Asia-Pacific trade deal moves on without India – Asia Times


India Prime Minister Narendra Modi addressing the Shangri-La Dialogue in Singapore on June 1 2018 (Simon Roughneen)

PHNOM PENH — The world’s proposed biggest free trade agreement was dealt a blow on Monday when India made a last minute but unsurprising withdrawal from seven-year-old negotiations during a series of weekend meetings of Asian governments in Bangkok.

The Regional Comprehensive Economic Partnership, or RCEP, would have encompassed all ten members of the Association of Southeast Asian Nations (ASEAN), as well as Australia, China, India, Japan, New Zealand and South Korea.

It also would have made for the world’s biggest trade deal measured by population and factoring in the combined gross domestic products (GDPs) of the putative signatories, though India’s withdrawal could see it drop below the Canada-Mexico-United States deal formerly known as NAFTA in combined GDP. India would have been the third largest economy in the tariff-reducing trade deal.

Hopes before the November 2-4 ASEAN summits that the deal could be finalized, or near as, were dashed by India’s late demands, as Indian Prime Minister Narendra Modi in the end declined to face down domestic opponents of the deal, with opposition parties and farmers threatening protests if he signed up to RCEP.

India’s about-turn came about even as trade minister Piyush Goyal said as late as midweek that India should sign the RCEP. But others concerned that the country would be forced into premature competition with Chinese agricultural and other imports, as well as those from more developed economies such as Australia and Japan, apparently won the day.

“India’s big problem is that they have no constituencies in favor of RCEP other than Modi himself,” said Deborah Elms, executive director of the Asian Trade Center. “It was not a surprise to see them stuck at the end.”

Speaking to reporters in Bangkok, Indian government spokesman Vijay Thakur Singh cited “national interest” in protecting farmers and service workers, concerns the RCEP negotiating counties labelled “significant outstanding issues” in their statement issued on November 4. India was also aggrieved that its requests for services market access were turned down by RCEP signatories.

The RCEP statement said the remaining 15 participants have “concluded text-based negotiations for all 20 chapters and essentially all their market access issues,” leaving only “legal scrubbing” to be done ahead of signing some time next year.

Getting the deal across the line was “a bold step from a region that is not typically known for bold steps,” according to Elms.

After years of glacial progress, with only seven chapters agreed as recently as three months ago, negotiations stepped in recent months as trade and technology-related tensions have simmered between the US and China.

“For most RCEP members (especially China), interrelated concerns over the US-China trade war, wider threat of US protectionism and slowing global economy have added impetus to negotiations.” stated US political risk consultancy EurasiaGroup on November 4.

Despite rhetoric describing India as “open for business,” as touted by Modi at the annual Davos event in 2018, the signals that India was ready to come on board a huge trade bloc were clearly misleading, given that in 2017 Modi’s administration raised tariffs on dozens of goods from cars to domestic electric appliances.

India would be welcome to rejoin RCEP at a later date, the other countries said on Monday – much as participant countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have left the door open for the US to rejoin that deal.

The original Trans-Pacific Partnership (TPP) was one of US President Barack Obama’s main foreign policy achievements, but was ditched, as promised during his election campaign, by Donald Trump shortly after his inauguration in January 2017.

The Trump administration’s criticisms of globalization, which it sees as the cause of the “offshoring” of millions of American jobs, have in part prompted its recent tariff hikes and the trade stand-off with China that is weighing on an already slowing global economy.

Neither Trump, Vice President Mike Pence nor Secretary of State Mike Pompeo attended the weekend summits in Bangkok. That raised further concerns about whether the US intended to follow up on national security blueprints that highlighted the importance of responding to China’s growing economic weight by casting the US as a reliable ally for Asian countries wary of Beijing’s designs.

While India’s retreat from RCEP will likely make other countries wary of negotiating with it over other future trade and investment deals, it could align it more closely with the US and the still novel “Indo-Pacific” geopolitical concept, which though originating in Japan over a decade ago, has been taken up with gusto by the Trump administration as an alternative to the Asia-Pacific.

RCEP has been widely described as relatively superficial compared to the close-knit arrangements seen inside the 28-country European Union or even the CPTPP, an 11-country pact taking in seven of the RCEP countries, as it focuses mostly on tariff reduction in what is already a low-tariff region.

And though “the direct economic benefits from RCEP are likely to be relatively small,” according to UK-based Capital Economics, the main impact for now is likely to be political, with China ,“in contrast to a protectionist US,” casting itself “as a champion of globalization while not committing it to any structural reforms or roll-back of the industrial policy that benefits its firms over foreign competitors both within China and abroad.”

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