RCEP and its Impact on Indian Trade

Will India declining to join the RCEP impact its trade position, its taxes and import duties among other things? Samir Alam finds out...

- Samir Alam

The Regional Comprehensive Economic Partnership or the RCEP is a trade agreement signed on November 15, 2020 between the 10 member states of ASEAN or the Association of the Southeast Asian Nations and the Free Trade Agreement (FTA) partners that include China, Japan, South Korea, Australia and New Zealand. It calls out for a common set of rules on tariff reduction in trade. This pact leads to fewer bureaucratic delays and easier circulation of goods within the specified market. Lower taxes and import duties also encourage more trade and investment, and build supply chains that are less affected by disruptions thanks to the ongoing pandemic. So given all these benefits - why did India decline to join? And what are the variables at play? Let’s take a closer look.

INDIAN TRADE AND RCEP

The RCEP intended to be a trade hub between South Asian economies. Functionally, it will allow for the creation of distribution hubs in participant countries that streamline trade on a global scale. Despite these benefits, India, an FTA partner with Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, formally backed out of the final accord citing an unfair trade imbalance tilted against it. Being the largest trade agreement of its kind in the world, covering a population of 2.2 billion people with a combined GDP of $26 trillion, not joining the RCEP was not a trivial decision as in either case it has the potential to radically impact India’s trade and growth in the future.