World’s biggest trade pact signed; But why did India back out?

  • The China backed Regional Comprehensive Economic Partnership or RCEP, was signed virtually on November 15, by China and 14 other nations.

  • The RCEP deal aims at reducing tariffs on industrial and agricultural products and sets out rules for data transmission.

  • The deal includes the 10 ASEAN nations, China, Japan, New Zealand, Australia and South Korea.

  • This is the world’s largest free trade bloc, which encompasses a third of nearly all economic activity. It aims at making the already low tariffs even lower thus promoting stronger trade ties between the countries.

Notably, India had pulled out of RECP last year as

  1. The deal aimed at reducing the import tariffs from about 80% and there was a lot of fear and uncertainty in the Indian domestic producers.

  2. Key issues which have prevented India from getting on board include ‘insufficient’ protection against import surges. This is a big problem for India, as its industry has expressed concerns that the market would be 'flooded' by cheaper goods from China.

  3. Furthermore, India has received no reliable assurances as to its demand for greater market access and its reservations regarding non-tariff barriers. It is understood that RCEP members, such as China, have used non-tariff barriers in the past to deter India from increasing its exports to the world.

  4. India has also recently raised reservations over the reduction and removal of tariffs on some of the country's goods.

  5. Its concerns on a “possible circumvention” of rules of origin (the criteria used to determine the national source of a product) were also not addressed. This is anticipated to allow countries like China to pump in more products.

  6. India already has separate, bilateral free trade agreements with most RCEP nations. Recording trade deficits with these countries is also a massive concern for India & its domestic industry.

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