Explained: Regional Comprehensive Economic Partnership (RCEP)

The largest trade agreement in the world and its impact on participating economies

Explained:  Regional Comprehensive Economic Partnership (RCEP)

By Usanas Foundation

What is RCEP?

The Regional Comprehensive Economic Partnership (RCEP) is a free-trade agreement between ten Association of South East Asian Nations (ASEAN) nations and China, Australia, New Zealand, South Korea, and Japan. The pact is touted to be the world’s largest Free Trade Agreement. The goal of the partnership is to allow for the ease of access to the market and reduce trade tariffs among its member nations across the Asia-Pacific region. The drafting and negotiations of RCEP have been ongoing since 2012. Members of the RCEP makeup nearly a third of the world’s population and account for almost 30% of the GDP.


What are the broad RCEP provisions?

The central focus of the RCEP is to have a ‘Unified Rule of Origin,’ a standard practice to ease customs clearance. RCEP is expected to help the technically advanced member nations such as Australia, Japan, South Korea to increase investment in the lesser-skilled labor concentrated, low-cost manufacturing and processing hubs such as Myanmar, Cambodia, and Laos. As per John Hopkins University projections, RCEP will add  USD  186 billion to the global economy The RCEP members will yield the benefit of the availability of cheap goods as investment moves from high-cost nations to low cost, and reduced trade tariff is aimed at accelerating the exchange of goods and services. Even after Twenty nine rounds of negotiations, there is no consensus among member states on E-commerce regulations, cross-border-data flow, or data transmission.


Why has RCEP been criticized?

One major criticism of REP is that it is industry-focused, i.e., the interest of big companies such as low-cost production and market access are the primary focus of RCEP. It does not provide any unified labor protection or environmental protection regulations and guidelines. It was a major concern for India, as it echoed in India’s Minister for Commerce and Industry’s earlier statement concerning RCEP that “India can not allow few industries to hijack the country’s national interest.” Eventually, in the subsequent year, India withdrew its membership from RCEP to protect and safeguard its domestic market from dumping.

Also, China is a key member of the RCEP and seemingly the most significant powerhouse in the region, giving it an unfair advantage in its influence in the rules of trade in the Asia-Pacific region. It raises alarm bells; in India, there is a fear that domestic farmers could potentially be walloped in the bargain. It has also been observed that the RCEP falls short in terms of the sheer depth and robustness of other trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) of which the US is also a part, or the United States Mexico-Canada Agreement (USMCA). Although the RCEP stands as the largest trade agreement in the world today, it involves 15 nations that are at different stages of development and internal economic priorities. Smaller, more economically vulnerable nations can potentially run the risk of their local economies being entirely overrun by their larger, more expansionist partners, namely China, which faces no competition or opposition from the US.


Why has India opted out?

It paves the way for the dumping of cheap products into the Indian market, affecting the large-small and middle-scale producers and manufacturers. In 2019, when negotiations failed,  India’s Prime Minister Narendra Modi stated that his conscience does not permit him to join the RCEP, he said, “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of the RCEP. It also does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP Agreement.” India also feels that the issues surrounding ‘Country of origin’ are not comprehensively dealt with by RCEP regulations. Various civil society bodies, members of the agriculture, dairy, textile associations expressed strong opposition to RCEP. India’s concerns over RCEP mainly revolve around the trade deficit with China and the fear of big Multi-National Corporations’ profit model where farmers are paid a pittance. In this regard, it makes no sense for India to remove tariffs on sectors such as agriculture and dairy. Further, it appears to be in sync with India's new approach of 'Atma Nirbhar Bharat' which implies  'economic self-reliance,' aimed at promoting indegneous manufacturing. However, for the skeptic ones, it is resonant of protectionism; perhaps a throwback to India's old socialist days.


What next?

India’s departure will not impact the RCEP, as the remaining 15 countries will implement the provisions in 2021. Although the provisions will be frozen with regards to India, the doors of the RCEP will remain open for India to rejoin at any given time, as affirmed by Australian Prime Minister Scott Morrison. Additionally, India can participate in the RCEP meetings as an ‘observer.’


(With inputs from Shahana Joshi, Fellow, Usanas Foundation)