China Trade Pact Stalls as Trump Tariffs Feed India Backlash

(Bloomberg) -- A Chinese push to conclude a new Asia-wide trade agreement this year is running into opposition from India fed partly by concerns over the fallout of Beijing’s deepening trade war with the U.S.

The 16-country Regional Comprehensive Economic Agreement (RCEP) backed by Beijing is often seen as a rival to the Trans-Pacific Partnership, a vast regional pact once led by the U.S. that Donald Trump withdrew from early in his presidency.

Together with the Belt and Road Initiative to build investment and trade links with countries along the old Silk Road to Europe, RCEP is a key element in China’s efforts to seize the geopolitical advantage following what many in the region see as a U.S. retreat under Trump. Beijing’s struggles to close the deal on a trade bloc that would cover almost half the world’s population illustrate the continuing suspicion among its Asian trading partners.

China has been pushing for RCEP leaders to announce the “substantial conclusion” of the deal at November’s East Asia Summit in Singapore, a goal that leaders committed to this year. That push has gained a new urgency in recent months as the tariffs war between Beijing and Washington escalates.

Stumbling Blocks

At a ministerial meeting in Singapore last weekend, however, India continued to resist pressure to make a more ambitious commitment to lower its tariffs on imported goods, according to regional trade officials. Likewise, other countries stopped short of offering the sort of opening up of their services sectors and commitments to rules allowing the free movement of professionals in the region that India has been seeking.

According to a statement issued after last weekend’s ministerial by Indonesian trade minister Enggartiasto Lukita, who is chairing the negotiations, just four of RCEP’s 21 rules chapters have been concluded, while another five or six could be completed this year. But that requires changes in attitudes from all member countries to find solutions, Lukita added.

The market access offers of some participating countries were also “still considered insignificant by the majority of participating countries,” he said.

All parties exchanged thorough discussions at the talks and reiterated that they would push for a basket of deliverables by the end of this year and substantially finish the negotiations, Gao Feng, spokesman at the Ministry of Commerce, said at a regular briefing on Thursday when asked about whether RCEP can be wrapped up this year.

“What I would like to emphasize is that pushing ahead bilateral, regional free-trade agreements is a strategic choice China has made based on its own development, not a contingency plan to cope with the current situation,” he said.

India’s commerce ministry spokeswoman didn’t immediately respond to an email query on Friday, when the government’s shut for a local holiday. New Delhi doesn’t see the RCEP negotiations concluding this year, a government official had told reporters last month.

Talks Continue

RCEP negotiators began a 24th round of talks in New Zealand on Thursday that’s due to continue through the end of next week. But ministers made clear after their last meeting that plenty of work remains and that wrapping up RCEP by the end of this year is unlikely.

The stalemate appears unlikely to be unwound any time soon as RCEP member countries like Australia, India and Indonesia go into elections next year. That raises questions about the longer-term prospects for RCEP, which began life as an effort by the 10-country Association of South-East Asian Nations to bring its individual trade deals with China, India, Japan, South Korea, Australia and New Zealand under one umbrella.

“You have elections in major countries that are super important for RCEP that are going to paralyze negotiations for the first half of 2019. So if you are not going to get it done in November, then when are you going to get it done?” said Deborah Elms, who tracks the negotiations at the Singapore-based Asian Trade Center.

Among the issues surfacing in the negotiations, according to officials, are concerns being expressed by India and others over what the U.S.-China trade conflict could mean for other countries in Asia. While some countries such as Vietnam are hoping for a potential boon as companies move supply chains out of China to avoid U.S. tariffs, others are concerned that Chinese goods kept out of the U.S. by tariffs could end up being diverted into other markets.

“In Asia, there is a mixed view of the U.S.-China war. On the one hand it’s fantastic news because companies are going to look to move out of China and relocate elsewhere in the region. On the other hand all that production in China has to go somewhere,” Elms said.

Glass Half Full

Unlike the TPP -- initially conceived in part as a way for Asia-Pacific nations to lessen economic dependence on China -- which goes beyond traditional trade issues to address intellectual property, labor rights and state-owned enterprises, RCEP is more limited with a focus on goods and services. It faces the added challenge of bridging the interests of developed economies such as Australia and Japan with emerging markets like Cambodia and Laos.

Some in the region remain optimistic that a deal can be made and that leaders gathering in Singapore next month can announce at least significant progress toward an accord.

“If there is a sense of urgency now, it is because we have spent so much time and energy. The glass is half full now, no turning back,” said Iman Pambagyo, Indonesia’s top RCEP negotiator.

Mari Pangestu, a former Indonesian trade minister who now teaches at Columbia University, is also optimistic.

“This is the Asian way. As long as there is progress you continue the process and you can ratchet it up or make it more ambitious later,” she said. “The world is in need of good news. We need to send a signal that, whatever is happening in the world, Asia is continuing the process of opening up.”

--With assistance from Miao Han and Vrishti Beniwal.

To contact the reporters on this story: Shawn Donnan in Washington at sdonnan@bloomberg.net;Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net;Karlis Salna in Jakarta at ksalna@bloomberg.net

To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Malcolm Scott, Karthikeyan Sundaram

©2018 Bloomberg L.P.