Will India reassess its position on China-backed Asian trade bloc RCEP?

India is keeping a watchful eye on its neighbour countries’ recent deliberations to join the China-backed Asian trade bloc, Regional Comprehensive Economic Part­nership (RCEP), although the government is yet to “re-evaluate” the position it took four years ago.
 

Sri Lanka in August applied to join the free trade agreement (FTA). Bangladesh, too, has begun discussions to join the RCEP but will take a final decision after the general elections scheduled to be held on January 7.
 

By joining the RCEP, Sri Lanka hopes to get preferential access for its exports, improve connectivity in the region, and attract investments, as it looks to rebuild its wobbling economy. Bangladesh, for its part, is eyeing new FTAs in its efforts to rise above its least developed country (LDC) status in three years.
 

The RCEP is a pact between the Association of the Southeast Asian Nations (Asean), which consists of 10 countries, and five of its FTA partners: New Zealand, Australia, China, Japan, and South Korea. It is the world’s largest FTA in terms of the combined gross domestic product of its members. India has signed bilateral FTAs with 13 of the 15 RCEP member-nations, with New Zealand and China being the only exceptions.
 

However, that Sri Lanka and Bangladesh are veering towards the RCEP compounds an already complex situation for India.

Gauging the possibility of economic gains, the country participated in the RCEP negotiations for nearly eight years. However, four years ago, it walked away from the trade pact at the last minute, stating that it was not a balanced agreement and would hurt India’s farmers, small businesses, and its dairy industry.
 

Four years on, there is no change in the government’s thinking, even as Chinese vice trade minister and, more recently, the Asean secretary general said it wants India to join the trade pact. Asean is short for the Association of Southeast Asian Nations.
 

That said, it is not clear whether the position India took back then is cast in stone.
 

“We do not know what developments will be there in the trade arena five to 10 years down the line. Comparative advantages keep changing with the advent of technology. We don’t know if agreements such as RCEP or CPTPP agreements will shape up,” a senior government official told Business Standard.
 

CPTPP is short for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an FTA among Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam.
 

“That is why this (the position that the RCEP pact was not balanced) may not be our life-long position, but, as of now, there is no change in thinking. Right now, we are engaged in multiple FTAs and we are focusing on that,” the official said.
 

Expanding RCEP
 

Experts say it may be difficult to immediately conclude whether the expansion of the RCEP into wider geographies can be a cause for concern in India, although some point out that eventually India may have to join the regional trading bloc.
 

Amitendu Palit, senior research fellow, Institute of South Asian Studies, National University of Singapore, said India’s neighbouring countries’ deliberations to join the RCEP should not be a cause for concern as far as trade is concerned, although there can be an implication of investment diversion in the future.
 

“Some RCEP member-nations that are major investors in the region may start looking at Bangladesh and Sri Lanka as effective locations for investment because they are now a part of a trade and rules-based framework,” Palit said.
 

India exports a large amount of products to Bangladesh and Sri Lanka. Whether that export will suffer due to their entry into the RCEP is difficult to say. Right now, India has not done an in-depth analysis of the possible repercussions, considering both Sri Lanka and Bangladesh are India’s vital export markets as well as competitors.
 

“As far as trade is concerned, if the two countries join the pact, it will result in imports from the RCEP group of countries that will get preferential access. That may not necessarily mean it will adversely affect Indian exports of the same products. Indian export baskets are different for both Bangladesh and Sri Lanka,” Palit said.
 

In any case, India will have to make an assessment with respect to the markets in Sri Lanka and Bangladesh that India will lose after they join the RCEP. Apart from that, the government will have to identify markets in other RCEP countries that will compete with India.
 

Phased entry
 

A study on the utilisation of the pact will also be crucial. Experts say since the RCEP came into force in a phased manner, it may be too early to gauge how its member-countries are benefiting from the deal.
 

RCEP came into force on January 1, 2022 for its 10 original parties: Australia, Brunei Darussalam, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand and Vietnam. It then entered into force for South Korea on February 1, 2022, for Malaysia on March 18, 2022, for Indonesia on January 2, 2023, and for the Philippines on June 2, 2023.

Pradeep S Mehta, secretary-general, CUTS International, said India had indicated a preference for expanding its network of bilateral FTAs and for upgrading the existing ones in the expanded neighbourhood, be it with the Asean or Sri Lanka. Besides, Bangladesh is keen on an FTA with India.
 

“India’s stated sensitivities to joining the RCEP will not change in the immediate future, but cementing a more robust bilateral FTA network with our trading partners and showing tangible economic gains from them seems to be the government’s strategy to get more buy-in for FTAs, which perhaps, may lead to a fresh bid for RCEP membership in the future,” Mehta said.
 

Ajay Srivastava, founder of Delhi-based think tank Global Trade Research Initiative and a former trade ministry official, says joining the RCEP would not increase India’s market access significantly.
 

“India’s decision to opt out of the RCEP seems wise, especially as nations are now seeking manufacturing alternatives to China and focusing on reliable supply chains,” Srivastava said. “However, Sri Lanka and Bangladesh should consider their trade deficits with China.” He added that the reasons behind both countries’ interest are not clear and could be politically motivated.