RCEP benefit minimal for India due to China’s opaque trade practices: GTRI

India will not be able to reap greater benefits from the Regional Comprehensive Economic Partnership (RCEP) agreement due to widening trade deficits with member countries and China’s opaque trade practices, think tank GTRI said in its report.

In 2019, India decided not to join the RCEP bloc due to concerns about trade imbalances and its impact on the domestic industries.

The RCEP pact, a kind of comprehensive free trade agreement (FTA), was negotiated among the 10 ASEAN member states — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam — and their six free trade partners — China, India, South Korea, Japan, New Zealand, and Australia).

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The countries account for about 30 per cent of the global gross domestic product (GDP) and trade and nearly half of the world’s population.

“Any benefits from RCEP would likely be minimal and incremental, especially considering China’s opaque trade practices. India cannot have a bilateral FTA with China due to its large trade deficit. However, joining RCEP would be even more problematic,” according to the report prepared by GTRI Founder Ajay Srivastava and trade expert Abhijit Das.

It added that in a bilateral free trade pact with China, India could delay tariff reductions, but under RCEP, Chinese goods can enter India easily through other RCEP countries with minimal processing right from the day one of the implementation.

The remarks in the report assume significance as Niti Aayog CEO BVR Subrahmanyam has earlier this month stated that India should be a part of the RCEP and Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

On the argument that RCEP can grant India access to a massive trade area, the report said India already has FTAs with 13 of the 15 RCEP countries, excluding only New Zealand and China.

RCEP would likely add little new export opportunity for India as its exports to China are not growing since the last five years, it said.

“Another argument suggests RCEP membership would help India integrate into regional value chains (GVCs). But despite having zero-tariff trade of most industrial goods with ASEAN, Japan, and South Korea for over a decade, India has not become a significant GVC player,” it said.

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Time-taking port-customs clearance and low ease-of-doing-business are key barriers.

It also said the possibility of expanding markets for Indian MSMEs is also frequently cited, but in reality the domestic MSMEs struggle to compete with large-scale Chinese manufacturers.

“Introducing tariff-free Chinese goods into India could overwhelm MSMEs, as their smaller-scale operations are unlikely to withstand competition from China’s mass manufacturing,” it said, adding that RCEP membership is seen by a few economists as a pathway to attract more Foreign Direct Investment (FDI) to India, but the link between FTAs and FDI growth is mixed.

The challenges RCEP poses for India’s domestic industries, particularly MSMEs and agriculture, suggest a cautious approach, it added.

Another significant concern is India’s rising trade deficits with ASEAN, South Korea, and Japan, that is yet another reason for staying out of RCEP.

Post-FTAs, the report said, India’s trade deficits with ASEAN, South Korea, and Japan increased more than its global trade deficit.

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From 2007-09 to 2020-22, the trade deficit grew 302.9 per cent with ASEAN, 164.1 per cent with South Korea, and 138.2 per cent with Japan, compared to an 81.2 per cent increase globally, the GTRI said.

“This trend continued in 2023. Without any major tariff concessions to China, India’s deficit with China exceeded $85 billion in FY24. If India had joined RCEP, the deficit would have been much worse due to zero tariff imports,” it added.