This Article is written by Saveri Sharma of 4th Semester, Kirit P Mehta School of Law, NMIMS.
INTRODUCTION
Concerns over India’s foreign economic connections have been sparked by the country’s recent decision to withdraw from the Regional Comprehensive Economic Partnership (RCEP). China, Japan, South Korea, and Australia are just some of the 15 members of the RCEP, an Asia-Pacific trade pact. India played a pivotal role in RCEP discussions but has opted to pull out of the pact as of November 2019. Given that India is the third-largest economy in the RCEP, its decision to quit is considered a blow to the deal. The agreement’s potential effects on India’s domestic industries, especially agriculture, and manufacturing, were mentioned as a major worry. India was worried that the RCEP would open the door to cheap Chinese imports, which would damage the country’s manufacturing sector. Another point of contention was the absence of safeguards for India’s service industry.
BACKGROUND ON THE RCEP AND INDIA’S PARTICIPATION
The RCEP talks have been going on since 2012, and its ultimate goal is to establish a free trade bloc in the Asia-Pacific. A broad variety of commodities and services would have been included in the agreement, and tariffs and other trade obstacles between the participating nations would have been reduced. India was an early negotiator but has since voiced worry about the agreement’s possible effects on Indian industry. In particular, India was concerned that cheap Chinese imports might harm its own manufacturing industry.
The RCEP’s signatory nations, who make up around 30% of the world’s population and 29% of its GDP, want to establish a free trade area. The Trans-Pacific Partnership (TPP) was a free trade deal between 12 nations, including the United States, Japan, and Australia; the RCEP discussions were regarded as a reaction to the TPP. In 2018, the remaining TPP nations signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), while the United States withdrew from the TPP in 2017.[1]
India stayed involved in the talks for years despite these worries. However, in November 2019, India declared that it will be withdrawing from the RCEP. Concerns about the effects of the deal on farmers, small companies, and employees were listed among the many reasons given by the administration. India has raised worries about the lack of protection for its indigenous sectors, and the possibility for the pact to worsen its trade imbalance with China.[2]
REASONS BEHIND INDIA’S WITHDRAWAL FROM RCEP
Several reasons contributed to India’s decision to leave RCEP. India’s apprehension over the agreement’s effect on its homegrown sectors, especially agriculture, was a major factor. The “inadequate” safeguards against import surges and potential rule of origin evasion were another source of concern for India. Another major aspect was the rising tensions with China, a signatory to the accord. Inconsistent with its RCEP obligations, India’s unwillingness to minimize its exposure to China would have been problematic. When it came to questions of market access in countries like China and non-tariff obstacles on Indian enterprises, India also believed that RCEP needed an unambiguous guarantee. India’s decision to withdraw from the RCEP was partly motivated by the country’s attempts to address the worries of its own citizens.[3]
IMPLICATIONS OF INDIA’S WITHDRAWAL ON ITS INTERNATIONAL TRADE RELATIONS
India’s foreign trade connections, notably with the other RCEP members, may be affected in a number of ways as a result of the country’s decision to withdraw from the RCEP. The decision to pull out of the RCEP by India was considered as a setback for the deal and would certainly cause tensions between India and the other signatories. It was speculated that India would have been able to enhance its commerce with the other nations in the RCEP if it hadn’t withdrawn from the agreement. The country’s commerce with the other RCEP members will be one of the first areas impacted. The accord would have reduced tariffs on Indian exports and given the country better access to certain markets. India may have a harder time competing with other nations in the area if the deal isn’t in place.[4]
One of the immediate effects of India’s departure from the RCEP is that it has slowed the possibility of the deal producing a sizable trade bloc that would account for close to one-third of the world economy. Due to India’s exclusion from the RCEP, the deal will only cover a smaller market and may not have the same influence on world trade as originally thought.
India’s exit from the RCEP has made evident to the world that it is not yet prepared to participate fully in international trade discussions. This may harm India’s standing as a trustworthy trading partner and obstruct its attempts to reach bilateral trade deals with other nations. The fact that India withdrew from the RCEP has the potential to deepen protectionism in the nation. The government’s decision to leave the RCEP might be seen as an effort to save homegrown sectors from global competition. This might therefore result in a surge in trade restrictions and protectionist measures, making it more difficult for international businesses to do business in India.
India’s commercial ties with other nations might be affected more broadly as a result of the country’s decision to withdraw from the RCEP. For instance, the United States has been trying to negotiate a trade agreement with India, but so far, the two sides have been unable to come to terms. If India leaves the RCEP, it may have less bargaining power when negotiating a trade agreement with the United States. India’s commercial ties with the United States may suffer as a result of the country’s decision to leave the RCEP. In 2017, the United States left the TPP, and the other nations sig
India’s withdrawal from the RCEP is likely to have significant implications for its international trade relations. The country may find it more difficult to compete with other countries in the region, and may struggle to negotiate trade deals with other countries outside of the RCEP. The other RCEP member countries have expressed disappointment at India’s decision to withdraw from the agreement. However, they have also indicated that they are willing to continue with the agreement without India. This could potentially lead to increased trade between the other member countries, which could further isolate India from the region. It will also be seen as a missed opportunity for India to increase its trade with the other participating countries and is likely to impact its trade relations with China and the United States.
