Nationalism in Disguise: The Indian Perspective
The Regional Comprehensive Economic Partnership (RCEP) came under international scrutiny after India made headlines in choosing to opt out. Be that as it may, it is important to discuss the implications of India’s membership or absence from this multilateral international partnership.
Introduced at the 19th ASEAN Summit in November 2011, the RCEP is an international trade agreement with the objective of ‘achieving a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement among the ASEAN Member States and ASEAN’s FTA Partners.’
Recognizing the great influence of the ten ASEAN countries along with their six Free Trade Agreement (FTA) partners, the RCEP was initiated with the vision of unified and equitable economic development. For the same, several aspects of international trade including goods & services, investment, tariffs, competitive markets, technology, and overall economic cooperation were included under its purview. What makes it an alliance worth watching is the fact that the RCEP is in fact the world’s largest trade agreement, in terms of population (almost 50% of the world population) or Gross Domestic Product, (GDP) which accounts for almost 40% of the total (including India).
Following the 27th round of RCEP negotiations and the 3rd RCEP Summit, India officially opted out of the trade deal in November 2019 at the ASEAN+3 summit in Bangkok. Citing differences in mutual agendas, the country still is the only one to have pulled out of the agreement. Without India’s participation, the remaining 15 members of the RCEP now account for 30% of both the world population and the total GDP.
Indian Prime Minister Narendra Modi and the Minister of External Affairs Subrahmanyam Jaishankar expressed concern relating to the country’s exposure in industries like e-commerce, agriculture and vulnerability in international trade.
Introduced at the 19th ASEAN Summit in November 2011, the RCEP is an international trade agreement with the objective of ‘achieving a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement among the ASEAN Member States and ASEAN’s FTA Partners.’
Recognizing the great influence of the ten ASEAN countries along with their six Free Trade Agreement (FTA) partners, the RCEP was initiated with the vision of unified and equitable economic development. For the same, several aspects of international trade including goods & services, investment, tariffs, competitive markets, technology, and overall economic cooperation were included under its purview. What makes it an alliance worth watching is the fact that the RCEP is in fact the world’s largest trade agreement, in terms of population (almost 50% of the world population) or Gross Domestic Product, (GDP) which accounts for almost 40% of the total (including India).
Following the 27th round of RCEP negotiations and the 3rd RCEP Summit, India officially opted out of the trade deal in November 2019 at the ASEAN+3 summit in Bangkok. Citing differences in mutual agendas, the country still is the only one to have pulled out of the agreement. Without India’s participation, the remaining 15 members of the RCEP now account for 30% of both the world population and the total GDP.
Indian Prime Minister Narendra Modi and the Minister of External Affairs Subrahmanyam Jaishankar expressed concern relating to the country’s exposure in industries like e-commerce, agriculture and vulnerability in international trade.
With an outstanding trade deficit of $105 billion with its allies in the RCEP, India felt its requirements were unmet when their proposed tariff reductions were not accepted at the RCEP Summit, which existed on as much as 90% of its total imports. India’s suggestions of a three tiered tariff reduction system were opposed by most, and even though its own recommendations included tariff reductions up to 86%, remaining members desired for Indian tariffs to be cut down by over 90%, which would have reduced earnings of the government significantly. Senior officials further announced how India’s efforts to safeguard against flooding of markets was not taken up even though it is a matter of utmost importance.
In addition, India felt the idea of the RCEP’s Rule of Origin to be looser than required. While the rule is key towards determining the country from which a particular product originates, guidelines stated the rule to apply to all members equally. It called on its resources of manufacturing and representatives felt that the leniency of the rule would hurt India the most. Its suggestions of a minimum 25% threshold was rejected by more than 10 member countries. Lastly, India also asked for the exclusion of the most-favoured nation (MFN) obligations from the investment chapter as it felt concerned about handing out strategic benefits to every member of the RCEP, something that could very well hinder India’s own geopolitical standing.
