Source: Global Times Published: 2019-3-6
On Saturday, trade ministers from 16 Asia-Pacific countries gathered in the Cambodian city of Siem Reap to resume negotiations over the Regional Comprehensive Economic Partnership (RCEP). The proposed RCEP, which aims to create one of the world's largest trading blocs encompassing 45 percent of the world's population and 40 percent of global trade, is now at a critical moment. While the participating countries generally hope to reach a final deal by the end of this year, uncertainties should not be overlooked.
Generally speaking, talks between China and Japan, the largest and second-largest economies in the region, have been progressing smoothly, and negotiations over tariffs between Japan and South Korea do not pose a major obstacle to the RCEP. What's really up in the air is India, whose reluctance has already postponed the target for concluding the talks from last year. The key concern from India over the RCEP is that the free trade deal, once it comes true, will give greater market access to Chinese goods, and that it will be difficult for its domestic market and manufacturing sector to withstand such an impact.
Since India's trade deficit with China has surpassed $40 billion and the RCEP will eliminate tariffs on 80 to 85 percent of goods, it seems understandable for the South Asian country to be cautious toward the high-level trade agreement in the short term in order to protect its domestic market.
In fact, considering that India already has free trade agreements with ASEAN, Japan and South Korea, the RCEP negotiations for India are more like free trade talks with China, and the trade balance between the two is a big problem that cannot be circumvented.
The Chinese side always asserts that its trade imbalance with India is caused by the imbalanced economic structure due to the underdeveloped manufacturing sector in India. But the Indian side believes that the root cause is China limiting access to its markets. In truth, China has been gradually opening up its market to India, especially after the informal meeting between the two countries' top leaders in Wuhan, Central China's Hubei Province last year. China has indeed started importing some pharmaceutical products and agricultural products like non-basmati rice, fruits, cotton and sugar from India, but many of them have yet to really penetrate the Chinese market. This means there is little change to the trade deficit problem and is a cause of the delicate trade relations between the two countries.
Of course, China can continue to open its market to India, but it is unlikely to see any obvious effect in the short term, therefore India's reluctance toward the RCEP can hardly be changed. Moreover, the South Asian country's economic policies often tend to be nationalistic, as policymakers need to take care of the interests of all parties. If the political leaders cannot show more determination and political courage, it would be difficult to see a breakthrough either in Sino-India free trade issues or the RCEP talks.
Nevertheless, on the other side, India is not willing to be really excluded from the RCEP. In fact, the RCEP is one of the few existing paths for the country to participate in the global value chain, which is mainly Asia-centered or China-centered. Nowadays, amid rising anti-globalization sentiment, regional trade agreements have rapidly emerged as a major tool for promoting trade. The US did not consider India as a member when it advocated the Trans-Pacific Partnership (TPP), and later the TPP-11 also did not invite India in. If the country again misses the regional trade arrangement centered on China, Japan, South Korea and ASEAN, it may end up losing the opportunity to integrate into the globalized trade system forever.
Yet, as India is holding elections this year, fear of losing votes is very likely to cause politicians to defer the RCEP conclusion again.
The conclusion of the RCEP talks will form a true Asia-Pacific free trade zone, which will generate a development dividend worth hundreds of billions of dollars. For China, a final RCEP deal will be an iconic achievement of the country's participation in multilateral trade, increasing its influence in the multilateral trading system. In this sense, China and Southeast Asian countries are eagerly anticipating concluding the deal by the end of this year.
Currently, India is reported to be negotiating with China and Japan on issues such as a longer period to phase out its tariffs on Chinese goods. If China is especially eager to reach an agreement, there may be some room for concessions, but the problem is that there are too many different voices in India and thus too many uncertainties to be sure of a final deal.
In short, the RCEP is an opportunity for India, but it is still unknown whether it can seize it or not. While China may make certain concessions, that does not mean India can demand an exorbitant price, as its neighbor will not always give in.
The article was compiled by Global Times reporter Wang Jiamei based on an interview with Liu Zongyi, a senior research fellow of the Shanghai Institutes for International Studies, a visiting fellow of the Chongyang Institute for Financial Studies, Renmin University of China.