09-November-2024-Special-Article

INDIA’S POTENTIAL ROLE IN RCEP AND CPTPP

The CEO of NITI Aayog recently indicated support for India’s involvement in the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

This marks a potential shift in India’s trade policy, reflecting recommendations in the Economic Survey 2024, which suggests that deeper integration with regional supply chains could benefit India’s economy.

What is RCEP?

The Regional Comprehensive Economic Partnership (RCEP) is a major trade agreement aiming to promote economic cooperation in the Asia-Pacific region.

About:

• Formed by ASEAN and their Free Trade Agreement (FTA) partners.
• Known as the world’s largest trade bloc, covering over 30% of global GDP.
• Officially signed in November 2020 and came into effect on January 1, 2022.

Objectives:

• Enhance trade and investment among member countries.
• Reduce or remove tariffs to enable smoother trade.
• Strengthen regional supply chains and economic cooperation.

Member Countries:

• Consists of 15 nations: 10 ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) along with China, Japan, South Korea, Australia, and New Zealand.

Key Areas of Coverage:

• Trade in goods and services, investments, intellectual property rights, e-commerce, and support for small and medium enterprises (SMEs).

Trade Volume:

• Represents over 30% of global GDP and includes around one-third of the world’s population.

       

India’s Position on RCEP

India initially participated in RCEP negotiations but chose to withdraw in 2019 due to economic concerns.

Reasons for India’s Withdrawal

“China Plus One” Strategy:

• India’s decision reflects a global trend to reduce dependency on China and diversify trade sources.

Trade Deficits:

• RCEP would have worsened India’s trade deficit. For instance, ASEAN’s trade deficit with China rose significantly after joining RCEP.

Risk of Increased Imports:

• India feared an influx of cheaper Chinese goods, which could harm local industries. India’s trade deficit with China already reached USD 85 billion in 2023-24.

Protection for Domestic Industries:

• Concerns over tariff reductions, especially in sectors like dairy and steel, which would face increased competition from Australia and New Zealand.
• Worries about “rules of origin” loopholes, where goods from other countries could potentially bypass Indian tariffs.

What is CPTPP?

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is another influential trade pact in the Asia-Pacific region.

About:

• Established among 11 countries, including Australia, Canada, Japan, Malaysia, Mexico, and others.
• Signed on March 8, 2018, in Santiago, Chile, with a focus on regional trade.

Significance:

• Reduces 99% of tariffs, facilitating trade integration.
• Enforces strict environmental regulations and penalties for violations.
• Members are part of the Asia-Pacific Economic Cooperation (APEC), which encourages economic growth in the region.

India’s Position:

• India opted out due to concerns over labor and environmental standards and restrictive transparency clauses that could impact regulatory autonomy.

Benefits for India in Joining RCEP and CPTPP

Access to Larger Markets:

• Joining these agreements would grant India access to expansive markets across the Asia-Pacific, helping increase exports.
• Reduced tariffs would benefit small and medium-sized enterprises (MSMEs), which contribute 40% of India’s exports.
• Lower trade barriers would help boost the manufacturing sector and support initiatives like “Make in India.”

“China Plus One” Strategy:

• India could attract foreign investment as companies seek alternatives to China, similar to how countries like Vietnam have benefited.
• RCEP membership could help India become a major manufacturing hub.

Improved Trade Competitiveness and Foreign Direct Investment (FDI):

• Lower tariffs would make Indian products more competitive in key markets like Japan and Australia.
• It would also attract FDI through clearer trade terms, boosting investment in technology and infrastructure.

Enhanced Trade Negotiating Power:

• RCEP and CPTPP membership would allow India to influence trade rules and negotiate better terms, while still protecting domestic interests.

Access to Technology and Innovation:

• RCEP encourages intellectual property rights and technology sharing, helping India gain access to advanced technologies and fostering innovation.

Impact of India’s Tariff Structure on Global Trade Competitiveness

High Tariffs:

• India’s average tariff rate is around 13.8%, higher than China’s 9.8% and the US’s 3.4%.
• High tariffs can act as barriers to trade, impacting India’s participation in global supply chains.

Bound Tariffs on Agriculture:

• India’s agricultural tariffs are among the highest globally, making it challenging for foreign exporters and limiting trade opportunities.

Way Forward

• Bilateral Free Trade Agreements (FTAs): India should prioritize FTAs with the European Union and United Kingdom to increase market access.
• Regional Grouping Strength: Continue strengthening regional ties within SAARC and BIMSTEC to build stronger economic alliances in South and Southeast Asia.
• Trade Agreements with Gulf and African Nations: Enhance partnerships with GCC and African countries in sectors like energy, infrastructure, and digital cooperation.
• Indo-Pacific Economic Framework (IPEF): Engage in IPEF initiatives that align with India’s “Act East Policy,” focusing on trade, clean energy, and fair practices.
• Domestic Strengthening through “Make in India”: Enhance domestic manufacturing and exports through initiatives like Make in India 2.0 and the Production Linked Incentive (PLI) Schemes.

Conclusion

India’s potential participation in RCEP and CPTPP presents an opportunity to deepen its integration with regional economies, opening up new markets and strengthening its trade competitiveness.

Mains Question:

1. “Discuss the potential advantages for India in joining the RCEP and CPTPP agreements, considering their impact on India’s trade, domestic industries, and geopolitical positioning.” (150 WORDS)