The 10-member Association of Southeast Asian Nations (ASEAN) has free trade agreements with six partners namely People’s Republic of China (ACFTA), Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA) as well as Australia and New Zealand (AANZFTA). The Regional Comprehensive Economic Partnership (RCEP) was established by the 16 participating countries on the basis of existing ASEAN+1 FTAs with the spirit to strengthen economic linkages and to enhance trade and investment related activities. RCEP negotiations started in 2012 and participating countries included ASEAN members – Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, Cambodia – and six Asia-Pacific countries with which ASEAN has free trade agreements – Australia, China, India, Japan, South Korea and New Zealand.
All eyes of the biz world are at the forthcoming 3-day meeting – in Bangkok on Oct. 10 – where ministers from the RCEP member countries are going to hold discussions for the ninth time to take some concrete decisions for the finalization of the mega free trade agreement between 10 ASEAN countries along with their six FTA partners. There is an indirect pressure from China to sign the deal on November 21 but India is taking time to get better terms especially for the services sector. India has a tough call to make as it has to safeguard the interests of domestic industry and farmers as well.
A glance at some of the studies made (aimed at India) by a few investment banks shows that there is no clear-cut direction based on domestic research on the impact of such a complex Agreement involving countries most of whom are already having significant competitive advantage. Their support for RCEP is not based on any facts or figures. It’s totally vague. Just read this statement made in one of the reports: “Opportunity cost of non-participation (in RCEP) is significant as multilateral trade agreements will help improve India’s integration to the global supply chains and market access opportunities.” And this comment is made after this observation: “India already runs a trade deficit with all the member countries; previous FTAs have not materially improved India’s trade math, and certain unfavorable provisions exist (in RCEP).” Industry associations have been commenting without even trying to know what RCEP is all about! Look at this comment under the heading Right Time for the Regional Comprehensive Economic Partnership: “RECP will help India in accessing the region in a better way which will consequently help it in improving it’s manufacturing & services delivery efficiency and will make it more competitive.”
There exist two diagonally opposite groups in the government (including among govt supporters). The decision to join RCEP is going to be quite risky as the stakes are clearly very high. In absence of any clear vision, it would be worth while to say a firm NO at this stage. In stead, focus on bilateral (free) trade agreements which can be more flexible, less complicated and highly result oriented providing greater involvement to the key stake holders who actually know the trade. If, somehow, our PM decides to join RCEP at this stage, it might lead to uncertain and turbulent economy ahead for India. Yes, it is dangerous to join RCEP in view of the past performance, and with the current level of preparedness.