Mega Trade agreements

Since the failure of the negotiations under the WTO, the world is moving towards a new type of trade agreement, the mega trade agreement.

Mega trade agreements are large-scale, comprehensive trade pacts involving multiple countries or regions, aimed at promoting trade liberalization and economic integration. These agreements cover goods, services, investments, intellectual property, and dispute resolution, often influencing global trade dynamics.

These are essentially a larger version of the regional trade blocs that we have studied in the last two chapters.

Most notably there are three major Mega Trade agreements:

1. TTIP – Trans-Atlantic trade and investment partnership.
2. TPP – Trans-Pacific Partnership. Economic pillar of Pivot to Asia.
3. RCEP – Regional Comprehensive Economic Partnership.

Trade Agreement	Member Nations	Key Features	Objective
TTIP (Trans-Atlantic Trade and Investment Partnership) – 2013	US and EU Note: Negotiations paused since 2019.	Promote free trade and investment between the U.S. and the EU	Harmonize regulations, remove trade barriers
CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) – 2018 It was known as the TPP (Trans-Pacific Partnership) – 2016	Brunei, Malaysia, Singapore, VietnamJapan, Australia, New Zealand,Canada, Chile, Mexico, Peru, Note: TTP was signed by the Obama government in 2016, but the Trump government withdrew from it in 2017.	Free trade, intellectual property protection, environmental standards	Economic integration across Asia-Pacific
RCEP (Regional Comprehensive Economic Partnership) – 2020	ASEAN (10 countries) plus China, Japan, South Korea, Australia, New Zealand	Largest trade agreement, tariff reduction, supply chain cooperation	Deepen regional economic ties and simplify trade rules

Why is the world moving towards Mega trade agreements?

Despite WTO offering a greater degree of integration across the world, the world is moving towards Mega Trade Agreements for several reasons:

• Multilateral Gridlock: In the 1990s, the WTO brought immense hope regarding global economic integration. However, the slow progress of the WTO’s Doha Round (2001) has encouraged nations to pursue regional alternatives to advance trade liberalization.
• Market Access Expansion: Countries seek wider access to markets by forming large regional blocs, improving trade opportunities across multiple nations.
• Regional Influence: Countries aim to strengthen their economic and political influence by leading or participating in regional frameworks.
• Trade Diversification: By reducing dependence on a few trading partners, mega agreements diversify trade networks, enhancing resilience to economic shocks.

Regional Comprehensive Economic Partnership (RCEP)

The RCEP is a mega-regional Free Trade Agreement (FTA) involving 16 Asia-Pacific countries. It was promoted by ASEAN countries in 2011, with the formal declaration made in 2012. The ASEAN bloc includes 10 countries, with RCEP comprising ASEAN + 6: India, China, Japan, South Korea, Australia, and New Zealand. RCEP covers 45% of the world population, 33% of global GDP, and 28% of world trade.

As of July 2019, ASEAN + 3 (China, Japan, and South Korea) were prepared to finalize the agreement, leaving room for India, Australia, and New Zealand to join later. India considered this premature and began consultations with stakeholders worried about the agreement’s impact.

Why RCEP is Important

1. Market Stability: It can bring stability to an unpredictable global market.
2. Rule Formation: If India does not join, it will miss the opportunity to help shape the agreement’s trade and investment standards.

India’s Exit from RCEP (November 2019)

India decided to withdraw from RCEP in November 2019 due to pressure from farmers, small industries, and traders. The key reasons cited included:

1. Rules of Origin Manipulation: Countries could exploit tariff differentials offered to others.
2. Customs Duty Base Year: India wanted the base year for duty rates revised from 2014 to 2019.
3. Safeguards: India demanded an auto-trigger safeguard mechanism and periodic reviews of tariff policies.
4. Investment Chapter: India sought to exclude Most-Favour ed Nation (MFN) obligations to protect its strategic interests.

Points of Contention for India

Overall, India’s concerns against RCEP can be summed up as follows:

1. Strategic Issues: The agreement could reduce trade flexibility by creating a quasi-bloc with China in a leading role. Ongoing tensions such as the US-China trade war may force members to take sides, creating geopolitical rifts.
2. Protectionism:

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4. Trade Imbalance:

3. India’s trade deficit with 11 RCEP countries is significant, with sectors like steel, aluminium, copper, and pharmaceuticals likely to suffer.
4. China demands zero tariffs on 90% of tariff lines, deepening India’s trade imbalance.
5. Proposed Solutions: India proposed a differential tariff system:

4. 80% threshold for ASEAN members,
5. 65% threshold for Japan and South Korea,
6. 42.5% threshold for China, Australia, and New Zealand.

