The Regional Comprehensive Economic Partnership (RCEP) talks concluded in Bangkok. After years of tough negotiations, leaders from 15 countries were able to announce that they had successfully managed to complete work on trade agreement that will link together Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam.
Conspicuously absent from this list for the moment is India.
For the next few months, the agreement will undergo what is called a “legal scrub” as the lawyers carefully go through every line of the document to ensure that all the details match and are consistent. Talks have been so furious lately that it is possible that elements of one chapter no longer quite line up with one another—as an example, a reference to a provision in a different chapter may now actually point to the wrong paragraph as the final numbering has changed.
Between now and February 2020, officials will also be working to see if the gaps can be bridged to bring India into the agreement at the signature stage.
India, as previous Talking Trade posts have repeatedly noted, has always faced a range of domestic-level difficulties in RCEP. Other than the Prime Minister, the number of vocal supporters of the agreement could probably be easily counted. As the finish line came into view, the dismay of various elements of Indian society only grew louder and more insistent that Indian involvement in RCEP would lead to disaster.
In spite of these difficulties, RCEP officials worked hard to craft a final agreement that could be win-win for all parties. Extremely sensitive items for India were carved out, particularly for market access tariff cuts for goods. The timelines granted for access were very long. The total amount of coverage into India was smaller than that granted to anyone else.
Heading into the weekend, it looked like these and other concessions would be sufficient.
However, it appears that new demands were suddenly made, including a request that tariff cuts be made on the basis of figures from 2019 and not 2014. This is not a small request. Conceding the point would mean revisiting every single tariff line in every single schedule for every single country. It would basically reopen the whole negotiation for goods and could mean years of additional delay.
The other 15 parties appear to have decided that delay was no longer possible and further negotiations were not likely to quickly resolve such fundamental issues. They decided to close the agreement and move towards signature.
The door has been left ajar, of course, as negotiations can still take place. India could join by February or potentially after that time.
Much of the focus in the last two days has been on the situation in India. This is understandable, but also somewhat unfortunate, as it has obscured the importance of the RCEP announcement.
Leaders have pulled off what many believed was an impossible task—in spite of strong global headwinds, 15 Asian countries managed to agree on a significant new trade deal that will lead to new integration in the region.
The 15 are an extremely diverse bunch from rich to least developed economies, from large to tiny, from agricultural powerhouses to industrial manufacturing centers and resource-based economies.
The agreement is not, as so many have described, a shallow, meaningless deal. It covers the full range of topics of importance to companies and consumers, including goods, services, and investment. It addresses issues like intellectual property rights and standards. It has elements on smaller firms and development.
Once the texts and schedules are released early next year, it will be possible to analyze in greater detail exactly where the benefits can be found.
In the meantime, the focus for the week is likely to remain on the situation with and without India.
This post will set aside the issue of what happens to India and consider the outlook for the 15.
If India stays out of the agreement, some of the benefits, of course, are lost. India is a very complicated country for businesses. RCEP had the potential to sort out some of the challenges. It was the best available mechanism for unleashing some domestic level changes that would have improved market conditions within India.
For the RCEP 15, market opportunities for doing business with India were significant, especially if conditions improved over time. Indian firms are not well integrated with regional value chains. Given the innovations and potential skills available inside Indian firms, greater integration of Indian firms with RCEP15 companies would have been important.
With India out, RCEP should be signed on schedule in February. Entry into force might happen sooner as well—potentially as early as January 1, 2021? It is possible to imagine that some provisions put into the deal at the insistence of India could be frozen or removed.
If India manages to sort out internal difficulties and return to the agreement, the RCEP 15 will be relieved. Why? Because the deal has been structured from the beginning to include 16 parties. It was meant to drive regional integration across all members.
RCEP is clearly better with 16. It has more opportunities. It covers more ground with more consumers and firms. As a platform for future growth, an RCEP of 16 with India is better than an RCEP that excludes India.
However, even if India never manages to sign on, RCEP 15 is still an accomplishment worth celebrating. It will set the stage for future Asian trade and economic integration in ways that can only be imagined at the moment.
Trade just got a lot more interesting.
***Talking Trade was written by a delighted Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***