As India prepares to host a summit of leaders of all 10 members 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 till now was a relatively quiescent area.
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, enthusiastically embraced by China and which includes India. When it comes into being in 2015, it will be the world's largest trade bloc.
Meanwhile, the Barack Obama administration plans to reinvigorate the Trans-Pacific Partnership (TPP), an 11-country initiative launched in the later 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 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 continent. China has already signalled that it intends to assert itself in the region. Its spirited claims on the contested Spratly and Paracel islands, as well as the South China Sea, is expected to be invigorated by its new political leadership. This potential catfight between the world's greatest powers, the US and China, through the leadership of the TPP and the RCEP, is making the rest of Asia nervous. Asean is economically beholden to China but in spirit is largely supportive of US geo-strategic goals. It is also right in the middle of this argument.
India's decision to engage with Asean in the China-led RCEP has been taken after considerable thought, especially since Delhi has consistently refused Chinese overtures to build their own regional free-trade area. But when Asean decided to buy into RCEP, Delhi decided it must show solidarity with the former, with which it is commemorating 20 years of partnership next month.
In that sense, Delhi is hoping it will be able to gain from having a 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 such as RCEP, which will cover more than half of the world's population when launched in 2015.
India and Asean are also far more comfortable with the “salad bowl” approach of RCEP, which allows both to keep their own partnerships with other countries. The US, on the other hand, wants 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.
Obama's national security adviser Tom 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.
Clearly, the Americans are keen to win India in this imminent competition with the Chinese. With India’s 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 information technology 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 Asean, fractures over the US versus China issue are becoming public, as in disputes over the wording of communiques on the South China Sea dispute.
Surin Pitsuwan, head of the Asean summit, said all sides, including the US and China, understood 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," he 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 witnessed ugly nationalist sentiment over the past year. Anti-Japanese riots have been allowed to grow in several Chinese cities over the last 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.