India’s future options for trade agreements and partnerships are somewhat limited. The country has already signed several free trade agreements with other countries, but these agreements have been criticized for being too one-sided. India may need to explore other options, such as bilateral trade agreements or partnerships with other countries outside of the Asia-Pacific region-ned the CPTPP the following year. The United States is likely to see India’s withdrawal from the RCEP as a squandered chance for increased trade with India.[5]
India’s decision to leave the RCEP may potentially have an effect on its commercial ties with China. Border conflicts and commercial disagreements have contributed to the tense relationship between the two nations in recent years. The relationship between India and China has been tense for some time, and India’s decision to withdraw from the RCEP might be perceived as a slight by China. India was worried that the RCEP will have a negative effect on its domestic economy, especially its agriculture and industrial sectors. India was worried that the RCEP will open the door to cheap Chinese imports, which would damage the country’s manufacturing sector. Withdrawing from the RCEP would undoubtedly cause tensions between India and China, the two nations with the biggest economies in the group.[6]
However, India’s decision to leave the RCEP may also provide it a chance to concentrate on enhancing its bilateral economic connections with other nations. The administration has previously said that it wants to talk about bilateral free trade deals with the US, the UK, and the EU. India might negotiate conditions that are more advantageous to its own sectors and make sure that they are appropriately safeguarded from international competition by concentrating on bilateral trade ties.
CONCLUSION
India’s decision to leave RCEP might have serious consequences for its commercial relationships abroad. The nation may have a harder time competing with its regional neighbours and striking trade accords with countries outside of the Regional Comprehensive Economic Partnership (RCEP). The other nations in RCEP are saddened by India’s decision to leave the group. However, they have also shown their willingness to go on with the pact even if India does not. India’s economic isolation might deepen if this leads to more commerce with the other member nations. If India doesn’t join, it will be considered as a lost chance to expand its commerce with the other nations involved, which might negatively affect its ties with China and the United States.
Future trade partnership and agreement choices for India are rather constrained. Several free trade agreements have been struck with other nations, although they have been criticized for being unfair to the country signing them. India might look outside of the Asia-Pacific area for alternatives, such as bilateral trade deals or alliances.[7]
In a globalized world where nations have varying degrees of economic growth and goals, negotiating free trade accords is difficult, as shown by India’s decision to withdraw from the RCEP. However, India still has a number of potentials to broaden its trading partnerships in the years to come.
In conclusion, India’s exit from the RCEP would significantly affect its commercial ties with other countries. While it could provide India with chances to concentrate on enhancing its bilateral economic relationships, it might also result in a rise in protectionism and harm India’s standing as a trustworthy trading partner. It remains to be seen how India’s trade policy will change over the next several years and how it will affect the growth and development of the nation’s economy.
[1] Abbate, F. and Crivelli, P.A. (2022) The Regional Comprehensive Economic Partnership Agreement a New Paradigm in Asian Regional Cooperation? Asian Development Bank. Available at: https://www.adb.org/sites/default/files/publication/792516/rcep-agreement-new-paradigm-asian-cooperation.pdf (Accessed: April 13, 2023).
[2] Mun, T. (2019) What India’s withdrawal from RCEP means for ASEAN, India and the Indo-Pacific Concept, ISEAS. Available at: https://www.iseas.edu.sg/media/commentaries/what-indias-withdrawal-from-rcep-means-for-asean-india-and-the-indopacific-concept-by-tang-siew-mun/ (Accessed: April 13, 2023).
[3] Every, M. and Erken, H. (2020) Why India is wise not to join RCEP, Rabobank. Available at: https://www.rabobank.com/knowledge/d011308215-why-india-is-wise-not-to-join-rcep (Accessed: April 13, 2023).
[4] Raghavan, P. (2020) The economic implications of India opting out of RCEP, The Indian Express. Available at: https://indianexpress.com/article/explained/india-out-of-rcep-china-economy-trade-angle-7053877/ (Accessed: April 13, 2023).
[5] Mehta, S. (2020) The RCEP Minus India: Reasons and Implications, The SAIS Review of International Affairs. Available at: https://saisreview.sais.jhu.edu/the-rcep-minus-india-reasons-and-implications/ (Accessed: April 13, 2023).
[6] Oba, M. (2019) The implications of India’s RCEP withdrawal, The Diplomat. Available at: https://thediplomat.com/2019/11/the-implications-of-indias-rcep-withdrawal/ (Accessed: April 13, 2023).
[7] Banga, R., Gallagher, K. and Sharma, P. (2021) RCEP: Goods market access implications for ASEAN – Boston University, Global Development Policy Center. Available at: https://www.bu.edu/gdp/files/2021/03/GEGI_WP_045_FIN.pdf (Accessed: April 13, 2023).
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