India-China spat delays deal covering a third of global trade

A spat between the world’s most populous countries is holding up a pan-Asian trade agreement encompassing nearly a third of all global trade.

Trade ministers from 16 Asia-Pacific countries this week hailed a critical milestone after seven years of talks and vowed to wind them up before a regional summit in November. But officials involved in the process say major sticking points remain around market access and the ability of workers to find employment in other countries.

The main source of tension is between India and China over the number of goods with preferential tariffs, according to a person familiar with the negotiations who asked not to be identified. The person said India was also unhappy with the position of Southeast Asian countries on the free movement of professionals, particularly in the IT sector, and is weighing whether to be part of the deal at all.

Covering nearly half of the globe’s population, the Regional Comprehensive Economic Partnership was proclaimed the world’s biggest regional free trade deal when talks started in 2012. Shortly after President Donald Trump took office in 2016 and pulled the U.S. out of an Asia-Pacific trade deal, President Xi Jinping sought to accelerate talks on the Asia-wide pact to cement bolster China’s influence.

Sticking Points

But negotiators have repeatedly blown through deadlines, mostly because Prime Minister Narendra Modi’s government is worried about exacerbating a trade deficit with China and the rest of Asia isn’t willing to accept large amounts of Indian workers in return for greater market access. The talks include the 10-member Association of Southeast Asian Nations, Japan, South Korea, Australia, New Zealand, India and China.

I’m not too optimistic because of the differences among the member countries, especially towards how they see RCEP benefiting the economy versus the challenges it creates, said Yeah Kim Leng, an economics professor at Sunway University in Malaysia who is an external member of the Malaysian central bank’s monetary policy committee.

The big question now is if they would like to proceed without India, which could cause some big push back from New Zealand and Australia, he said. Which would, in turn, make the process take a longer time.

Officially, the group is sticking together. Thailand’s commerce ministry on Monday released a joint statement saying that all participating nations are working on addressing outstanding issues that are fundamental to conclude the agreement this year.

Monideepa Mukherjee, a spokesperson for India’s trade ministry, wasn’t immediately available for comment. On Monday, Indian External Affairs Minister Subrahmanyam Jaishankar openly blamed China for what he described as unfair trade policies that created an enormous trade deficit.

No Return

China hasn’t commented officially on the latest round of talks. On August 29, Commerce Ministry spokesman Gao Feng said China would play a constructive role and push for the conclusion of the negotiations as scheduled.

The Chinese side is still optimistic, said Wang Huiyao, an adviser to Chinas cabinet and founder of Centre for China and Globalization. China wants it because of the Sino-U.S. trade war, he added, saying the deal would be a way for the region to show that it opposes unilateralism.

Many member countries insist on the advantages of a regional pact outweigh any lingering doubts, particularly as they cope with the fallout of slowing global economic growth and enduring U.S.-China trade war. The next round of negotiations are expected to be held later this month in Danang, Vietnam.

Indonesian Minister of Trade Enggartiasto Lukita warned in a statement on Monday that the talks had reached a point of no return. He acknowledged negotiations remained far apart in some areas, and some solutions proposed by individual countries didn’t work for the outlying majority.

A settlement this year is very urgent, Lukita said. If not, the RCEP negotiations will lose important momentum that can drive changes and progress in the world economy.

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