Fifteen Asia-Pacific nations, with a GDP of more than $ 26 trillion and home to nearly a third of the world's population, signed the world's largest trade agreement at the 37th Summit of the Association of Southeast Asian Nations (ASEAN) on November 15.

The Regional Comprehensive Economic Partnership (RCEP) aims to achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement between ASEAN member states and their Free Trade Agreement (NAFTA) partners.

However, when negotiations to finalize the long-awaited agreement entered their final stages, in November 2019, Prime Minister Narendra Modi surprised member states by choosing to withdraw from it.

After India's withdrawal, the remaining 15 countries signed the Regional Comprehensive Economic Partnership (RCEP) agreement on Sunday on the sidelines of the annual summit of the 10-nation Association of Southeast Asian Nations, almost hosted by Vietnam. However, many of the participating countries have also become economically dependent on China, as the deal is seen as a blow to them in expanding their influence in the region.

What is RCEP

The RCEP negotiations were initiated by leaders of 10 ASEAN member countries (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and six ASEAN NAFTA partners (Australia, China, India, Japan and Korea, And New Zealand) during the 1st ASEAN Summit In Phnom Penh, Cambodia, in November 2012.

The agreement allows a common set of rules of origin to qualify for tariff reductions with other members of the RCEP. This means fewer procedures and easier movement of goods. This should encourage multinational companies to invest more in the region, including building supply chains and distribution centers.

Given that China is the main source of imports and also the main export destination for most member states, the agreement is likely in a better position to shape the region's trade rules. The new rate system will start from 2022 and rates will return to 2014 levels.

RCEP India Exit

India withdrew from the China-backed trade deal because the negotiations failed to address its top concerns. It was about threats to circumvent rules of origin due to customs differences and to include a fair agreement to address the problems of the trade deficit and the opening of services.

The agreement consisted of reducing import duties from 80% to 90% of the merchandise, along with simpler rules of service and investment. Some in Indian industry fear that lower tariffs will lead to an influx of imports, especially from China, which runs a huge trade deficit. India's trade deficit with other regional comprehensive economic partnership countries also increased.

In its negotiations, the government has also raised the issue of the lack of MFN (MFN) obligations, as it will be forced to grant similar benefits to RECP countries that it has granted to others. It raised the red flag about the decision to use 2014 as the base year for cutting tariffs.

Indian Prime Minister Narendra Modi said that India's decision is guided by the impact it will have on the lives and livelihoods of all Indians, especially vulnerable groups in society. Despite their withdrawal, officials said India can join the talks if it wishes at a later time.

What does that mean for India?

India will have the third-largest economy in RCEP. Analysts believe that India may lose its investment, while its consumer may end up paying more than they should, especially as global trade, investment, and supply chains face unprecedented challenges due to the COVID-19 pandemic.
Countries participating in the RCEP will also lose the opportunity to access the Indian market, which is particularly difficult to access during the current global economic situation.

For India, it will be an opportunity to strengthen its national industries and move towards its dream of self-sufficiency. A large number of sectors, including dairy, agriculture, steel, plastics, copper, aluminum, machine tools, paper, automobiles, chemicals, etc., have expressed serious concerns about the RCEP, indicating that the dominance of cheap foreign products would weaken their business.

India-ASEAN relations and their impact on RCEP
India's relationship with ASEAN is a fundamental pillar of its foreign policy and the basis of the Eastern Law policy. Its focus on a strong and multifaceted relationship with ASEAN is the result of significant changes in the global political and economic scene since the early 1990s and India's march towards economic liberalization.
In 2012, ASEAN countries and India marked 20 years of dialogue partnership and 10 years of summit-level partnership with a commemorative summit held in New Delhi on the theme `` ASEAN-India Partnership for Peace and Prosperity commons '' on December 20 and 21, 2012.
Trade and investment relations between India and ASEAN are growing steadily, with ASEAN becoming India's fourth largest trading partner. Your trade with ASEAN is locatedat $ 81.33 billion, which is roughly 10.6 percent of India's total trade. Whereas, India's exports to Asean account for 11.28 percent of our total exports.

Investment flows are also sizeable in both directions, with Asean accounting for approximately 18.28% of investment flows in India since 2000. FDI inflows into India from Asean between April 2000 and March 2018 were approximately $ 68.91 billion, while FDI outflows from India to ASEAN countries, from April 2007 to March 2015, according to data maintained by the Department of Economic Affairs (DEA), was approximately $ 38,672 million.
Under the UPA government, India had opened 74 percent of its market to ASEAN countries, but richer countries like Indonesia opened only 50 percent of their markets to India. It also agreed to explore an India-China FTA in 2007 and join the RCEP negotiations with China in 2011-12. However, the impact of these decisions resulted in an increase in the trade deficit with the RCEP nations, from $ 7 billion in 2004 to $ 78 billion in 2014.

Also Read: Can a personal loan help you tide over a financial crisis?