic Importance in 2020 | UPSC

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IASbhai Daily Editorial Hunt | 18th Nov 2020

“What we fear doing most is usually what we most need to do.” – Tim Ferriss

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020-21.

EDITORIAL HUNT #248 :“RCEP – Strategic Importance in 2020 | UPSC

RCEP - Strategic Importance in 2020 | UPSC

M. Suresh Babu
RCEP – Strategic Importance in 2020 | UPSC
M. Suresh Babu is Professor of Economics at IIT, Madras

      HEADLINES:

Shifting sands for Asian economies

      CENTRAL THEME:

India faces an uphill task in maintaining its viability against highly competitive countries

SYLLABUS COVERED: GS 3 : Trade

      MAINS QUESTION:

Recalibrated policies must focus on making exporting activity favourable for all firms.India needs a well calibrated policy to balance out giant economic trade deal RCEP.Comment  -(GS 3)

      LEARNING: 

  • Chinese Manufacturing Base
  • Challenges
  • Asian Trade Structure
  • A new approach to trade

      INTRODUCTION: 

On Sunday, 15 countries solidified their participation in the Regional Comprehensive Economic Partnership (RCEP).

  • BACK DOORS : Even as India opted to stay out after walking out of discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.
  • RCEP DEAL : Described as the “largestregional trading agreement to this day.
  • MEMBER NATIONS : RCEP was originally being negotiated between 16 countries — ASEAN members and countries with which they have free trade agreements (FTAs), namely Australia, China, Korea, Japan, New Zealand and India.

The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region.

  • NEGOTIATIONS : Negotiations to chart out this deal had been on since 2013, and India was expected to be a signatory until its decision last November.

      BODY: 

WHY DID INDIA WALK OUT?

  • OUTSTANDING ISSUES : On November 4, 2019, India decided to exit discussions over “significant outstanding issues”.
  • CONCERNS : India had been “consistently” raising “fundamental issues” and concerns throughout the negotiations and they had not been resolved by the deadline to commit to signing the deal.

Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector.

  • STRUCTURAL DEFICIENCIES : The current structure of RCEP still does not address these issues and concerns.

CHINESE PRESENCE

  • THE COMBO : The RCEP and the ‘China +1 strategy’ is likely to impact investment flows into Vietnam, India, Bangladesh and Indonesia, which have emerged as key investment destinations.
  • CHINESE AGGRESSIONEscalating tensions with China are a major reason for India’s decision.
  • BIGGER ECONOMIC THREAT : While China’s participation in the deal had already been proving difficult for India due to various economic threats.
  • RECENT CLASHES : The clash at Galwan Valley has soured relations between the two countries.
  • CONDEMNATION : India has taken to reduce its exposure to China would have sat uncomfortably with its commitments under RCEP.

Major issues that were unresolved during RCEP negotiations were related to the exposure that India would have to China. 

  • TRADE TARIFF : This included India’s fears that there were “inadequate” protections against surges in imports.
  • ABIDING RULES OF ORIGIN : It felt there could also be a possible circumvention of rules of origin— the criteria used to determine the national source of a product.
  • AVOIDING DOUBLE TAXATION : In the absence of which some countries could dump their products by routing them through other countries that enjoyed lower tariffs.
  • PROTECTING DOMESTIC MARKETS : India was unable to ensure countermeasures like an auto-trigger mechanism to raise tariffs on products when their imports crossed a certain threshold.

It also wanted RCEP to exclude most-favoured nation (MFN) obligations from the investment chapter.
 

  • GEO POLITICAL REASONS : India felt the agreement would force it to extend benefits given to other countries for sensitive sectors like defence to all RCEP members.
  • GAINING THE ACCESS : RCEP also lacked clear assurance over market access issues in countries such as China and non-tariff barriers on Indian companies.

WHAT CAN THE DECISION COST INDIA?

  • MARKET SIZE : The move could potentially leave India with less scope to tap the large market that RCEP presents.
  • HARNESSING DEMOGRAPHY : The size of the deal is mammoth, as the countries involved account for over 2 billion of the world’s population.
  • INDO PACIFIC ORDER : Given attempts by countries like Japan to get India back into the deal, there are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific.
  • SUPPLY CHAIN : It could potentially put a spanner in the works on informal talks to promote a Supply Chain Resilience Initiative among the three.
  • TRADE BALANCE SHEET : India’s stance on the deal also comes as a result of learnings from unfavourable trade balances that it has with several RCEP members, with some of which it even has FTAs.
  • GROWTH RATE : An internal assessment by the government has revealed that the growth in trade (CAGR) with partners over the last five financial years was a modest 7.1%.

India has trade deficits with 11 of the 15 RCEP countries.

  • TRADE DROP : India has been unable to leverage its existing bilateral free trade agreements with several RCEP members to increase exports.

You don’t get into FTAs merely to provide your market to your partner countries.

  • BRAND PRESENCE : The objective is also to increase the presence of your products in the markets of your partners, and India hasn’t been able to achieve the latter objective.
  • STAGNATED IMPORTS : Our share in the imports of RCEP partner countries have either stagnated or fallen.

      IASbhai Windup: 

A NEW APPROACH

TRADE DEALS

  • Two reviews of the India-Singapore CECA have been completed.
  • The India-Bhutan Agreement on Trade Commerce and Transit was renewed in 2016.

The India-Nepal Treaty of Trade was extended in 2016.

  • Eight rounds of negotiations have been completed for the review of the India-Korea CEPA, which began in 2016.
  • India has taken up the review of the India-Japan CEPA and India-ASEAN FTA with its trading partners

THE ALTERNATIVES

  • ALTERNATIVES : The possible alternative that India may be exploring is reviews of its existing bilateral FTAs with some of these RCEP members.
  • NEW PACTS : The newer agreements with other markets with potential for Indian exports.Over 20 negotiations are underway.

India currently has agreements with members like the ASEAN bloc, South Korea and Japan. 

  • ART OF NEGOTIATION : India is also negotiating agreements with members like Australia and New Zealand.

The post-pandemic global economy have often predicted that China’s appeal as a business destination would fade, losing favour as the global manufacturing hub.

SUGGESTED READING : RCEP 2020 
       SOURCES:   THE HINDU EDITORIAL HUNT | RCEP – Strategic Importance in 2020 | UPSC

 

TRENDING NOW : Important The Hindu Editorials 

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