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Guest Column

The Regional Comprehensive Economic Partnership (RCEP), the world’s biggest free trade agreement (FTA), came into force on 1 January 2022. Initially planned as a 16-member pact, the grouping dropped to 15 members after India–the world’s fifth largest economy–exited talks in November 2019. The joint statement announcing the conclusion of negotiations stipulated that “India has significant outstanding issues, which remain unresolved. All RCEP Participating Countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues”. The remaining participants also crafted the Special Accession Clause for India, providing a route for the country to re-enter the agreement when it was ready at a later date.

Having this clause in place reflects the desire of RCEP members to bring India back into the fold. For many ASEAN countries, such desires are undergirded by economic and geopolitical reasons. Economically, RCEP is seen not only as a tool that can unlock India and ASEAN’s economic potential, but also serve to bolster their economic ties. India and ASEAN together constitutes a combined market of 2 billion people and an estimated GDP of $5.5 trillion. India is ASEAN’s sixth largest trading partner, while for ASEAN, India is its fifth biggest trading partner. These economies are intertwined in the same transnational production networks. Their top ten traded products consists of electrical machinery and equipment, mineral fuels, nuclear reactors and boilers, iron and steel, and precious and semi-precious stones.

India-ASEAN trade has ample room for growth. It has been valued at around $79 billion in 2020-2021 and is forecast to reach $300 billion by 2025. Implementing RCEP would likely provide a further boost to their trade. For instance, carrying out provisions in the ‘Trade in Goods’ Chapter and ‘Customs Procedures and Trade Facilitation’ Chapter would lower barriers and ease commercial flows across borders, while provisions in ‘The Rules of Origin’ Chapter would allow firms which sourced materials or goods from India and Southeast Asia (or other RCEP members) to benefit from tariff concessions. Together, these provisions would have led to further economic integration among these nations.

In terms of foreign direct investments, there has been an upward trend in investment flows from India to ASEAN, growing from $1.4 billion in 2015 to $1.9 billion in 2021. However, these investments have been concentrated in specific sectors, namely, oil and gas, manufacturing, information and communication technology (ICT), pharmaceuticals, and financial services. RCEP’s ‘Investment’ Chapter adopts a negative list, meaning that all sectors will be opened for investment except those mentioned on the list. The Chapter also abolishes performance requirements (i.e., mandates by governments that force international investors to link their business operations with the host country’s socio-economic objectives). These provisions enhance investment liberalisation, promoting entrepreneurship investment across more sectors.

Beyond economics, ASEAN countries also see RCEP through geo-strategic lenses. This is reflected in RCEP’s deliberate design as an ASEAN-led initiative. Prior to RCEP, ASEAN members had pushed back against suggestions for an ‘East Asia Free Trade Agreement’ (advocated by China) and a ‘Comprehensive Economic Partnership of East Asia’ (promoted by Japan) by counter-proposing the RCEP modality. Because the RCEP approach was built upon the existing ASEAN+1 FTAs, it enabled the ASEAN members to ingrain the principle of ‘ASEAN Centrality’ in the development of trade regionalism. The presence of China and Japan in RCEP however, posed a potential challenge to this arrangement, given their outsized influence in the realm of global trade governance. This was the reason why ASEAN hoped to secure India’s membership—as a means to balance China and Japan’s clout—and also why they have been more than happy to insert the Special Accession Clause.

At the time of this writing, India remains outside the trading bloc. Both economic and political factors account for its decision. Economically, the government is worried that by partaking in RCEP, its domestic producers would be hurt by increased foreign competition. India’s manufacturing sector for instance, is likely to be eclipsed if cheap Chinese goods flood the market. Also, Indian farmers are apprehensive about competing against agricultural exports from Australia, New Zealand, and Southeast Asia. Lobbying by these domestic players had a significant influence on India’s decision-making. Moreover, New Delhi was concerned about the negative impact RCEP would have on India’s trade deficit.

The Indian government also felt that the agreement did not sufficiently liberalise trade in services, specifically in the ICT sector, where India has traditionally been a major exporter. Another reason was China. India’s latest border standoff with China is still ongoing and has brought bilateral relations to its lowest point in decades. With China being such a prominent member of RCEP, it would be politically difficult for New Delhi to return to the deal within the near future.

There exist several approaches that RCEP parties could take to persuade India to rejoin the grouping. For Southeast Asian nations, they could focus on promoting the benefits of RCEP participation to New Delhi. For example, a paper published by the Peterson Institute For International Economics estimates that with RCEP, India’s GDP would rise by $54 billion by 2030 and traded services like computing, financial services, could enjoy a 17-percent export expansion. In addition, RCEP membership would enable India to more effectively implement its ‘Act East’ policy as it would tighten economic relations between India and the Southeast Asian economies. Finally, RCEP would contribute to Prime Minster Narendra Modi’s ‘$5 trillion Dream’—the target for India to become a $5 trillion economy by 2025. Because RCEP will boost the country’s exports which are part of the GDP, it would help realise this goal.

Countries like Japan and Australia could also play a role in bringing India back to the trade pact. Commercial benefits aside, India’s re-entry would augment the strategic partnership between Australia, India and Japan to counter Beijing’s rising influence in the Indo-Pacific. Tokyo and Canberra have not been hesitant in expressing their desire for India’s return. A Japanese Cabinet official remarked that, “India will be treated exceptionally as a founder member and if India is willing to negotiate its re-entry to RCEP, Japan would be happy to take a lead on that”. The former Australian Prime Minster Scott Morrison has also said that “The door will always be open to India”.

Overall, the odds of India returning to RCEP within the next few years is slim. While the COVID-19 pandemic and its adverse effects on the country’s economy has altered the government’s perspective on FTAs, domestic interests continue to push back against any discussion of returning to RCEP negotiations. Moreover, the ongoing standoff along the China-India border remains a prominent issue in public discourse. As long as this bilateral issue remains unsettled, India’s accession to RCEP is likely to stall.

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Kaewkamol Pitakdumrongkit is Head and Assistant Professor at the Centre for Multilateralism Studies, S. Rajaratnam School of International Studies (RSIS) of Nanyang Technological University, Singapore. She is also a Non-Resident Fellow at the National Bureau of Asian Research (NBR), USA.

Image credit: pmindia.gov.in

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