Question:- 90. Critically analyse the reasons of India’s decision to stay out of the trade pact Regional Comprehensive Economic Partnership (RCEP) between ASEAN and its six FTA partners. Answer in 250 words.
Oct 13, 2022


The Regional Comprehensive Economic Partnership (RCEP) is an agreement between the member states of the Association of Southeast Asian Nations (ASEAN) and its free trade agreement (FTA) partners. RCEP aims to create an integrated market with 16 countries, making it easier for products and services of each of these countries to be available across this region. The negotiations are focused on the following: Trade in goods and services, investment, intellectual property, dispute settlement, e-commerce, small and medium enterprises, and economic cooperation.


LINKAGE POINT: India decided against joining the 16-nation Regional Comprehensive Economic Partnership (RCEP) trade deal because the present form of the RCEP agreement did not fully reflect the basic spirit and the agreed guiding principles of RCEP. The comprehensive list of reasons for this decision is presented below:



1.According to a paper published by NITI Aayog, India has a bilateral trade deficit with most of the member countries of RCEP. RCEP members were responsible for almost 70% of India’s trade deficit over the last five years.

2.RCEP is a trade bloc of net exporters focused more externally than internally. The two populous countries in the bloc are India and China. Since China is focusing increasingly on its domestic market, it won’t play as the buyer of last resort in which case, India will become the ultimate export destination for all RCEP members.

3.Further, from a geopolitical perspective, RCEP is China-led or is intended to expand China’s influence in Asia.

4. India had also reportedly expressed apprehensions on lowering and eliminating tariffs on several products like dairy, steel etc. For instance, the dairy industry is expected to face stiff competition from Australia and New Zealand. Currently, India’s average bound tariff for dairy products is on average 35%. The RCEP binds countries to reduce that current level of tariffs to zero within the next 15 years.

5. Threat of circumvention of Rules of Origin due to Tariff Differential : Countries can take advantage of tariff differential given to another country in tariff lines not offered to it. For example, once India becomes an RCEP member, China may use lower tariffs than India’s offers to Vietnam or Malaysia for dumping its products in India.

6. To deal with the imminent rise in imports, India had been seeking an auto-trigger mechanism. Auto-trigger Mechanism would have allowed India to raise tariffs on products in instances where imports cross a certain threshold. However, this proposal has not been accepted.

7. Exclusion from Most Favoured Nation (MFN) obligations in Investment Chapter : MFN status is often given for strategic interests. India did not want to give away the rights to give concessions to its strategic allies or for geopolitical reasons and hand out the same preferential treatment to all RCEP countries, especially China with which India has border disputes.

8. Carve out of sensitive sectors from Ratchet obligations in Investment Chapter: Under this head, any benefit that India may give to a third country for investments would automatically be applicable to RCEP countries. This was not acceptable as benefits given to France, the USA, Sri Lanka or Nepal will have to be offered to Chinese investments too.



However, on the other hand, RCEP’s ambition was not just trade, but also investment. It is about locating entire supply value chains within its free-trade territory. So, if India stays out, future investors will think twice about locating a part of their value chain in a country that’s outside the RCEP zone, for doing so could thwart the seamless movement across multiple borders of the chain’s various constituent elements. Also, some industries like pharmaceuticals, cotton yarn and the services industry were confident of making substantial gains.



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