RCEP Without India

Sri Lanka votes; North Korea’s warnings; “phase one” trade deal doldrums

The Big One.

Is India holding to its old hesitations on trade?

RCEP explainer: Why Modi government did not join the world’s largest trading bloc

India has made its decision: It will not participate in negotiations for the conclusion of the Regional Comprehensive Economic Partnership, or RCEP, an Association of Southeast Asian Nations-centered trade deal, which includes major Asian economies China and Japan. 

Delhi’s decision is unsurprising, but controversial in the region. In Tokyo, where I’m writing this newsletter, the perception of Delhi’s decision is widely as one affirming long-held views about India as a country inherently inimical to trade. But, for India, RCEP was a move that would have laid bare India’s vulnerability to a flood of cheap exports from other participating countries while doing little to enhance its own industry and exporters. The message that the government of Indian Prime Minister Narendra Modi really ended up sending with the decision despite this reality is that India is neither ready to compete in a more economically integrated Asia, nor is it willing to swallow painful short-term structural economic reform.

At The Diplomat, Niranjan Marjani sums up the case for why India decided to withdraw from RCEP. Among other reasons, 

Modi had called for a mutually beneficial RCEP that protects the interests of all involved, but accepting and implementing RCEP as currently envisioned would have had an impact on India’s domestic politics. More broadly, an economic imbalance between India and China caused by RCEP could have an impact on India’s strategic interests in Southeast Asia. It would also affect India’s standing against China as a competitor.

On the flip side, Abhijnan Rej notes the geopolitical costs for India in sitting out what is a major multilateral integrative initiative—even with China’s participation. (Rej also places Delhi’s decision in the broader context of Indian regional affairs.)

First, by making bilateral trade issues with China a determining touchstone against which India would judge the merits of the multilateral RCEP, it effectively seems to signal everybody else (precisely, 14 other Asian states) that they were junior partners in the play. (By way of justifying India’s decision to stay out of RCEP, one Indian government source linked it to India’s way of showing “strategic clarity” on China.)

This stands to become especially grating for ASEAN, which sees India as doing too little, if ever.

RCEP is moving on now without India. The recent third RCEP summit in Bangkok resulted in an announcement that the text-based negotiations had concluded and that the agreement to result would be a “a modern, comprehensive, high-quality, and mutually beneficial” RCEP agreement. The agreement will include the 10 ASEAN plus China, Japan, Korea, Australia, and New Zealand (all of which have existing free trade agreements with ASEAN). Neither India—nor the United States—will have a seat at the RCEP table.

Bottom Line: India’s predictable withdrawal from RCEP leaves it out of one of the most ambitious multilateral trade integration efforts in Asia.

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East Asia.

The Wall Street Journal has the latest update on the never-ending drama of the U.S.-China “trade war” (which is admittedly a lot more than just a trade war these days). The latest snag in trade talks come over farm purchases, with China keen to avoid any specific commitment to purchase American agricultural products, including soybeans and pork, ahead of an agreement

To veteran trade war watchers, this latest lull can only be unsurprising. Markets continue to be cautiously optimistic and the characteristic dive in equity markets amid trade doldrums has not yet struck as of this writing. In any case, if there will be a “phase one” deal, it may amount to little more than a confidence-building measure between the two sides and a short-lived PR boost for the Trump administration. There’s still no sign on the U.S. side that Trump or his deputies are seriously considering a rollback to existing tariffs to incentivize concessions from China. The basic challenge for the negotiations remains the same: Both sides need the other to go first before they are willing to offer up anything real value.

Bottom Line: Snags over farm purchases and other issues might not kill a “phase one” U.S.-China trade deal, but they might water any ultimate deal considerably.

Don’t Miss It: As Taiwan’s critical elections near, Han Kuo-yu, the main challenger to incumbent president Tsai Ing-wen, has a running mate. But, as Nick Aspinwall writes, Han “has plummeted in the polls since this summer, dramatically draining the momentum of the populist phenomenon Taiwanese media had dubbed the ‘Han wave.’” 

South Asia.

Sri Lanka heads to the polls on November 16—this weekend—to elect its next president. The stakes for the country could not be higher as wounds from the shocking Easter Sunday attacks this April and last year’s constitutional crisis continue to linger. The front runner, Gotabaya Rajapaksa, should sound familiar to anyone that’s followed the island nation’s politics in the past: He’s the brother of Mahinda Rajapaksa, the former president who oversaw the end of the country’s three-decades-long civil war and presided over major atrocities. Mahinda, constitutionally term-limited, is letting his brother run for the presidency and, provided Gotabaya wins, will be poised to take over the prime ministership.