India also suggested a two-tier proposal, with a larger negative list for goods protected from tariff cuts.

• Investment and Services: Some countries are unwilling to commit to a single agreement for investment, goods, and services. The issue of the free movement of professionals remains unresolved.
• Other Concerns:

6. Intellectual Property: “Evergreening” of patents was dropped after opposition.
7. Rules of Origin: These require clear identification of goods’ origin to prevent third-country imports under RCEP benefits.
8. E-commerce Regulations: Still under negotiation.

Risks of Non-participation

1. Dumping: India feared increased imports from China, with which it already has a $53 billion trade deficit.
2. Trade Imbalance: India’s exports to RCEP nations account for 15%, while imports represent 35%.
3. Existing FTAs: India’s experience with other FTAs has been unfavourable.
4. Supply Chains: India risks exclusion from global supply chains, especially since China is now part of both RCEP and the CPTPP, strengthening its global trade position.

Post-Agreement Developments (November 2020)

RCEP was signed by 15 member countries in November 2020, representing 30% of global GDP. The final agreement addressed key concerns raised by India, including rules of origin, trade in services, movement of persons, and safeguards. Although India opted out, RCEP members left the door open for India’s return by waiving the 18-month cooling period for re-entry.

Indian Ocean Rim Association (IORA)

The Indian Ocean Rim Association (IORA), (previously known as the Indian Ocean Rim Association for Regional Cooperation (IORARC)) was established in 1997 to promote economic cooperation, security, and development among countries bordering the Indian Ocean. The IORARC Secretariat is located in Port Louis, Mauritius. India is one of the founding members of IORARC. It was established to promote economic and technical cooperation, including expansion of trade and investment. It focuses on critical areas like maritime safety, fisheries management, and disaster resilience. Members of IORA: IORA has 23 member states representing nations bordering the Indian Ocean working together to promote regional cooperation and sustainable development. It Includes: Australia, Indonesia, Malaysia, Thailand, Singapore India,Bangladesh, Sri Lanka, Maldives Iran, United Arab Emirates, Yemen, Oman Mauritius, Seychelles, France Comoros, Madagascar Mozambique, Somalia, Tanzania, Kenya, South Africa, It also has 12 dialogue partners which include major global economies such as China, Japan, the United States, United Kingdom, European Union, Saudi Arabia, and Russia. The organization’s goal is to harness the strategic and economic importance of the Indian Ocean, ensuring stability and growth in one of the world’s busiest trade routes. The headquarters of IORA is located in Ebene, Mauritius.

Related FAQs of Mega Trade agreements

1. What are Mega Trade Agreements, and why are they gaining prominence over WTO-led multilateralism?

Mega trade agreements are large-scale pacts involving multiple countries or regions aiming for comprehensive trade liberalization. They are gaining popularity due to WTO’s multilateral negotiation gridlocks, especially after the stalled Doha Round, and offer countries a faster route to expand market access, regional influence, and supply chain resilience.

2. Why did India withdraw from the RCEP in 2019 despite its regional significance?

India exited RCEP due to concerns over rules of origin manipulation, inability to protect domestic industries (e.g., dairy, steel), the growing trade deficit with China, and lack of adequate safeguards like an auto-trigger mechanism. Domestic political and industry pressure also contributed to the decision.

3. What are the key differences between RCEP and CPTPP?

While RCEP focuses on tariff reduction and supply chain integration in Asia-Pacific, CPTPP is more progressive, covering high-standard rules on intellectual property, labour rights, and environmental protection. RCEP is driven by ASEAN + China, while CPTPP was originally led by the US and Japan (although the US later withdrew).

4. What is the strategic significance of India’s participation in the Indian Ocean Rim Association (IORA)?

Gutentor SimIndia, as a founding member, leverages IORA to promote regional maritime security, economic integration, and disaster resilience in the Indian Ocean—an area crucial for its Act East Policy and Indo-Pacific outreach. IORA also counters China’s growing presence in the region.ple Text

5. How does India risk isolation by staying out of RCEP and CPTPP?

By staying out of these mega trade pacts, India risks losing its share in global supply chains, especially in electronics, auto components, and textiles. It also loses influence in rule-making on trade and digital standards, while competitors like China gain stronger regional and global trade leverage.