China and India trade priorities at odds

At the 2016 APEC meeting in Lima, China’s President Xi Jinping suggested that a US withdrawal from the TPP would be met with an escalation of Chinese support for a more inclusive Asia-Pacific trade deal: China would ‘fill the gap’. A more surprising twist in the tale was the overwhelming support for globalisation that Xi indicated in his opening speech at the annual World Economic Forum meeting at Davos this year, only a few days ahead of Donald Trump’s passionate defence of protectionism during his inauguration speech. This is an almost complete reversal of what one might expect to have seen when Xi Jinping assumed office only four years ago in late 2012.

In another unexpected development, India has now indicated a desire to be one of the more liberalising members of the Regional Comprehensive Economic Partnership (RCEP) mega-trade pact, which they are negotiating with China, South Korea, Japan, Australia, New Zealand and the ten ASEAN member states. The Economic Times reported that Commerce Secretary Rita Teaotia said India is able and willing to offer far more in terms of investments and services than any of the other negotiating parties. This has been seen by some as a challenge to the other negotiating members to open up greater access to their markets. Bloomberg, however, report that India’s commitment to liberalisation of trade in goods may not be so strong, as they seek to continue the protection of domestic manufacturers from Chinese firms.

In reality RCEP is an ASEAN centric, but China-driven, mega-trade deal which aims to primarily improve market access. The liberalisation is nothing like the level of tariff-free trade proposed in the TPP, especially for trade in services. RCEP, however, is the best hope for improving access to trade in the region. Those that expected a genuinely transformative Asian trade deal will be disappointed as there is not (yet) strong faith in China’s ability and willingness to ‘fill the gap’ left by US withdrawal. The sense we have from our network in fact, is that Asian trade arrangements will continue their slow evolution, rather than the dramatic revolution anticipated by either the TPP or a similar deal from China.