India Should be Part of RCEP and CPTPP

Syllabus: GS3/ Economy

Context

• Niti Aayog CEO stated that India should join the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade blocs.

Regional Comprehensive Economic Partnership (RCEP)

• The RCEP bloc comprises;
  • 10 ASEAN group members: Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam and 
  • Five FTA partners: China, Japan, South Korea, Australia and New Zealand.
• These RCEP countries account for about 30% of the global GDP and 30% of the world population.
• India pulled out of the RCEP in 2019 after entering negotiations in 2013, in view that reduced customs duty would result in a flood of imports from China and trade deficit with other RCEP nations.
  • The landmark agreement was signed in November 2020. 

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

• CPTPP is a free trade bloc spanning five continents, made up of Pacific rim countries of Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam, the UK and Japan.
• The pact requires countries to eliminate or significantly reduce tariffs and make strong commitments to opening services and investment markets.
• It also has rules addressing competition, intellectual property rights and protections for foreign companies. 

Need for Joining the trade blocs

• Capturing the ‘China Plus One’ Opportunity: As global businesses look to diversify beyond China, countries like Vietnam, Indonesia, Malaysia, Turkey, and Mexico have already capitalized on this trend.
  • India has the potential to emerge as an attractive alternative destination.
• Boosting the MSME Sector: Micro, Small, and Medium Enterprises (MSMEs) contribute approximately 40% of India’s exports.
  • Integrating into larger trade blocs like RCEP and CPTPP could enhance their market reach and growth prospects.
• Economic Growth: The World Bank’s India Development Update emphasized that joining RCEP could boost trade, investment, and GDP growth.
• Trade Expansion: India’s economy, projected to be the third largest by 2027, would benefit from greater integration into global markets, leading to long-term sustainable development.

Challenges of joining these blocs

• Trade Deficit Concerns: India’s existing trade deficit with China is a major deterrent. In FY2023, bilateral trade with China stood at $118 billion, with a deficit of $85 billion.
• Impact on Domestic Sectors: MSMEs and some agriculture sectors will face increased competition from international imports, potentially affecting their viability. 
• ASEAN’s trade deficit with China has jumped from $ 135.6 billion in 2023 from $ 81.7 billion in 2020. 

Way Ahead

• India should adopt a phased approach to tariff reduction and align its trade policies to be more globally competitive. Ensuring support for vulnerable sectors like MSMEs through subsidies, training, and infrastructure upgrades is needed.
• Strengthening the manufacturing ecosystem and enhancing quality standards can help Indian products compete effectively on the global stage. 
• Balanced Trade Negotiations: While joining RCEP and CPTPP, India must negotiate terms that safeguard its economic interests.
  • This includes securing provisions that prevent dumping and protect strategic industries.

Source: BS