As of November 2, Bangkok time, the process of negotiations on the Regional Comprehensive Economic Partnership Agreement (RCEP) is still attracting high attention from outside. When the initiative, which should have reached an agreement in 2015, finally ushered in the final moments of ending, the latest developments from China and India are quite impressive.
Previously, the outside world once thought that China and India had established the details of the free trade agreement and import tariffs between the two sides before the informal meeting between the leaders of October 11 and 12. It is still a big problem not to be in touch with India.
On October 28th before the start of the summit, authoritative media such as The Hindustan Times disclosed that Japan is now trying to persuade China to lower India’s import tariffs. Some Indian officials also pointed out that the country’s Minister of Commerce and Industry Piyush Goyal also made a number of unexpected protections on the previously agreed anti-dumping mechanism at the RCEP ministerial meeting in Bangkok in early October. Measures.”
This status quo has made the outside world have to face the reality: the objective status quo and contradictions between China and India in the fields of import and export have been the biggest obstacle to the further progress of RCEP. When this ASEAN summit has become the final step in the negotiations of the RCEP agreement, it will also become the opportunity for New Delhi to ask China for the final ransom, so that the agreement covering nearly half of the world’s population and nearly one-third of the trade volume will be passed.
Everything is only owed to India
The RCEP, which claimed to be signed in 2015 and then opposed to the bankrupt Trans-Pacific Partnership Agreement (TPP), has been brewing for too long. Although many political leaders headed by Chinese Premier Li Keqiang have repeatedly issued an initiative, the agreement will be able to “end negotiations at the end of 2015” and “end negotiations in 2018.” But to everyone’s surprise, it was not until November 2019 that the marathon negotiations finally reached the moment of the line.
RCEP has sparked heated discussions on its traditional economic issues including trade in goods, dispute resolution, trade in services, investment, and new issues such as intellectual property, digital trade, finance, and telecommunications. The goal is not only to achieve trade liberalization, but also to significantly reduce restrictions in areas such as services and trade and other non-discriminatory measures, including tariffs.
Since most of the 16 countries participating in the agreement are developing countries, the parties must fully consider the economic development level of the member states when entering into the agreement, and how to balance the interests of all parties in the contracting process becomes the key. The two countries with the largest volume under the framework will inevitably see each other.
Experts from the Ministry of Commerce of China believe that India’s openness is relatively low and its overall tariff level is high. The Indian authorities believe that their domestic industry development is relatively fragile, and many industries such as steel and automobiles are developed under the protection of the government. Therefore, Narenda Modi also worried that the RCEP will have a greater impact on the domestic economy after its opening. This factor caused India to fail to accept the agreement immediately in 2017.
In contrast, the “uncertainties” in Beijing’s eyes, such as Japan, have chosen to play an increasingly active role in the RCEP negotiations. Not only did Japan emphasize “willing to maintain the multilateral trading system with China” after May 2018, but after the summit meeting between China and Japan in July 2019, Tokyo also clearly expressed its willingness to “support free trade and promote RCEP negotiations.” When the media in Japan, ASEAN and other countries also circulated RCEP in May and June 2019 or had a “13-nation plan that did not include India, Australia and New Zealand”, the impatience of all parties in India has also come to the fore.
New Delhi’s concerns
At this point, the outside world can finally confirm the fact that the key to RCEP’s good things has a great relationship with India.
It must be acknowledged that India is not proactive in implementing RCEP negotiations. In New Delhi, even in the 2016 year when China-India relations suddenly became cold due to the turmoil, we did not forget to talk about China’s “market openness” and “commodity clearance.” The tax reduction rules are closely negotiated. New Delhi’s technocrats have also confirmed that although it will take time for China and India to form an agreement, the two countries have reached some consensus through bilateral and multilateral negotiations from the very beginning.
However, the high trade deficit between India and China has long been a major concern for Indian politics, business and the public. This is also the focus of the Indian government in the RCEP negotiations. According to Indian data, in the fiscal year 2014-15, the trade deficit between India and China exceeded US$52 billion, accounting for nearly half of India’s total trade deficit. By the end of 2018-19, the trade deficit between India and China still maintained a line of 53.6 billion US dollars. Considering that at the beginning of the 21st century, India even maintained a trade surplus with China. This situation is worth worrying about.
Beginning in 2016, the Times of India and other countries have worried that within the framework of the FTA, cheap Chinese products will seize the living space of Indian products. This status has also been used by Indian right-wing groups since 2017, emphasizing that “any change in the tariff area may weaken India’s domestic factories and agricultural production”.
The informal meeting between the Chinese and Indian leaders in 2018 has strengthened the political and economic ties between the two countries, but the contacts between the two high-level leaders still have limited impact on the promotion of RECP. By September 2019, the “Indian Express” also published an editorial, saying that the RCEP negotiations have entered the final stage, and New Delhi needs to speed up the negotiation process and strive to complete the negotiations by the end of November 2019.
Indeed, China’s mobile phones, steel products, industrial products and toys have occupied a large space in the Indian market. To this end, India’s steel, dairy products and other industries have publicly opposed joining the RCEP, and are more worried about the impact of the industry.
In this regard, the Indian Minister of Commerce and Industry Goyal has made a clear statement in an interview with the media in September 2019. He believes that India’s refusal to join the RCEP will put “the export industry at a disadvantage”, and India’s national interests cannot be held by individual industries, and the “national interest” must be viewed from a holistic perspective. Not to mention that even without a FTA, China has a market advantage in many areas. This statement has also become a strong signal that India will sign RCEP.
Why did India switch?
According to information disclosed by India’s “Economic Times” and the United Press Trust (PTI), the Indian side has basically reached a preliminary plan with Beijing after the end of September 2019. In September, the details of the discussions between India and China were “still in progress”, but the two sides confirmed that they would “immediately cancel tariffs” on 28% of China’s exports, and the remaining 72% of goods will be in the next five years. A long-term plan to gradually reduce tariffs in phases over 10, 15 and 20 years.
In addition, according to information obtained from New Delhi, the Indian side has removed the process of establishing a tax exemption, and India has made progress in the negotiation process for introducing a “trigger mechanism” in the agreement. This mechanism is also a means of protection that India seeks when China’s manufacturing industry has an overwhelming advantage. That is, if a certain type of commodity suddenly enters the Indian market and constitutes dumping, India has the right to temporarily increase tariffs on goods from the country . This is almost the last resort that India has demanded at the time of the RCEP’s basic establishment. New Delhi is erratic in this mechanism, and it is understandable to pay more ransom to Beijing.
After all, India is reluctant to miss the historic opportunity and platform of RCEP. First of all, joining the RCEP agreement means that India participates in the global high-end product supply chain, and more to join the international market, it can make up for the downturn in the domestic market. Not to mention the inflow of Chinese capital, which itself can make up for the trade deficit between India and China.
India’s current economic downturn has been severe recently. According to Indian statistics, the gross national product (GDP) growth rate in the second quarter of 2019 was only 5%, which is the lowest growth rate of Modi since he became prime minister in 2014. When India’s full-year GDP growth rate in 2019 is likely to be less than 6%. The economic development stall will be the most serious challenge facing the Modi government.
Furthermore, if India is willing to retreat from the standpoint, other countries will also take care of India. The RCEP negotiations have considerable flexibility for different countries to require different timetables and openness levels.
For the New Delhi authorities, the main and secondary issues between China and India are already evident in the current global trade war and the global economic slowdown. While Modi may have more ideas for Beijing in the future, this attitude towards RCEP may also be a prelude to some of the “big changes in the past 100 years” in Beijing.