Furthermore, escalating tensions with China played a critical role in India’s decision. China’s entry into theWorld Trade Organisation had already led to an exponential rise in India’s trade deficit with the country. Added to this, India’s participation in the erstwhile India-China FTA of 2007 had led to a steep rise in the country’s trade deficit rising by a whopping 1000% from 2004 to 2014. The fact that most of India’s existing trade deficit is in fact with countries who are part of the RCEP meant greater risk for India had it joined, especially given the fact that its trade with countries which are members of agreements like NAFTA has risen significantly in the past even when it has never been a member country itself.
Added to these, growing dissent from within the country made the issue worse. Stiff opposition came from the sectors of agriculture and small businesses which stated the need to promote a stronger domestic economy in line with the present government’s India oriented policies like Make in India.
It then became necessary to showcase India as something more than just a market, with strategic needs of its own. While the country has always been at the forefront when it came to improving trade relations with East and Southeast Asia ever since 1992, continuing with the current provisions of the deal would not have catered to the country’s desire for mutually advantageous partnership which met the requirements of all involved.
India does face a landmark opportunity in establishing itself in the global trade market. Amid the Coronavirus pandemic, if the country can negotiate the terms of involvement, thereby ensuring its return to the partnership, the initiative would go a long way in re-establishing India’s prominence in international trade. Critics of India’s decision lashed out, citing reasons like political chaos rather than economic considerations. Concerns about flooding of Indian markets by partners like China (manufacturing), New Zealand (dairy) etc. stood on shaky grounds as experts claimed partnerships like the RCEP have mandatory clauses in cases of such agreement violations. Arguments focusing on data security and small business protection must have not been region specific that is arriving at mutually agreeable guidelines on these fronts should not have been difficult had further negotiations taken place. The buck then fell on India’s negotiators who could have just ‘done better’.
Furthermore, given the fact that India has ongoing trade deals with more than half of the member countries in the RCEP, analysts suggested little to no such major change in its current position had it joined the RCEP. The importance of reciprocity would have allowed for all participants to benefit from the tariff reductions in terms of market access. Addressing the issue of trade deficits in a new light, giving up on an opportunity which could have boosted India’s exports, is of serious concern. Even if India faces stiff competition in sectors like manufacturing and dairy, its prowess in the service sector could have, in fact, helped prove the RCEP a great investment for the country. Moreover, an increase in regulated imports would have brought down prices, benefitting India’s massive consumer base. As Devashish Mitra, Professor of Economics at Syracuse University in New York, put it, ‘The effects of the RCEP on producers would have clearly been trumped by the effects on consumers, including those in poverty’.
Lastly, following the changes in the United States’ position in the Trans-Pacific Partnership (TPP), the RCEP has emerged as the hottest of all upcoming international partnerships. Reinvigorating the tiff between China and the US, the RCEP came to be seen all around as a strong partnership which sought to facilitate free trade and pooling of resources for a greater mission of economic cooperation, vis-à-vis the latter’s continuous emphasis on protectionism. With such a background, India’s sudden withdrawal from the RCEP due to national interests did not sit well with many senior officials.
In addition, India felt the idea of the RCEP’s Rule of Origin to be looser than required. While the rule is key towards determining the country from which a particular product originates, guidelines stated the rule to apply to all members equally. It called on its resources of manufacturing and representatives felt that the leniency of the rule would hurt India the most. Its suggestions of a minimum 25% threshold was rejected by more than 10 member countries. Lastly, India also asked for the exclusion of the most-favoured nation (MFN) obligations from the investment chapter as it felt concerned about handing out strategic benefits to every member of the RCEP, something that could very well hinder India’s own geopolitical standing.
Furthermore, escalating tensions with China played a critical role in India’s decision. China’s entry into theWorld Trade Organisation had already led to an exponential rise in India’s trade deficit with the country. Added to this, India’s participation in the erstwhile India-China FTA of 2007 had led to a steep rise in the country’s trade deficit rising by a whopping 1000% from 2004 to 2014. The fact that most of India’s existing trade deficit is in fact with countries who are part of the RCEP meant greater risk for India had it joined, especially given the fact that its trade with countries which are members of agreements like NAFTA has risen significantly in the past even when it has never been a member country itself.
Added to these, growing dissent from within the country made the issue worse. Stiff opposition came from the sectors of agriculture and small businesses which stated the need to promote a stronger domestic economy in line with the present government’s India oriented policies like Make in India.
