In RCEP vs TPP alphabet trade bloc soup, India refuses to choose

As India prepares to host a summit of the leaders of all ten nations of the Association of South-East Asian Nations (ASEAN) next month, to commemorate 20 years of its partnership with the region, an alphabet soup of trade blocs threatens to shake up what has been a relatively quiescent area so far.

Leading the charge is the 16-country Regional Comprehensive Economic Partnership (RCEP) unveiled in Phnom Penh, Cambodia, last week on the margins of the East Asian Summit, which has been enthusiastically embraced by China and which includes India. When it comes into being in 2015, the RCEP will be the world’s largest trading bloc.

Meanwhile, the Barack Obama administration plans to reinvigorate the Trans-Pacific Partnership (TPP), an 11-country initiative launched in the latter months of the US president’s first tenure, by launching free trade negotiations across the Asia-Pacific bloc. India and several other countries in the region are also part of the TPP.

With the West – both the US and Europe, each continuing to post lowly growth figures between 1-2.5 per cent annually – still ploughing through its four-year-old economic crisis, the centre of the recovery has decisively shifted to Asia. Clearly, China leads the way inside the Asian continent, with Korea, Japan and India straggling in its wake.

China’s support of the RCEP means that in the coming months, the rivalry with the US-led TPP could become a new flashpoint in South-East Asia. 

China has already signalled that it intends to assert itself in the region and its spirited claims of the contested Spratly and Paracel islands as well as the South China sea is expected to be invigorated by its newly anointed political leadership.

But Barack Obama, elected by an American public that has been exhausted by the rigours of downsizing over the last four years, is honour-bound to expand opportunities for creating wealth for Americans back home. Alongside, he seems determined to return the US to its leading power status and at the East Asian summit in Cambodia, as well as with his visits to Thailand and Myanmar last week, signalled that he will reclaim Asia through his policy of the “Asian pivot.”

It is this potential catfight between the world’s greatest powers, the US and China, through the leadership of the TPP and the RCEP, that is making the rest of Asia nervous.

The ASEAN region, economically beholden to China, but in spirit largely supportive of US geo-strategic goals, is right in the middle of this argument. And India, even as it seeks to upscale its political and economic commitment to the ASEAN, must now decide whether it wants to take sides at all.

Obama made it plain to Prime Minister Manmohan Singh in Phnom Penh last week that he wants Delhi on his side. “I have big plans for India,” Obama said at the end of his brief interaction with Singh on the margins of the East Asia summit, even as Obama’s national security advisor Tom Donilon and India’s national security adviser Shiv Shankar Menon separately met for 90 minutes.

India’s decision to engage with the ASEAN in the China-led RCEP has been taken after considerable thought, especially since Delhi has consistently refused Chinese overtures so far to build their own regional free trade area. But when the ASEAN decided to buy into the RCEP, Delhi decided that it must show solidarity with the ASEAN with which it is commemorating 20 years of partnership next month.

In that sense, Delhi is still hoping it will be able to gain from having one leg in both worlds, in the US and China, and perhaps even hopes to leverage its relatively weaker power status by postponing the moment when it will need to choose one over the other.

Most importantly, India does not want to be left out of a trade bloc like the RCEP which will cover more than half of the world’s population when it is launched in 2015.

India and the ASEAN are also far more comfortable with the “salad bowl” approach of the RCEP, which allows both India and the ASEAN to keep its own partnerships with other countries. The US, on the other hand, wants the TPP to adopt a “WTO-plus approach”, where issues like the environment, climate change and human rights are integral to the business of trade. Certainly, India is uncomfortable with the latter approach.

Donilon, on the other hand, has signalled that the Americans are thinking differently. On the eve of Obama’s departure for the East Asian summit, he outlined the renewed administration’s Asia policy, especially with the two big powers, India and China.

While the US has "given a full embrace of India's rise", Donilon said, its ties with Beijing were far more complex with "elements of both cooperation and competition", he added.

"The relationship with India is obviously rooted in history and it is rooted in a shared system of democracy. And it's a unique relationship that we're building out. It has different aspects to it," Donilon said, when queried by an Indonesian diplomat.

Clearly, the Americans are keen to win India in this imminent political and geo-strategic competition with the Chinese. With their own bitter memories of the way they fought with China 50 years ago still dominant and Beijing’s refusal to still open its market to competitive Indian companies in the IT and pharma sectors, Delhi believes it must lean in favour of the US. But it will hesitate to articulate this intention in so many words.

Inside the ASEAN, meanwhile, fractures over the US vs China are becoming increasingly public. At an ASEAN foreign ministers meeting earlier in the year, Cambodia, seen to be China’s closest friend in the region, sought to reflect the Chinese view on the contested South China Sea dispute in the ASEAN political document, but this was spiritedly opposed by other ASEAN members, including the Philippines, Vietnam and Singapore.

At the East Asian Summit too last week, Singapore and Indonesia demanded that host Cambodia make changes to two communiqués that had stated that the ASEAN did not want the South China Sea issue to be “internationalised” – meaning, the US had no business to be part of any claims or disputes arising in that region.

Singapore and Indonesia’s protests to this communiqué wording was joined by the Philippines, a treaty ally of the US, as well as by Brunei and Vietnam. The ASEAN was split down the middle.

The final communiqué left out any mention of the South China Sea.  Criticising China, one of its closest economic partners, Singapore prime minister Lee Hsien Loong said he hoped the ASEAN and China would soon start formal talks on a code of conduct that would reduce the risk of conflict over the Sea, Associated Press reported.

ASEAN, however, is refusing to let the territorial conflict engulf its appetite for making money. Surin Pitsuwan, the head of the ASEAN summit, said all sides, including the US and China, understood that they could not afford to let these disputes hold back “lucrative” trade agreements.

"The effort is to try to isolate the two issues. Economic integration will have to go forward... because everybody is going to benefit from this new architecture," Pitsuwan said.

Analysts noted that Japan is a member of the RCEP and that Japan and China’s trading relationship is worth $300 billion annually, even though both countries have been witness to ugly nationalist sentiment over the past year. Anti-Japanese riots have been allowed to grow in several Chinese cities over the least year and the Chinese have boycotted several Japanese brands. Nissan, the large Japanese automaker, is already forecasting a large drop in its sales.

As if these tensions weren’t enough, Japan and South Korea are also arguing over controls over other islands, known as the Dokdo in Korea and Takeshima in Japan.