China’s RCEP push veils grand plan

  • The RCEP is billed as an FTA between the 10-member ASEAN bloc and its six FTA partners — India, China, Japan, South Korea, Australia and New Zealand. When inked, it would become the world’s biggest free trade pact.
  • This is because the 16 nations account for a total GDP (Purchasing Power Parity, or PPP basis) of about $50 trillion (or about 40% of the global GDP) and house close to 3.5 billion people (about half the world’s population). India (GDP-PPP worth $9.5 trillion and population of 1.3 billion) and China (GDP-PPP of $23.2 trillion and population of 1.4 billion) together comprise the RCEP’s biggest component in terms of market size.


  • It aims to boost goods trade by eliminating most tariff and non-tariff barriers — a move that is expected to provide the region’s consumers greater choice of quality products at affordable rates.
  • It also seeks to liberalise investment norms and do away with services trade restrictions.
  • China is keen on an agreement on a ‘high level’ of tariff liberalisation — eliminating duties on as much as 92% of traded products.
  • However, India’s offer is to do away with duties on only 80% of the lines and that too, with a longer phase-out period for Chinese imports (ie, about 20 years, as against 15 for other RCEP nations).
Impact on India
  • A highly ambitious level of tariff elimination without enough flexibility would affect India the most on the goods side. This is because in the RCEP group (except Myanmar, Cambodia and Lao PDR), India has the highest average ‘Most Favoured Nation (MFN) tariff’ level at 13.5%. MFN tariff, as per the WTO, refers to normal, non-discriminatory tariff charged on imports — excluding preferential tariffs under FTAs and other schemes or tariffs charged inside quotas.
  • India is the only participant that has a high level of merchandise trade deficit. Its trade deficit with RCEP countries is also more than half its global trade deficit.
  • The proposed FTA, owing to the possibility of elimination of duties across most sectors, could lead to a surge in inflow of low-priced goods, mainly from China. This would result in their share in the domestic market contracting, and consequent downsizing/closure of operations, as well as job losses. This could lead to lower incomes and reduced consumer spending.
  • Since India already has separate FTAs with the 10-member ASEAN bloc, Japan and Korea, India Inc. feels that on account of the RCEP, India may not gain much on the goods side with existing FTA partners. India is also negotiating separate FTAs with Australia and New Zealand.
  • China is the only RCEP country with which India neither has an FTA, nor is in talks for one. Therefore, Indian industry sees RCEP as an indirect FTA with China, especially since there could be a hue and cry if India opts for a direct FTA with that country given the sensitivities involved.



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