Over at the Lowy Interpreter, Alan Keenan offers a helpful primer of the stakes that lie ahead for Sri Lanka—especially on the human rights and post-civil war reconciliation and transitional justice front.

Almost certainly, reconciliation and accountability for atrocities and human rights violations will be losers should Gotabaya win. Under the Rajapaksas’ watch, thousands of Tamils disappeared in the final years of war – including hundreds who surrendered to the army on the last day of fighting in May 2009 and were never seen again. When asked at a 15 October press conference about their fate and how he would respond to the continued appeals of their families for the truth about what happened to them, Gotabaya denied anyone was unaccounted for after surrendering. When pressed, Gotabaya asserted there was no point in looking to the past and said he was running to be “the president of the future Sri Lanka”.

Geopolitics also loom large over Sri Lanka’s elections. The Rajapaksa brothers, if they do win, are likely to rebalance Sri Lanka’s foreign policy back toward China—or so goes the fear in New Delhi, Washington, and even Tokyo. Under Mahinda, Sri Lanka concluded a range of major economic deals with Beijing. As Indian analyst Manoj Joshi observes, India has also learned from the ups and downs for its own influence over the present presidential term of Maithripala Sirisena: “The experience of the Sirisena-Wickremesinghe period makes it clear that there are limits to the influence that external parties can bring to bear on the Sri Lankan situation. Having initially taken the stand that they would reverse the Chinese connection, the two eventually compromised with Beijing.”

Bottom Line: Sri Lanka’s election appears to once again be setting up a turning point for the island country, with the Rajapaksas expected to win big.

Don’t Miss It: Pakistan’s Azadi March (Freedom March) is taking on the power of the Pakistani military. Daud Khattak writes on the demonstrations for The Diplomat

Asia Defense.

A few notable updates on Asian defense issues in this edition of the newsletter.

Here Comes Avangard: Russia’s new Avangard hypersonic glider nuclear warhead is slated for induction shortly. As Franz-Stefan Gady writes, “Russia’s Strategic Missile Force will receive the first two intercontinental-range ballistic missiles (ICBMs) armed with a new hypersonic glide vehicle (HGV) — the Avangard (Vanguard in English) hypersonic boost-glide warhead —in late November or early October.”

North Korea: North Korea’s State Affairs Commission, one of the most prominent institutions of state and one chaired by leader Kim Jong Un, released a statement discussion the state of relations with the United States. The statement, attributed to a spokesman for the Commission, warned the United States of a “greater threat” in the new year should no deal materialize between Pyongyang and Washington by the end of the year.

The statement, which the Korean Central News Agency released, repeated a warning against the United States and South Korea’s decision to carry on with a modified version of aerial military exercises.

All of this points to 2020 beginning with a bang—or potentially the North Koreans might take a step sooner.

Post-INF missile basing? As Defense News’ Aaron Mehta reminds us, the United States is slated to test a new, conventional intermediate-range ballistic missile (range between 3,000 to 4,000 kilometers) in the coming weeks. There’s little clarity on where such missiles might be based, but this one is a good bet for eventual basing on Guam.

I’ve also just spent the week in Tokyo speaking with Japanese officials and experts on Tokyo’s perspectives on post-INF strategic issues in Asia. American missiles won’t be coming to Japan anytime soon, but Tokyo is keenly aware of the difference new U.S. capabilities might make in competition and deterrence vis-a-vis China. More on this soon!

Extras.

The Diplomat’s managing editor, Catherine Putz, writes on corporate responsibility and forced labor, taking a comparative look at China’s Xinjiang region and Uzbekistan:

Cotton is a labor-intensive crop. While mechanization has revolutionized cotton picking in much of the West, in countries where cotton is picked by hand, forced labor continues to be a problem. In Xinjiang, where raw cotton is also processed into yarn and cloth, as well as finished goods, the risk of forced labor exists at multiple steps in the creation of a product.

In Central Asia, Uzbekistan has been at the heart of a global campaign to stamp out the use of forced labor in its cotton sector. Under the Cotton Campaign’s Uzbek Cotton Pledge, more than 300 signatory companies have committed to “not knowingly source Uzbek cotton for the manufacturing of any of our products until the Government of Uzbekistan ends the practice of forced child and adult labor in its cotton sector.”

Both cases present a set of familiar, if distinct, challenges. Scrutinizing private sector supply chain exposures to these troubling practices in both cases is crucial.

This newsletter is written by Ankit Panda, senior editor for The Diplomat, and director of research at Diplomat Risk Intelligence. Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.

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