Why India Needs To Rethink Its Decision To Opt Out Of RCEP

India was in a long and careful consideration of being a part of the Regional Comprehensive Economic Partnership. After seven years, India decided to opt-out of it early in November 2019. The reason stated by India for taking this step is that Free Trade Agreements do not mean free trade. 

This is especially surprising because the Agreement was capable of providing trade creation measures as well as trade diversion protection. Previously, the unilateral trade liberalization created trade opportunities. With FTAs, not only does this come into play but it also activates a shield to its members by imports from non-members in FTA to the members who are subject to lower tariff rates by being a member of the FTA.

ETV News Live Today also brings you the other consequences of refusal to become a member of the effects. Being a member of the RCEP would not have disrupted any existing relationships India has with its members. Even without the RCEP, India has bilateral trade relations agreement with Japan, Singapore, South Korea, Thailand, and Malaysia, both individually as well as utilizing ASEAN. The only thing that would have changed in all of this by India joining the RCEP is the increment of India's free trade scope and lower tariff rates. Yet, they chose to opt-out. 

The one argument that India can put forth to justify the withdrawal of its position in the RCEP is that India would be sharing a free trade policy with China, New Zealand, and Australia. This could lead to higher imports from these countries for labor-intensive products. This could pose a threat to the Indian manufacturers, but ETV Bharat News has presented a solution as well. 

If we look at any standard Free Trade Agreement, there is always an escape close in it to provide a safety valve to the member countries. This states that a surge in imports from other member countries that are likely to threaten the existing manufacturing sector in the home country triggers temporary protection. This protection applies to protection from losing out on profits, output as well as employment.

When the protection period in the home country would have been on, it would give the hurt industry to regain its power and buck up for the international market's competition. Since the negotiations and the clauses in the agreements are discussed privately between the two countries, it is difficult to say if India was offered the safety clause. But if it was not, that is the lack of India's negotiation skill as the protection clause is pretty standard.

Moreover, New Zealand is renowned for its dairy products, and India is known to be a high consumer market for it. The FTA would have resulted in cheaper dairy imports from New Zealand, which would have reduced the cost of such products in the Indian market. After the evaluation of all of these benefits, India should reconsider its decision to opt-out of the RCEP. 

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