India’s withdrawal from RCEP

India has withdrawn from the Regional Economic Co-operation Agreement (RCEP), a club of sixteen countries including the ASEAN members, plus China, Japan, South Korea, Australia, New Zealand and India. In terms of market power, it would have been the largest, having within its fold some of the biggest economies.
India’s withdrawal was announced succinctly by the prime minister when he stated that when pitched against the interest of “all Indians” the agreement does not give a “positive answer”. That is, he was articulating the fear that signing the agreement would have opened the flood gates of imports competing with those made within the country by ordinary Indians.
The fundamental problem with the RCEP agreement as it has been worked out, is that it does not accommodate some of India’s fears and therefore redressal measures suggested by India. One major redressal measure suggested was the automatic trigger of tariffs in case of unusual surge in imports of some items.
The second fundamental issue which would have prompted India’s withdrawal was apparent rejection of its demand for a more free regime for services trade. This included the demand for easier movements of professional and service providers – which has been described as “movement of natural persons”. India has some perceived edge in services exports and in its own interest, India would ask for better ground rules for unrestricted services trade.
The third overwhelming factor seems to be the use of non-tariff barriers. Use of non-tariff barriers is not unknown and all players make use of it, particularly because already under the WTO regime tariffs have been progressively lowered and all that is left to shut out inconvenient imports was to put in place difficult to track non-tariff barriers.
In the current state of the economy, when the domestic demand is running low, opening up market to easier imports would be tantamount to handling over the country’s vestigial demand to outside producers. It is better to be circumspect in difficult situations.
Anjan Roy