What is RCEP?

Regional Comprehensive Economic Partnership (RCEP) is a proposed Free Trade Agreement (FTA) between the 10 member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the six states with which include India, China, Australia, Japan, South Korea and New Zealand.

RCEP countries have a total population of more than 3 billion, a total GDP of around USD 23 trillion, and they account for about 27% of global trade and 55% of our goods exports.

The RCEP is envisaged to be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement.

What are the objectives of RCEP?

Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership are trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, and dispute settlement.

Significance of RCEP for India

• From India’s point of view, the RCEP presents a decisive platform which could influence its strategic and economic status in the Asia-Pacific region and bring to fruition its Act East Policy. The RCEP agreement would complement India’s existing FTAs with the ASEAN and some of its member countries, as it would deals with Japan and South Korea.

• India is not a party to two important regional economic blocs: the Asia-Pacific Economic Cooperation and the Trans-Pacific Partnership. The RCEP would enable India to strengthen its trade ties with Australia, China, Japan and South Korea, and should reduce the potential negative impacts of TPP and TTIP on the Indian economy.

• RCEP will facilitate India’s integration into sophisticated “regional production networks” that make Asia the world’s factory. The RCEP is expected to harmonize trade-related rules, investment and competition regimes of India with those of other countries of the group. Through domestic policy reforms on these areas, this harmonization of rules and regulations would help Indian companies plug into regional and global value chains and would unlock the true potential of the Indian economy. There would be a boost to inward and outward foreign direct investment, particularly export-oriented FDI.

• India enjoys a comparative advantage in areas such as ICT, IT-enabled services, professional services, healthcare, and education services. In addition to facilitating FDI, the RCEP will create opportunities for Indian companies to access new markets. This is because the structure of manufacturing in many of these countries is becoming more and more sophisticated, resulting in a “servicification” of manufacturing.

• India is well placed to contribute to other countries in RCEP through its expertise in services, not only consolidating the position of the region as the world’s factory but also developing it as the world’s hub for services.

• India may emerge as an attractive investment destination for China. To offset the increasing labour costs, Chinese firms have been relocating labour-intensive manufacturing to Vietnam, Cambodia, Thailand and Indonesia.

• By setting up manufacturing joint ventures in India, China can effectively reach India’s domestic market and also a large European market once India signs an FTA with the European Union. If this story plays out, India’s trade deficit with China will come down as well.