India’s challenges from the RCEP might have increased in spite of staying out of it

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November 17, 2020 4:00 AM

The trade deal will establish China’s dominance of trade With the ASEAN. If the Biden presidency is keen on CPTPP+US, it might be an opportunity for India to join the bloc

WTOThe TPR is an important mechanism under its monitoring function, and involves a comprehensive peer-review of the member's national trade policies.

The RCEP was finally signed by its 15 members on the sidelines of the Asean Summit last week. Kicking off of RCEP will have interesting implications for the region. These implications are connected to the onset of a Biden Presidency in the US and the steady advancement of the Resilient Supply Chain Initiative (RSCI).

The RCEP would be going ahead without India. This would make it a trade deal that includes the ten Asean economies, and all of Asean’s bilateral FTA partners, except India. The most significant part of the deal is the new market access that it would create for some member economies. These include China and Japan—the two largest economies of the group—which weren’t part of any bilateral or regional trade pacts. China, Japan and Korea were negotiating a trilateral trade pact, which now might become inconsequential following RCEP. In this respect, RCEP—despite growing out of an Asean-centric economic framework—would actually produce much greater market access outside of the Asean, among non-Asean members China, Japan and Korea. Asean’s specific market access gains would be over and above those that are already available through various Asean+1 FTAs. Additional market access gains would be more with respect to China, in terms of the additional tariff coverage and concessions that RCEP would provide.

China clearly is the biggest beneficiary of RCEP. Apart from the additional preferential access it obtains in Japanese, Korean, and other member markets, by concluding RCEP, it is also able to pull off strategic dividends. Notwithstanding difficult relations with some Asean members in recent months, most notably Australia and Japan, the conclusion of RCEP establishes the significance of China as the undisputed leader of trade pacts in the region. As the RCEP proceeds, it would establish China’s decisive say in writing the rules of trade in the region through the RCEP. And this is precisely what the US would be wary of.

The finalisation of RCEP just before a new Democrat President-elect walks into White House marks the culmination of a peculiar cycle of events around the US role in trade engagement in the Asia-Pacific. President Obama had specifically pointed to RCEP as a project that would give China the undisputed lead in dominating trade governance in Asia by virtue of being the largest economy in the group. He had pitched the Trans-Pacific Partnership (TPP) as an obvious and essential alternative for counterbalancing Chinese strategic domination of the regional trade game. The US was taken out of the TPP almost as soon as President Trump entered the Oval office. The remaining members managed to salvage the deal, largely due to the spirited leadership provided by Japan and Australia. While the TPP survives as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), without the US, it is incapable of being a strategic counterweight to China, and the RCEP.

President-elect Biden was a champion of TPP in the Obama administration. There are expectations of him revisiting the possibility of US rejoining the CPTPP. In a sense, following the conclusion of RCEP, the Biden Presidency might not be left with an alternative in this regard. Nothing other than a CPTPP that includes the US would be able to counterbalance China in economic size and strategic clout.

Implications of RCEP get further complicated in the light of developments over the past few months. The Indo-Pacific idea is getting stronger by the day. The Quad—a security partnership between the US, Japan, India and Australia—is looking to expand beyond defence and assume broader strategic proportions. With geopolitics beginning to contribute significantly to the construction of economic alliances, including the reorganisation of regional supply chains, the search for an Indo-Pacific trade and economic compact is likely to hasten following the conclusion of RCEP.

It is not just the US that would be keen on drafting an Indo-Pacific trade framework. Following RCEP, and the almost non-existent possibility of returning to its fold, India too, might find itself working actively on moving towards an Indo-Pacific trade deal. Common ground to relocate supply chains out of mainland China, taking shape through the RSCI, provide enough substance for fleshing out the deal.

The biggest strategic motivation for a Biden Presidency to rejoin CPTPP could be the intention to snatch the strategic advantage from China in managing trade in the Indo-Pacific. The RCEP, which has a sizeable number of key Indo-Pacific economies—Japan, Australia, Korea, Vietnam and Indonesia, to name a few—would need to stick to these countries to stick to the trade agreement after its ratification. China would naturally utilise the RCEP for retaining its control over regional supply chains. This would put the RSCI initiative in trouble. It would also disturb the US efforts to gather an Indo-Pacific group of friendly countries to work against China.

RCEP might actually force the Biden Presidency to look at returning to CPTPP much more proactively than it might have imagined. It would also, expectedly, look at India to join the bloc. Might India be willing to do so? That would be another challenge to navigate. India’s challenges from the RCEP might have increased in spite of staying out of it.

The author is Senior Research Fellow and Research Lead, Institute of South Asian Studies, NUS
Views are personal

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