Illustration: Peter C. Espina/GT
Although Japan is trying to save the Trans-Pacific Partnership (TPP) after US President Donald Trump abandoned the free trade agreement (FTA), there seems to be little chance that the deal will survive. This means the Regional Comprehensive Economic Partnership (RCEP), an FTA that includes China, now has more strategic global significance.
The RCEP is a 16-nation trade pact that includes the Association of Southeast Asian Nations (ASEAN), along with China, Australia, India, Japan, South Korea and New Zealand, a region that accounts for 46 percent of the world’s population and that produced nearly 30 percent of global GDP in 2016. Due to China’s efforts to actively promote negotiations on the RCEP, it is always viewed as a China-led FTA to fight against competition from the TPP in terms of seeking dominance in global trade.
An optimal choice for China would be to reach a deal that includes India, as that would allow Chinese-made products to enter the Indian market with tariff concessions after the RCEP starts running. However, given India’s free trade history and the concerns expressed about its own national interests, there is only a very slim possibility that India would agree to the deal under the existing framework and mechanisms. So China should set a sub-optimal goal of reaching an RCEP deal without India.
Although this would diminish the value of the agreement, China should continue speeding up the RCEP negotiations, because enhanced cooperation with ASEAN, Japan, South Korea and Australia is of strategic importance for China.
There are four main reasons for India being reluctant to promote the RCEP: First, India is worried that after signing the agreement, it would not be able to prevent cheap Chinese commodities from flowing into the country, which would endanger its domestic manufacturing industry.
According to data from Bloomberg, the trade deficit between India and China reached $52 billion in 2016. In the 1990s, the total trade volume between the two countries was only $2 billion.
Second, India has different degrees of trade deficit with other RCEP members including Japan, South Korea, Indonesia, Malaysia and Australia. The export volume of India to ASEAN in 2014-15 was about $31 billion, accounting for 10.2 percent of India’s total export turnover. However, the completion of RCEP negotiations still cannot guarantee Indian enterprises would be able to enter the ASEAN market easily.
Third, India is worried that domestic companies would be less competitive than foreign enterprises after opening the market, especially in the pharmaceutical and textile sectors. Indian domestic trade groups and agricultural organizations are also worried about fierce competition in agricultural products from Australia, New Zealand and Japan.
Fourth, India is worried that the RCEP clauses on intellectual property and services will not be conducive for India.
India has unilaterally obstructed the normal process of WTO negotiations many times. In the final analysis, India is still worried about the lack of competitiveness of its local enterprises. Lalit Mansingh, a former foreign secretary of India said that India’s free trade agreements have reduced tariffs, allowing foreign companies to have a large market share in India’s market, but the country failed to make full use of tariff preferences in other markets because India’s manufacturing industry is not advanced enough. After signing the free trade agreement with ASEAN in 2010, India experienced no increase in exports, while imports have increased by 30 percent. Farmers from southern India said their products could not compete with cheap spices and vegetable oils from Southeast Asia, which prompted Indian Prime Minister Narendra Modi to review trade deals signed by his predecessors.
However, the RCEP is of great significance for China because the nation has been excluded from the TPP. China needs to promote the conclusion of the RCEP negotiations and be prepared for India’s withdrawal from it.
This article was originally published at the Global Times.
