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Dear friends and colleagues,

We are pleased to share with you a new report that provides an economic analysis of some of the issues and concerns over the Regional Comprehensive Economic Partnership Agreement (RCEP) that led to India’s withdrawal from the agreement in November 2019.

The report titled A Quantitative Assessment of India’s Withdrawal from RCEP: Issues and Concerns is written by Dr. Sachin Kumar Sharma, Dr. Badri Narayanan Gopalakrishnan, Adeet Dobhal and Raihan Akhter.

RCEP has been touted as a mega-regional agreement that can bring prosperity, development and wellbeing to the countries and peoples of the Asian region. After eight years of negotiations, at the cost of many millions of dollars, the governments of fifteen countries propose to sign the deal by the end of 2020.

The original sixteen countries of RCEP are the 10 ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and six countries (Australia, China, India, Japan, New Zealand and South Korea) that already have free trade and investment agreements with ASEAN. That means they already have a complex web of agreements among them, which further reduces the prospects of significant gains. 

India’s participation and access to its huge and potentially lucrative market was the major prize in RCEP, especially for those countries that do not already have any free trade agreement with India - China, Australia and New Zealand.  The withdrawal of India from RCEP dealt a severe blow to the ability of the remaining countries to sell RCEP as delivering any of its projected gains.

This economic analysis uses standard economic modelling to project the economic gains that might be expected from RCEP when it included India and once India had withdrawn. While it looks only at one aspect of the agreement that deals with traditional trade (in goods) it casts serious doubt on earlier more optimistic projections and shows that the case for proceeding with RCEP without India’s participation is even less convincing. For India, the research vindicates the government’s conclusion that RCEP would impose significant costs to India’s economy and in particular to the resilience of crucial areas of its economy and livelihoods. 

The abstract is below and the full report is available here: https://www.twn.my/title2/FTAs/RCEP/RCEP&India_Quantitative
%20Assessment_Sachin%20et%20al.pdf

We are also pleased to share at the same time a review of this report by Bill Rosenberg available here: https://www.twn.my/title2/FTAs/RCEP/RCEP%20and%20the
%20impact%20of%20Indias%20participation%20-%20Rosenberg.pdf

Rosenberg discusses the challenges of economic modeling in assessing the impact of agreements such as RCEP with their broad scope that impacts on multiple sectors. He adds that “It is also worth considering the impact of the COVID-19 pandemic which is having a major effect on many of the RCEP parties. Often, the economic impacts include a forced restructuring of sectors of their economies, particularly exposed sectors such as international tourism. It has exposed vulnerabilities such as lack of local supplies of medicines and medical equipment, and has reinforced concerns about food security for countries which have become dependent on food imports. Affected countries will need to use all the economic development tools available to address these impacts. … Like India, then, other countries will need to decide whether the small (or even negative) one-off gains that [Sachin Kumar Sharma et al) find in their study will sufficiently compensate them for what they are giving away in policy space for their ongoing development.”

With best wishes,

Third World Network

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Abstract of A Quantitative Assessment of India’s Withdrawal from RCEP: Issues and Concerns by Sachine Kumar Sharma et al

This study identifies and rationalizes some of the issues and concerns that India has with signing of the RCEP. By analysing the existing trade balance, import surge trends, dumping, and agricultural sensitivities, among other factors, the study provides the justification for India’s decision to remain outside of this mega FTA.

 The study examines some of the issues pertaining to the India-China trade in the recent past. Further, it predicts the impact of tariff elimination under the RCEP on various macro-economic variables of the RCEP member countries by using the GTAP model under two scenarios: (1) India does not join the RCEP, and (2) India joins the RCEP.

 Results show that India’s GDP would be adversely affected in case India joins this agreement, and its overall trade deficit might deteriorate after joining the RCEP. In terms of the bilateral trade balance, India’s trade deficit with ASEAN and China will grow steeply if it joins the agreement. The study also finds that an RCEP without India might lose its shine as the GDP of most of the other members of the RCEP would be negatively impacted by India’s decision to stay out. ASEAN member countries, in particular, will be adversely impacted by the agreement in terms of their trade balance whether or not India joins the RCEP.

 Finally, the study concludes that it may not be favourable for India to re-join this mega FTA.

 


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