RCEP & India: Weighing the benefits of regionalism


Multilateral free trade agreements reinforce benefits from a wider market access and enjoy preferential or lower trade barriers.
Radhika Rao09 Oct 2019
  • Could India join the Regional Comprehensive Economic Partnership (RCEP)?
  • Details are still being worked on, as lower tariff and non-tariffs are sought
  • India has, understandably, expressed reservations
  • A workable solution might be a partnership, with some concessions
Photo credit: AFP Photo


This is an abridged version of our Thematic Report “RCEP & India: Weighing the benefits of regionalism” (please download the pdf for the full report)

Ongoing discussions on the Regional Comprehensive Economic Partnership (RCEP) include the ASEAN10 bloc (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) together with its six FTA partners - India, China, Japan, South Korea, Australia, and New Zealand. Since the US withdrew from the Trans-Pacific Partnership (TPP) agreement in 2017, the Asia Pacific bloc has been keen to expedite the RCEP as a viable alternative for global trade with lower trade barriers. Plans were conceptualized in 2012 and found a renewed vigour in the past two years. Trade ministers are due to meet in Bangkok on October 10-12, with plans to conclude negotiations by the ASEAN summit meeting in November.

Push and pull factors to join the RCEP

With trade conflicts and protectionist policies dominating the narrative, multilateral free trade agreements reinforce benefits from a wider market access and enjoy preferential or lower trade barriers. Cumulatively, the bloc accounts for a third of the world GDP, half the world’s population, a quarter of world trade and nominal GDP surpassing the US. Once completed, the agreement is expected to lower trade and non-tariff hurdles, liberalize service trade, ease part of regulatory hurdles in regional trade and improve investor protection, amongst others.

There are also push factors. Better market access to other countries could help offset slowing domestic growth, just as the trade environment gets more challenging. This will a window to deploy excess domestic capacity, improve resource utilization and provide a leg-up for the exporting community.

India’s negotiating position has emerged as a challenge, particularly due to its stance that it has witnessed limited benefits from prior trade agreements.

India’s concerns

Reticence to participate in trade agreements on a broader note has been on three grounds: a) For RCEP, India already runs a trade deficit with all the member countries. China single-handedly makes up ~60% of the total; b) previous FTAs have not materially improved India’s trade math; c) certain unfavourable provisions have turned to be sticking points.

Negotiations are ongoing, challenges but benefits aplenty

While being a part of the RCEP carries challenges but it will also open India and rest of the proposed members to numerous opportunities. The early phase of adjustment will be an uphill task as few import tariffs will have to be dismantled, leading to higher competition from imports and in turn hurting export competitiveness. Opportunity cost of non-participation is significant as multilateral trade agreements will help improve India’s integration to the global supply chains and market access opportunities.

This is an abridged version of our Thematic Report “RCEP & India: Weighing the benefits of regionalism” (please download the pdf for the full report)


To read the full report, click here to Download the PDF.


Radhika Rao

Economist – India, Thailand & Eurozone
radhikarao@dbs.com

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No. 09.03.1.64.96422.