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Image Source: BBC news
November 15 marked a historic day when Vietnam virtually hosted the 37th Association of Southeast Asian Nations (ASEAN) Summit and China along with other 14 countries in the Asia Pacific region signed one of the biggest free trade deals in history. The official process that led to the new ASEAN member states signing of the Asia Pacific Trade deal agreement enhanced the initial Regional Comprehensive Economic Partnership (RCEP) from what was an eventful discussion point in 2012, with the trade deal becoming recognised as the world’s leading trade epicenter.
Following the deal, the member states and the countries trading with them will have the opportunity to reduce restrictive tariffs, trade wars or blockades which in turn will allow for greater long term economic growth. The deal consists of 2.2 billion individuals with a listed economic potential value of roughly $26.2 trillion.
Official comments made by a chief economist and member of an analyst firm, IHS Markit, Rajiv Biswas clarify that this is the primary occasion when China has supported a regional trade agreement and looks to help boost the overall gross domestic product (GDP) of the region.
The currently listed countries that remain an active and integral part include 10 ASEAN nations: Indonesia, Cambodia, the Philippines, Brunei, Laos, Singapore, Malaysia,Thailand, Vietnam, and Myanmar. While countries listed under the Trans-Pacific Partnership (TPP) such as Australia and New Zealand are also part of the deal.
The trade deal is strategically tailored and structured to focus on administration, investment and customs and is the first actual major trade deal between nations such as China, South Korea and finally Japan thus, representing greater unity amongst major technology and manufacturing megahitters. The agreement also helps reduce the differences in product eligibility in the opposing nations market hence, promoting flexibility in free trade.
A geo-political victory for China?
The official trade agreement brings forth greater influence as well as appreciation of Chinese leadership and shared trust among international businesses operating with China’s investment potential. The return on investment (ROI) services are also likely to significantly improve and will be holistically targeted across the region. The effects of the new agreement are highlighted in a press statement by China's second highest ranked official Chinese Premier, Li Keqiang declaring the historic event as being,’a victory of multilateralism and free trade.’
The accord also stands as a symbolic representation of China’s attempt to shift economic influence and policies more towards the people and allows Beijing, China’s financial or major economic hub to flourish and become a trading hotspot for new investors. It also represents China’s vision or ideological coup over the Asian and Pacific markets much like that of the EU and US arrangements. The partnering countries in the agreement haven’t really shied away but instead applauded the move. The member states are confident and optimistic enough as they believe that this partnership will slowly ease the economic suffering induced by the global pandemic. The collective statement by members said, “the deal will play an important role in building the region’s resilience through inclusive and sustainable post-pandemic economic recovery process.”
The New Asian Dynasty
It can be recognised that Asia as a continent, has begun taking significant ideological shifts in terms of how to approach their business developments and investment capacity with reports identifying that Asia may have a low population growth rate. However, Asia’s production rate in terms of goods and services present massive potential for unprecedented growth and Asian nations are now standing together as opposed to divisions that are surfacing within the Western Bloc. Critically, an economic powerhouse that could leave the deal's overall impact as being limited, India, will be monitored closely in terms of actions and final decisions towards the deal.
According to reports by a non-profit research group, The Peterson Institute for International Economics, the deal could bring an upsurge in global national income by $186 billion per year by 2030 and could potentially augment 0.2% to its member’s economy.
A strong artistic representation of the two world superpowers and major tech giants driving the global markets with a hint of the sheer military power and government influence of these two nations as illustrated on wired.com
Image source by Wikileaks representing the common viewpoint on representing the supposed efforts sustained by the TPP.
A comical representation posted on an article in the Economic Times on the basic reasoning behind India’s decision to not sign the agreement with ASEAN countries but instead value an agreement with the EU and US markets.
Is India losing in a big way?
Last year in November, India withdrew from the RCEP decisively. The Modi government then said that the proposed agreement was deplorable in nature as it failed to lay emphasis on India’s concerns and core interests especially regarding India’s existing bilateral trade deficit with the member nations, China in particular.
According to the official government note, in a speech during the 3rd RCEP summit in Bangkok, PM Modi said, "When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer.”
There have always been fears revolving around trade imbalances in the past. The RCEP is considered to be a regional economic catalyst within Asia. However, India’s contribution to the group would have supposedly added much to the table. Had India joined the pact, it would have been the third biggest economy among all the RCEP member states.
India was categorically seeking to keep dairy, automobile and textile out of the pact, option to stop import or raise duties in case of sudden market flooding, stricter investment regime and dispute management, stricter origin of product norms to curb abuse of free trade agreement (FTA) and change in base tariff from 2014 to 2019.
On the contrary, it might also turn out to be a golden opportunity for India to showcase its power and economic dominance by strengthening its domestic industries such as automobiles, chemicals, steel, plastic, dairy, agriculture and so on.
According to various media reports, several analysts are of the opinion that India is likely to lose investments and imports would become expensive given the challenges faced due to global pandemic. But, even the countries in the RCEP agreement are also likely to lose Indian market which every group is eyeing in the current economic situation.
The RCEP negotiations originally began in 2013 when India was also a major signatory to it and was considered to be a counterbalance to China back then.
The United States then was part of a rival regional trade pact called the Trans-Pacific Partnership (TPP) that excluded China. However, the deal never came into effect.
To be sure, now for China, the RCEP agreement stands out to be a geopolitical victory as it would enable the dragon to empower its dominance in the region and fill the gap which U.S President Donald Trump had created by withdrawing from global free trade agreements.
Kavya Kothiyal | Richardt Schoonraad