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RCEP : Advantage ASEAN

Xi Jinping wilts under Economic Squeeze

After eight years of grueling talks, with the US moving in and out of Trans-Pacific Partnership (TPP), China and 14 other nations from Japan to New Zealand to Myanmar yesterday, formally signed a trade initiative initially shaped by Beijing, however now with ASEAN having major say, especially since last three years when China has been feeling the squeeze in its economy.

The agreement Regional Comprehensive Economic Partnership(RCEP), is still very limited and nascent in scope, very contrary to China’s needs, still, it carries considerable symbolic anti-climax, in the sense, that it empowers ASEAN viz-a-viz China, and highlights the Australia-India-Japan-Taiwan technology quadrangle chain, with more credibility than that existed earlier.

This comes not as a surprise, since the last three years, companies as such have been preferring Vietnam, Laos, Bangladesh, and Indonesia for their manufacturing. With COVID-19 freeze and Chinese hostile posturing against its neighbors and against the world as a whole, manufacturing has steadily closed down in China, millions rendered jobless: forced to move to rural areas and relocation of manufacturing to Vietnam, Malaysia, Bangladesh, and India has commenced.

Liberalization of Free Trade

Advantage ASEAN

RCEP covers comprehensive trade and non-trade issues that can enhance further liberalization of trade and investment in ASEAN. It consists of 20 chapters, which extends the aim of ASEAN beyond the limits of trade and trade policy, including non-trade issues.

Some of these, such as rules of origin, technical barriers to trade, trade in services, electronic commerce, and intellectual property, have been included now, despite Chinese reservations. ASEAN countries tried to implement the Guideline of Non-tariff Measures to eliminate non-tariff barriers, but China didn’t let them in doing so.

Taken together, commitments made under the RCEP will benefit consumers and businesses in ASEAN by reducing unnecessary costs that can often be imposed on them by China now. Chinese skewed FTAs which misused the border and ‘behind the border’ trade restrictions, thereby benefiting Chinese goods against the rest of South East Asia, South America, and Africa.

This renegotiated RCEP agreement shall result in enhancing businesses to utilize preferential tariffs with a common rule of origin and stimulating innovation with stronger protection of intellectual property rights in the ASEAN countries.

The advantage to ASEAN viz China.

Resilient Supply Chain Initiative (RSCI): India-Japan-Australia-Taiwan

The Tech Quadrangle

RSCI would build resilient supply chains that are either independent or barely dependent on China. Supply chains be dependent unreasonably on a particular country, here China, are likely to be severely disrupted, if that nation turns rogue, which is likely for the subject nation in consideration, given its abysmal track record.

The collapse of production within China in the early months of the outbreak of the pandemic caused cracks in several supply chains. For countries like India, Japan, and Australia, whose trade relations were highly dependent on China, these times were deep and exhaustive, as their supply trails were contingent on sourcing from China.

Countries like China are inherently not progressive, and hence utterly unreliable and threatening, since their political ambitions dwarf the sense of global good, by rejecting mutually respectable trade conditions.

The economic imperative for pushing supply chains out of China has been jet-propelled by the worsening of political relations of it, with all neighboring countries. India’s current relations with China are at their lowest ebb. Australia and Japan are also experiencing various political difficulties and disquiet in harboring economic ties with China. While ASEAN countries are blatantly threatened by hostile China.

Bad blood with neighbors is China’s trait across much of the Indo-Pacific. With China’s relations with the US deteriorating rapidly, the Indo-Pacific has become the first outpost, for rallying against China. Promulgation of the RSCI by the big Indo-Pacific players, therefore, is very expected.

But, what does this mean for China’s dream of a controlled RCEP?

RSCI is designed to don the hat of being the technology hub, porting the industrial demand on the South East Asian industrial base. Semiconductor challenge to be heralded by Taiwan-Japan combine with Australia heralding the mineral wealth driven supply chain to these new industrial hubs in the ASEAN. India shall be giving the vital push towards manufacturing of mobiles, electronics, medical devices, and medicines other than the global Soft-Technology house, linking business linkages between US-Europe to Israel-Middle East to the Indo-Pacific.

Xi Jinping’s outreach to ASEAN

Xi Jinping said China will import more than $22tn (£17tn) worth of goods over the next decade.

He called for a more constructive approach to an open global economy, and hit out at “protectionism”: a Xi Jinping dragon suddenly turned sheep?

“Big countries need to lead by example, major economies need to act on sound principles, and developing countries need to play an active part in promoting opening up and sharing responsibilities,” Xi Jinping conceded in his address to the third China International Import Expo (CIIE).

It was simply a call for seducing the aggressive ASEAN countries, to safeguard whatever is left of its crumbling economy. Past two months saw China toning down its aggressiveness in South China Seas, after India-Australia-US and Taiwan rebuke, militarily in the region.

What China had thought to achieve with brawn, it has to concede now economically, from the far end of the negotiating table, stature much diminished.

Hence China which had RCEP terms towards its favor, and not budging since last eight years, finally relents to give all signatories an equal and reciprocating trade equation. Thus now ASEAN can be more balanced, against the threat of Chinese trade deficits and the threat of being a dumping ground of Chinese goods.

Viewpoint

The RSCI is looking to expand by including more countries from Southeast Asia. All members from Southeast Asia are in the RCEP. Getting some of them to figure in the RSCI, for delinking substantive parts of regional supply chains out of China, would mean, on part of these countries, signaling to China their intention to be part of an anti-China alliance. This might affect the equilibrium in RCEP.

Relocations have already begun taking place out of China, to Southeast Asia, primarily among Japanese and now European businesses. Japan’s decision to offer subsidies to its industries on relocating out of China has resulted in several of the businesses moving out to India, Indonesia, Laos, and Vietnam. More are expected to follow as the initiative gathers momentum. The investment prospects for Southeast from RSCI are now stellar.

RSCI is an example of how regional supply chains might be repositioning in line with the emerging geopolitics post-COVID-19. As US-China hostilities increase, the possibility of countries posturing on broader alignments on either side of the US-China divide, and the global economic order getting split accordingly, is substantial. RCEP is an agreement that begun negotiations nearly a decade ago when the geopolitical character of the region and the world was much different. In this respect, it might encounter support and immunity from RSCI, against any suspected Chinese hawkish posture.

India stands at the helm of Indo-Pacific. Apple has decided to shift 20% of its manufacturing facilities from China to India. Among some other firms that have shown interest in India are, US-based medical electronics products maker Teledyne and Amphenol, and medical equipment maker Johnson and Johnson. Korean companies have also sent a request to the Korean Consulate in Chennai and shown interest in moving to India.

At this point, there is scant need of India joining RCEP, but to manage trade relations independently with RCEP countries while implementing the strategic sway with RSCI. Not only India shall be the beacon for ensuring Diversified Supply Chain which are China Free but also usher in the era of Just trade practices, especially in South East Asia.

ASEAN are now evidently at advantage in RCEP, given the balancing support structure rendered by India and RSCI. While China has no other option but to plead ASEAN for some sort of market, to fight the growing threat of China converting to a domestic agrarian economy, completely wiped off from the global Economic equation.

16 Nov 20/Monday                                                                                        Written By: Fayaz

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