It then became necessary to showcase India as something more than just a market, with strategic needs of its own. While the country has always been at the forefront when it came to improving trade relations with East and Southeast Asia ever since 1992, continuing with the current provisions of the deal would not have catered to the country’s desire for mutually advantageous partnership which met the requirements of all involved.
India does face a landmark opportunity in establishing itself in the global trade market. Amid the Coronavirus pandemic, if the country can negotiate the terms of involvement, thereby ensuring its return to the partnership, the initiative would go a long way in re-establishing India’s prominence in international trade. Critics of India’s decision lashed out, citing reasons like political chaos rather than economic considerations. Concerns about flooding of Indian markets by partners like China (manufacturing), New Zealand (dairy) etc. stood on shaky grounds as experts claimed partnerships like the RCEP have mandatory clauses in cases of such agreement violations. Arguments focusing on data security and small business protection must have not been region specific that is arriving at mutually agreeable guidelines on these fronts should not have been difficult had further negotiations taken place. The buck then fell on India’s negotiators who could have just ‘done better’.
Furthermore, given the fact that India has ongoing trade deals with more than half of the member countries in the RCEP, analysts suggested little to no such major change in its current position had it joined the RCEP. The importance of reciprocity would have allowed for all participants to benefit from the tariff reductions in terms of market access. Addressing the issue of trade deficits in a new light, giving up on an opportunity which could have boosted India’s exports, is of serious concern. Even if India faces stiff competition in sectors like manufacturing and dairy, its prowess in the service sector could have, in fact, helped prove the RCEP a great investment for the country. Moreover, an increase in regulated imports would have brought down prices, benefitting India’s massive consumer base. As Devashish Mitra, Professor of Economics at Syracuse University in New York, put it, ‘The effects of the RCEP on producers would have clearly been trumped by the effects on consumers, including those in poverty’.
Lastly, following the changes in the United States’ position in the Trans-Pacific Partnership (TPP), the RCEP has emerged as the hottest of all upcoming international partnerships. Reinvigorating the tiff between China and the US, the RCEP came to be seen all around as a strong partnership which sought to facilitate free trade and pooling of resources for a greater mission of economic cooperation, vis-à-vis the latter’s continuous emphasis on protectionism. With such a background, India’s sudden withdrawal from the RCEP due to national interests did not sit well with many senior officials.
Wielding Power, Together: ASEAN
The Regional Comprehensive Economic Partnership is, on some accounts, just a tidying up of the expansion of the original ASEAN (Association of Southeast Asian Nations) free trade agreement. ASEAN was first created in 1961 to boost economic growth and standards of living with countries adjacent to each other and with a common fear of communism. This original bloc consisted of Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Later on, other neighbouring countries joined and the free trade agreement was officially signed in 2008. The final countries include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
Over the years, further bilateral trade deals were made between this bloc and other countries, like ASEAN Plus Three creating trade deals with China, Japan, and South Korea and ASEAN Plus Six, adding Australia, New Zealand, and India. To some analysts, RCEP is just a formality to solidify the ASEAN Plus Six deal, minus India who backed out. Yet this deal will be, on paper, very consequential. It now encompasses a population of 2.3 billion people and 30% of global GDP. It also opens up new trade agreements between ASEAN Plus Six countries who previously only had bilateral deals with ASEAN, like trade between Japan, China, and South Korea.
However, this deal is far from ambitious. Even though it, by one estimate, will remove 90% of tariffs between countries, the previous deal in place already had 83% of goods traded under the ASEAN trade agreement. Many of the tariffs will take decades to be removed and only with unanimous agreement. As well, many rules on reducing state aid and various subsidies are only to be decided on down the road. Many tariffs still exist, like Japan’s insistence for import duties on agricultural products which is a politically vital industry.
One big step it takes is harmonizing terms of trade policy. Rules of origin policy are now much more inclusive, requiring some products to receive lower tariffs if just 40% of their value is added within the bloc. When all is said and done, this deal is expected by 2030 to raise global GDP by an additional $186bn.
