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

India’s decision to stay out of the Regional Comprehensive Economic Partnership (RCEP) continues to be justified, according to a recent report by the Global Trade Research Initiative (GTRI). The study highlights that participation in the trade bloc could exacerbate India‘s trade deficits, particularly with China, and pose challenges to domestic industries, especially small and medium enterprises (MSMEs).

India opted out of RCEP in 2019, citing concerns over trade imbalances and the potential harm to local industries. The RCEP, a comprehensive free trade agreement, includes the 10 ASEAN countries and six trade partners—China, Japan, South Korea, Australia, New Zealand, and India (which chose not to join). Together, these countries account for 30% of global GDP and nearly half the world’s population.

Key Findings
The GTRI report, authored by Ajay Srivastava and Abhijit Das, points to India’s trade dynamics and structural challenges as reasons for avoiding RCEP membership:

1. Trade Deficits: India’s trade deficit with ASEAN, South Korea, and Japan has grown significantly post-FTAs, with an increase of 302.9% for ASEAN, 164.1% for South Korea, and 138.2% for Japan between 2007-09 and 2020-22.
2. China’s Trade Practices: With an $85 billion trade deficit with China in FY24, the report warns that RCEP could worsen the situation by allowing Chinese goods easier access to Indian markets via member countries.
3. MSMEs at Risk: India’s smaller manufacturers could struggle to compete with large-scale Chinese manufacturers if tariff-free imports were allowed, potentially overwhelming domestic industries.
4. Limited Export Gains: India already has FTAs with 13 of the 15 RCEP nations, excluding New Zealand and China. The report argues that additional export opportunities would be minimal as Indian exports to China have stagnated over the last five years.

Broader Implications
The GTRI study challenges claims that RCEP membership would help India integrate into global value chains (GVCs). Despite longstanding FTAs with ASEAN, Japan, and South Korea, India has not emerged as a major player in GVCs due to issues like slow port clearances and low ease-of-doing-business rankings.

Niti Aayog CEO BVR Subrahmanyam recently suggested that India should reconsider joining RCEP to access larger trade areas. However, the report underscores that these benefits may not outweigh the risks, especially for vulnerable sectors like agriculture and MSMEs.

The study also notes mixed evidence regarding the link between FTAs and increased foreign direct investment (FDI), a frequently cited argument for RCEP membership.