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RCEP and CPTPP: What they mean for Indian Trade?

IFSA SRCC
Authors: Harshita Tripathi
Published on: January 5, 2025

What is RCEP and CPTPP?

RCEP- The Regional Comprehensive Economic Partnership is a free trade agreement among the Asia-Pacific countries of  Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Together, these RCEP participating countries account for about 30% of the global GDP and 30% of the world population. The objective of the RCEP Agreement is to establish a modern, comprehensive, high-quality, and mutually beneficial economic partnership that will facilitate the expansion of regional trade and investment and contribute to global economic growth and development.

CPTPP- The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), is a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. They generate 13% of world’s income. UK is expected to officially join CPTPP on 15th December,2024. CPTPP covers virtually all sectors and aspects of trade in order to eliminate or reduce barriers. It establishes clear rules that help create a consistent, transparent and fair environment to do business in CPTPP markets.

 

Why is India not a part of such trade agreements?

  • India was involved in the early discussions regarding RCEP but opted out in 2019 due to concerns regarding cheap imports from China. India has a trade deficit of over $85 billion with China in FY2024. The Global Trade Research Initiative (GTRI) said that had India joined RCEP, the situation with China could have worsened. India’s trade deficit with other RCEP countries was also rising.
  • India’s agriculture and dairy industry could also have faced increased competition. Many Indian farmers believe that opening up the economy to foreign agricultural products could place them at a disadvantage. The dairy industry could face stiff competition from more advanced dairy industry of Australia and New Zealand.
  • India also wanted to exclude Most Favored Nation (MFN) clause from the deal. A most-favored-nation (MFN) clause requires a country providing a trade concession to one trading partner to extend the same treatment to all. India did not want to extend benefits to all countries of RCEP, especially those with which it had border disputes, for sensitive sectors like defense.
  • Most of the members of CPTPP are developed economies and the agreement does not have any framework for special and differential (S&D) treatment for developing or least developed countries, making it less attractive for India.
  • India already has trade agreements with many CPTPP countries like Japan, Australia, Malaysia, Singapore and Vietnam.
  • India has adopted a self-dependent policy and wants to focus on its domestic industry. Being a part of CPTPP requires liberalization which might impact India’s policy of self-reliance.

 

Effects on India’s trade if it joins RCEP and CPTPP

Recently NITI Aayog’s CEO BVR Subrahmanyam remarked that India should consider joining RCEP and CPTPP. He said that joining the trade blocs will help India boost its manufacturing base and exports by small and medium firms that constitute 40% of the country’s exports. “I don’t think we have captured the China plus one opportunity as much as we could have,” he said.

The APAC report analyses India’s possible alignment with RCEP and CPTPP. It uses both partial (structural gravity model) and general equilibrium models to understand India’s possible deeper alignment with 15-nation RCEP (Regional Comprehensive Economic Partnership) and 11-nation CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) mega trade blocs. The report presents three scenarios:

  1. In the first case, India combines self-reliance strategies with the policies of RCEP and CPTPP. This is the best scenario for India as it results in highest GDP growth and welfare gains.
  2. In the second case, India adopts common industrial policies for deeper economic integration. In this scenario, India has moderate welfare gains and GDP growth which are lower than first case.
  3. In the third case, India adopts Free Trade Agreements (FTA) but no unified policy. In this case, India has lowest welfare gains and GDP growth.

Conclusion

There are conflicting opinions whether India should join such global trade agreements or not. Research shows that joining a trade agreement would be beneficial for the Indian economy as it will provide access to a large market. NITI Aayog’s CEO also shares the same point of view. With many of the countries adopting ‘China plus one’ strategy, being a part of RCEP and CPTPP will boost India’s export. It’s high time that India should review its policies and consider being a part of global trade agreements.

References

  • Srivastava, A., Mathur, S. K., Mathur, R., & Turkish Center for Asia Pacific Studies (APAC). (2022). India’s Possible Alignment with RCEP and CPTPP: and its relative gains and losses. In APAC Report.