So, how does RCEP impact the original ten ASEAN countries? These ten countries used to be in similar, developing states, but in the present day, there exists a wide gulf in economic prosperity.
The unique balance of developing and highly developed countries in ASEAN allowed it to prosper yet limit trade to within its borders. Raw materials are collected in resource-rich countries, manufactured in low and middle-income nations, and sold to all nations at a lower price. Rich nations can innovate and produce higher-quality goods. Economic efficiency and better allocation of scarce resources is the outcome.
RCEP will make ASEAN countries branch out in their supply-lines and sales centres. Yet as a whole, it will make RCEP nations more interdependent as ever though perhaps not to as large a degree as initially predicted. Considering its vast physical reach, there are few products that cannot be made within this trade bloc. Perhaps in the future, the segmentation of the world into trading blocs like the USMCA, EU, RCEP, AfCFTA, and possibly TPP will essentially create free trade bubbles around the world. Yet the RCEP seems the most likely to fail. Whereas other deals enclose politically and culturally-like minded countries, RCEP combines western powers who say to care deeply about ethics and human rights like Australia and New Zealand with eastern powers who do not agree on many of the same ideals like communist China and Vietnam. Only time will tell.
Over the years, further bilateral trade deals were made between this bloc and other countries, like ASEAN Plus Three creating trade deals with China, Japan, and South Korea and ASEAN Plus Six, adding Australia, New Zealand, and India. To some analysts, RCEP is just a formality to solidify the ASEAN Plus Six deal, minus India who backed out. Yet this deal will be, on paper, very consequential. It now encompasses a population of 2.3 billion people and 30% of global GDP. It also opens up new trade agreements between ASEAN Plus Six countries who previously only had bilateral deals with ASEAN, like trade between Japan, China, and South Korea.
However, this deal is far from ambitious. Even though it, by one estimate, will remove 90% of tariffs between countries, the previous deal in place already had 83% of goods traded under the ASEAN trade agreement. Many of the tariffs will take decades to be removed and only with unanimous agreement. As well, many rules on reducing state aid and various subsidies are only to be decided on down the road. Many tariffs still exist, like Japan’s insistence for import duties on agricultural products which is a politically vital industry.
One big step it takes is harmonizing terms of trade policy. Rules of origin policy are now much more inclusive, requiring some products to receive lower tariffs if just 40% of their value is added within the bloc. When all is said and done, this deal is expected by 2030 to raise global GDP by an additional $186bn.
So, how does RCEP impact the original ten ASEAN countries? These ten countries used to be in similar, developing states, but in the present day, there exists a wide gulf in economic prosperity.
The unique balance of developing and highly developed countries in ASEAN allowed it to prosper yet limit trade to within its borders. Raw materials are collected in resource-rich countries, manufactured in low and middle-income nations, and sold to all nations at a lower price. Rich nations can innovate and produce higher-quality goods. Economic efficiency and better allocation of scarce resources is the outcome.
RCEP will make ASEAN countries branch out in their supply-lines and sales centres. Yet as a whole, it will make RCEP nations more interdependent as ever though perhaps not to as large a degree as initially predicted. Considering its vast physical reach, there are few products that cannot be made within this trade bloc. Perhaps in the future, the segmentation of the world into trading blocs like the USMCA, EU, RCEP, AfCFTA, and possibly TPP will essentially create free trade bubbles around the world. Yet the RCEP seems the most likely to fail. Whereas other deals enclose politically and culturally-like minded countries, RCEP combines western powers who say to care deeply about ethics and human rights like Australia and New Zealand with eastern powers who do not agree on many of the same ideals like communist China and Vietnam. Only time will tell.
Australia & New Zealand: Branching, Outwards
Despite COVID-19’s negative impact on the global economy, international economic partnerships continue to develop. Signed on 15th of November 2020, the RCEP or Regional Comprehensive Economic Partnership is arguably the largest free trade agreement in history, comprising 15 members between the Asia Pacific regions. It is home to almost a third of the world’s population and accounts for 30% of the global GDP amounting to almost $26.2 trillion as of 2020.
