Sri Lanka moves towards RCEP; Bangladesh in queue
Following India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) agreement four years ago, Bangladesh and Sri Lanka, two of India’s neighbours, are now evaluating their prospects of joining the fifteen-nation trading bloc.
What is the RCEP Agreement?
- The Regional Comprehensive Economic Partnership (RCEP) is a trade agreement under negotiation between 16 countries, comprising the 10 ASEAN members and the 6 countries with which ASEAN has free trade agreements (Australia, China, Japan, New Zealand, South Korea, and Australia).
- With almost 25% of worldwide exports, 30% of global GDP, and nearly half of the world’s population covered, the pact is regarded as the “largest” regional trade agreement.
Why did India decide to leave RCEP?
- Unfavourable Trade Balance: India was concerned about the growing trade imbalance it was experiencing with the majority of RCEP members, as imports were exceeding exports.
- Dumping of Chinese Goods: When India joined the Regional Comprehensive Economic Partnership (RCEP), it was concerned that lower-priced Chinese goods would flood the Indian market, hurting native industries.
- Rejecting the Auto-Trigger Mechanism: India proposed an auto-trigger mechanism that would have increased product tariffs upon reaching a predetermined threshold for imports. Other RCEP nations, however, opposed this idea.
- Protection of Domestic Industry: India was worried about tariffs on steel and dairy products being reduced or eliminated. This might have made domestic industry vulnerable to fierce rivalry.
- Absence of Agreement on Rules of Origin: India was concerned about possible rules of origin violations that would permit goods to be shipped through other nations and escape India’s higher tariffs.
What were the implications of India Leaving the RCEP?
- Check on Chinese Goods: Even though Chinese items are already widely available in the Indian market, India’s withdrawal enables it to retain some control over the influx of Chinese goods.
- Protection of Domestic Industry: By avoiding the RCEP, India’s domestic industries are shielded from lower-priced imports.
- Strengthening China’s Economic Power: China supports the Regional Comprehensive Economic Partnership (RCEP), and India’s withdrawal could increase China’s economic clout in the area.
- Declined Trade Prospects: India loses out on trade prospects with nations that make up a sizeable chunk of world trade by refusing to join the Regional Comprehensive Economic Partnership (RCEP).
- Global Supply Networks: In the modern manufacturing world, it is frequently necessary to integrate into global supply networks. This integration may have been made easier via RCEP.
- Acceptance of Freer Trade: By signing the RCEP, India would have demonstrated its commitment to freer trade, which would have drawn businesses wishing to move away from China.
- Impact on India’s Act East Policy: India’s Act East policy, which attempts to deepen relations with nations in the Indo-Pacific area, may be impacted by its withdrawal.
- Missed Reforms Opportunity: India had the chance to advance essential reforms that would have improved competitiveness under the RCEP.
What are the implications if our neighbouring countries like Sri Lanka and Bangladesh join RCEP?
- Trade Possibilities:
- Bangladesh and Sri Lanka would have more trade opportunities with RCEP members, who account for a sizeable share of the world economy if they were to join the group.
- It might increase these nations’ exports, which would be advantageous to their economy.
- Economic Integration:
- Through RCEP, Bangladesh and Sri Lanka would have greater access to a wider market and more integration into the Asia-Pacific economic scene.
- These nations’ economies could flourish as a result of this integration, luring in foreign capital.
- Bangladesh and Sri Lanka may be compelled to increase their competitiveness in the international market if they join RCEP.
- To effectively compete with other RCEP member nations, they might need to enhance the calibre and productivity of their industries.
- Trade Focus Shift:
- By joining RCEP, Bangladesh and Sri Lanka might potentially become less dependent on any one market by shifting their trade priorities from their subcontinental trading partners to a more varied group of nations.
- Impact on India:
- As they get access to the RCEP market, Bangladesh and Sri Lanka may compete with India in several areas.
- Indian companies might have to adjust to the heightened competition in the area.
What is the motivation for neighbouring countries to join RCEP?
- Viewing RCEP and other free trade agreements as a means of expanding its market and enhancing its competitiveness vis-à-vis global competitors, Sri Lanka is a country grappling with a financial crisis.
In conclusion, to take advantage of trade opportunities and possibly grow their economies, Bangladesh and Sri Lanka are both investigating the prospect of joining the RCEP. The regional economic environment is still being impacted by India’s exit from the RCEP, and in the upcoming years, attention will be keenly monitoring the ramifications of these possible events.