Asian States Agree to RCEP Terms While India Backs Out

China, alongside 14 other Asian nations, agreed on the Regional Comprehensive Economic Partnership (RCEP). The ten-member Association of Southeast Asian Nations (ASEAN) gathered Monday for the beginning of its summit in Bangkok, but prior to that, it held an RCEP conference. While the 15 states must still iron out the details of the agreement, the fundamentals of the deal are reported to be accepted by all of the signatories, which are expected to sign it early next year. 

Largest in History

At its core, the RCEP is aimed at setting uniform tariffs across the region while simultaneously opening services and investment markets. The endeavour for an Asian economic pact began in 2012 when the ASEAN set out to create a unified trade bloc. After 28 rounds of negotiations in those seven years, negotiators believe they have an economic accord all members are in agreement on. In essence, the RCEP would foster trade by gradually moving countries down to zero tariffs within 15 years. 

Until the ASEAN Summit, India was set to be included in the RCEP, but it withdrew at the last minute. Estimates before India left the pact indicated that the deal would include 3.5 billion people accounting for 30 per cent of the global GDP. Even without India, the RCEP would still be a mammoth size – China and Japan are both parties to the accord and boast the second and third-largest economies in the world, respectively. 

Indian Concerns

Going into the ASEAN Summit, India carried with it some long-standing concerns about the RCEP. In particular, the manufacturing and agricultural industries argued against the deal that it could negatively impact them. 

India posts a significant trade deficit with several of the RCEP states including China and Japan. Its combined total deficit with the ASEAN consortium plus China, Japan, South Korea, Australia, and New Zealand was $54 billion from 2013 to 2014 and doubled in from 2018 to 2019. Half of that is exclusively with China.

With reduced tariffs – and zero tariffs in 15 years – Indian manufacturers and farmers would be threatened by an even larger influx of foreign goods. Even so, economic analysts have calculated that the nation is better off joining the RCEP than holding out. One forecast published in The World Economy predicted a 0.06-percentage GDP gain from the deal versus a “marginal fall” if it does not agree to it. Moreover, if the RCEP signatories were to wait until successfully negotiating a deal with India to sign off on it, the global GDP would lose an estimated $17.7 billion with RCEP members losing $19.6 billion worth of GDP should its implementation be held off until 2020, which already seems likely even without bring India back into the fold.

India’s exclusion may be only temporary. After the RCEP negotiations, both China and India indicated they would work to find a solution. 

“We must, together with India, work hard to solve these problems. And India must decide on the basis of this resolution whether to enter into the agreement,” said Wang Shouwen, vice-commerce minister for China. 

Piyush Goyal, India’s commerce and interior minister, echoed that sentiment. 

“If the 15 nations make a sincere effort to resolve our concerns, to give us confidence, and help us balance the trade inequality, then I think every nation should talk with their friends,” he said. “We are not about making enemies with anybody – relations are strong with all the countries involved.”

The economic power and scale of the RCEP cannot be understated. The Australian government published a report highlighting the importance of the trade deal for Australia. The island nation is a standout in terms of economic growth. Among developed nations, its economy has grown for the past 27 years at an average pace of 3.2 per cent. Free trade agreements are a hallmark of Australia’s success – it has 11 of them including every RCEP member except South Korea.  

From 2017 to 2018, nearly two-thirds of its trade was with Asian nations for a total of $362 billion. The Australian government believes that strong regional growth in Asia combined with free trade will be a boost for its economy, not only in trade but also in foreign direct investment (FDI). Compared with FDI from the United States, the Asian states have invested three per cent more per years over the six-year period from 2011 to 2017. While the US may still be the largest economy in the world, Australia’s future benefits more from Asian states. 

Implications for America

For Washington, the RCEP has virtually no upside. The deal will introduce possible trade barriers, and certain incentives not to trade with the US. Furthermore, it would give China strong leverage over the region, more so than it already has, including key US allies such as Australia, South Korea, and Japan, according to a report by Takashi Terada, professor of international relations at Doshisha University, for the National Bureau of Asian Research.  

While US President Donald Trump has already generated significant diplomatic and economic challenges to trade, not only with Asia, the RCEP would solidify a deal which the US must contend with for decades to come. Trump’s policies, including the US – China trade war, could be rolled back by a successor, but the RCEP will exist outside American control. Limiting access to the fastest-growing global economies is a major victory for China. There simply is no positive spin on the RCEP for the US. The only solution is for