For a country like New Zealand, securing a deal like this holds great significance as it will help New Zealand to recover from the economic impacts of COVID-19. This agreement is expected to increase New Zealand’s GDP by $2.0 billion and deepen its trade and economic relations with the Asia Pacific region. Furthermore, RCEP will provide commercial benefits to New Zealand as improved trade relations will mean lower import taxes and enhanced trade facilitation measures which in turn will allow more new investments. The demand for New Zealand’s exports will also rise as they are now able to access regions such as ASEAN and China, prominent trading partners of New Zealand. RCEP covers 7 out of New Zealand’s top 10 trading partners (China, Australia, Japan, Singapore, South Korea, Thailand and Malaysia). New Zealand exported over $36 billion worth of goods to RCEP countries and nearly $12 billion of services in the year ending December 2019. Analysis shows the Asia – Pacific region is projected to recover from the effects of COVID-19 more quickly than any other region and that the RCEP will help New Zealand accelerate their own economy in a positive direction. The RCEP will have a deeper impact alongside the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This is another trade bloc New Zealand has agreed upon, together this aims to increase security and certainty and to make the trading environment more predictable for exporters.
Australia is also one of the countries that has placed itself in a key position to enter a host of new global trade deals by signing the Regional Comprehensive Economic Partnership. This trade deal is vital for Australia as one of their main priority is to ensure a rule based international order and ensuring stability and transparency in the Indo-Pacific region. The RCEP agreement will help Australian businesses in various ways, firstly the supply of services, creating a strong platform to broaden trade in services throughout the Indo-Pacific region by establishing high quality rules for the supply of services between parties, which enhances transparency and predictability of domestic regulations. Secondly, tariff reductions will lower the cost of production and in turn reduce prices of goods and services and will help to gain higher revenue. This trade deal also aims to improve diplomatic relations between Australia and China. Australian exports, especially farm products, have gone to waste due to delay and stricter measures in Chinese customs, resulting in losses of billions for Australia. In conclusion, the RCEP trade deal is also a reminder for the Biden Administration to expand global economic engagement after the Trump Administration withdrew from many international trade deals.
For a country like New Zealand, securing a deal like this holds great significance as it will help New Zealand to recover from the economic impacts of COVID-19. This agreement is expected to increase New Zealand’s GDP by $2.0 billion and deepen its trade and economic relations with the Asia Pacific region. Furthermore, RCEP will provide commercial benefits to New Zealand as improved trade relations will mean lower import taxes and enhanced trade facilitation measures which in turn will allow more new investments. The demand for New Zealand’s exports will also rise as they are now able to access regions such as ASEAN and China, prominent trading partners of New Zealand. RCEP covers 7 out of New Zealand’s top 10 trading partners (China, Australia, Japan, Singapore, South Korea, Thailand and Malaysia). New Zealand exported over $36 billion worth of goods to RCEP countries and nearly $12 billion of services in the year ending December 2019. Analysis shows the Asia – Pacific region is projected to recover from the effects of COVID-19 more quickly than any other region and that the RCEP will help New Zealand accelerate their own economy in a positive direction. The RCEP will have a deeper impact alongside the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This is another trade bloc New Zealand has agreed upon, together this aims to increase security and certainty and to make the trading environment more predictable for exporters.
Australia is also one of the countries that has placed itself in a key position to enter a host of new global trade deals by signing the Regional Comprehensive Economic Partnership. This trade deal is vital for Australia as one of their main priority is to ensure a rule based international order and ensuring stability and transparency in the Indo-Pacific region. The RCEP agreement will help Australian businesses in various ways, firstly the supply of services, creating a strong platform to broaden trade in services throughout the Indo-Pacific region by establishing high quality rules for the supply of services between parties, which enhances transparency and predictability of domestic regulations. Secondly, tariff reductions will lower the cost of production and in turn reduce prices of goods and services and will help to gain higher revenue. This trade deal also aims to improve diplomatic relations between Australia and China. Australian exports, especially farm products, have gone to waste due to delay and stricter measures in Chinese customs, resulting in losses of billions for Australia. In conclusion, the RCEP trade deal is also a reminder for the Biden Administration to expand global economic engagement after the Trump Administration withdrew from many international trade deals.
