Why India Opted Out of RCEP deal

The Regional Comprehensive Economic Partnership deal was signed by 15 countries on November 15 and is said to be the biggest regional trading agreement of today. Originally, the trade agreement was discussed between the ASEAN countries and their partner countries in trade. Therefore, in the discussions to draw up the deal which had been pursued since 2013, India was a participant too. However, everything changed when six years later, in November 2019, New Delhi opted to stay out of the deal.


So, why did India, an important member of the ASEAN bloc and an initial signatory of the RCEP, walk out of a deal that would have made the availability of the participant countries’ products and services easy and convenient?


As the discussions for drawing up the RCEP guidelines took shape, so did India’s concern about the free trade agreement.


For one, India was worried about other countries taking advantage of the tariff differential to circumvent the Rules of Origin. There were concerns that had India become a RCEP member, China might have used lower tariffs than India’s offers to dump its products in India.


Another concern for India is regarding the base rate of customs duty that will get altered if it signs the RCEP deal. Even though the RCEP deal has been signed this year, the guidelines will take effect in 2022. When the RCEP deal comes into effect, it will bring back the customs duty base rate to the rates decided in 2014. For India, this can be a drawback as the country will have to face losses due to reversed duty rates. This will take the competitive edge off India’s global trade sector and is not seen as a positive implication for its trade.


India has not exactly gained much through free trade agreements in the past as they have affected the domestic trade sector negatively. Due to free trade agreements, imports into the country had increased, stunting the domestic sector’s growth in the process. India has been trying to make its domestic sector self-reliant. India had concerns that the RCEP deal would have had similar effects. The country’s negotiators had proposed an auto-trigger mechanism clause to be included in the final draft of the RCEP to strike a balance between domestic and import sector but it was not accepted by other countries of the bloc.


If India had been a signatory in the RCEP deal, the nation would have lost the right to give the Most Favoured Nation status to its strategic and trade allies. Instead, India would have given preferential treatment to the other 15 countries of the RCEP deal. Given that India’s hostile neighbour China is also a signatory of the RCEP deal, it was wary of extending any preferential treatment to the Chinese, especially with their efforts at establishing economic dominance over global trade.


The final concern that was raised by India was the clause in the RCEP deal that would have extended the same benefits to any RCEP country as any special concession India would have given to other non RCEP country. This was unacceptable to India as it did not want the benefits it extended to USA, or Nepal or France to be extended to every other country of the RCEP bloc, especially to China.


Although India has decided to stay away from the RCEP bloc for now, the member countries have said that the doors to join RCEP are still open for India, should the country decide to change its mind on the trade deal in future.

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