Since RCEP is trending right now, we thought we could whip up a quick explainer on the subject matter and maybe tell you why India decided to walk out of the agreement last year

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between the 10-member Association of Southeast Asian Nations and a few other partner countries. But it's mainly spearheaded by China

So with the RCEP, Indian manufacturers could have shipped certain goods and sold them elsewhere without having to worry about, say a 30% tariff. This way our prices could've remained competitive & domestic manufacturers would have actually had a shot at selling their goods abroad

On the flip side, India was also expected to open up its borders and that was a contentious topic. But we will get to that bit in a while.

Anyway with RCEP, India would have had a new free-trade agreement in place with 15 other countries including Malaysia, China & Australia.

And considering this little group is responsible for close to 40% of all international trade, the RCEP agreement was kind of a big deal.

At least, it would have been, if India actually went through with it.

At the RCEP summit in Bangkok last year, Prime Minister Modi refused to partake in the agreement. His argument was that India had been proactively contributing to the RCEP discussions in the hope of pursuing a mutually beneficial outcome.

But he felt that the current agreement did not fully reflect the basic spirit of free trade, and that it did not address India’s outstanding concerns satisfactorily.

Wait, what concerns?

For one, opening up the country’s domestic markets has repercussions.

Imagine cheap Chinese goods & agricultural produce from Australia & New Zealand flooding our markets. It would obviously hurt local producers. So India wanted a tariff structure that wouldn’t exactly open the floodgates.

Yes, we are going to open up our borders. But the tariffs can’t be too low. That's the mantra here.

Also, RCEP countries account for almost 27% of India’s total trade. However, India imports more from RCEP countries than it exports i.e. we have a trade deficit..

Ideally, when you open up your borders you would want to help boost the country’s export engine. But here’s the thing, China alone accounts for over 60% of the deficit and the “Red Dragon” isn’t like other countries.

It’s very hard to export to China, even if you had a free trade agreement in place. For instance, most of our exports are service-based, like IT. But services don't factor prominently in these trade agreements. So how does one expect India to bridge the gap?

And even if it did, how would India contain the free flow of goods coming in from China. In fact, we already predicted such an eventuality and wanted safety measures in place.

The idea was to include an auto-trigger mechanism — so when the volume of imports crosses a certain threshold, safeguard duties would suddenly kick in to contain the dump. Unfortunately, we couldn’t get the other member countries to budge and so we had to walk out

In any case, the other members have gone ahead and signed the agreement and you if you want to read more about RCEP you can do so here https://finshots.in/archive/the-rcep-agreement/