RCEP makes US, and India rethink joining trade deals

Topics RCEP deal | ASEAN

Last week, after eight years of negotiations, 10 countries of the ASEAN (Association of South East Asian Nations) plus China, Japan, South Korea, Australia, and New Zealand signed the Regional Comprehensive Economic Partnership (RCEP) Agreement to eliminate tariffs progressively over a period of 20 years. This could cause a rethink on the part of India on joining the RCEP and on the part of the US to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

 
The countries participating in the RCEP already have several bilateral trade agreements. The RCEP aims to replace the bilateral deals with uniformity in the treatment of goods originating in any of these countries. The gains due to elimination of tariffs over 20 years may not amount to much as the tariffs are already quite low. However, the inputs procured from any of the RCEP countries will be treated as originating in the countries where the final products are produced. That could help increase the trade within the RCEP region.

 
The RCEP also deals with investments, e-commerce, services, agriculture, and competition policy etc, where the gains can be patchy but going forward the rules may be harmonised on all these issues benefitting the participating countries. Many countries such as Australia, Japan, South Korea, Indonesia, and Vietnam have serious political and territorial issues with China. However, they have set aside those differences and come together to bring about the RCEP, which shows that economic interdependence is the order of the day.

 
The RCEP will come into effect when the participating countries, after due domestic process, ratify the agreement. India has been allowed to join the RCEP anytime and in the meantime participate in meetings as ‘observer’. Any other country can join the RCEP after 18 months of its coming into force.

 
China, as the biggest economy and most populous country in the group, dominates the RCEP. It is likely to increase its regional influence in the coming years. So, the US needs to review its strategies on various fronts, if it wants to have even a diminished sway in the Asia-Pacific region.

 
The Obama Administration envisaged a greater role for the US and in 2016, signed up for an ambitious Trans-Pacific Partnership (TPP) — a proposed trade deal between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the US. The Trump Administration walked out of the TPP agreement in 2017. Other parties successfully negotiated a new version of the deal in 2018 — the CPTPP. The Biden Administration, set to takeover in January, may reconsider whether the US should join the CPTPP with a view to regain some influence in the region and counter China.

Last November, after seven years of participation in the RCEP negotiations, India opted out complaining that its apprehensions are not addressed satisfactorily. Fears of increased imports of manufactured products from China and dairy products from Australia and New Zealand that might adversely impact small manufacturers and farmers in the country led to the decision to leave the RCEP —fears that have not yet gone away. However, the prospects of losing market access and scope to influence rule-making in the RCEP region could cause a rethink on whether to join the RCEP, despite strong anti-China sentiments in the country.

 
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