New trade pact enmeshes Australia in Indo-Pacific

After a landmark meeting of the East Asia Summit in Bangkok, Australia has joined the world’s largest trade pact. Fifteen countries have agreed to the ­Regional Comprehensive Economic Partnership, which world leaders believe will help bring strategic stability and prosperity to the Indo-­Pacific. A setback, for now, is India did not sign up because of concerns about opening its massive and largely untapped market to China. Still, the RCEP, seven years in the making, will constitute 29 per cent of global GDP; India would bring that figure to 32 per cent. It would then cover almost half the world’s people. For Australia, it will entrench us in our fast-growing neighbourhood and open lucrative export markets for companies. In a promising sign, the meeting saw a palpable thawing in relations between Canberra and Beijing after Scott Morrison met Chinese Premier Li Keqiang last weekend.

The RCEP includes the members of ­the Association of Southeast Asian Nations — Brunei, Cambodia, Indonesia, Laos, ­Malaysia, Myanmar, The Philippines, Singapore, Thailand and Vietnam — and their existing free-trade partners of China, Japan, South Korea, Australia and New Zealand. Moving ahead, even without India, shows a push for greater economic integration among the region’s powers while Washington and Beijing are enmeshed in a disruptive trade war. “Against the backdrop of a fast-changing global environment, the completion of the RCEP negotiations will demonstrate our collective commitment to an open trade and investment environment across the region,” the national leaders said in a statement on Monday. The agreement also would boost economic growth and support the multilateral trading system.

Many Indian businesses and farmers oppose the RCEP, fearing cheap Chinese imports would flood their market. Given it has a $60bn trade deficit with China, India’s reticence is understandable but regrettable. Narendra Modi may be an economic reformer, but the entire ethos of his Bharatiya Janata Party is extreme Hindu nationalism and protectionism. As well, opposition politician Rahul Gandhi tweeted that the proposed deal would result in millions of job losses in that country. Yet, by staying out, as the respected The Hindu has highlighted, India will cut itself out of the rules-making process for the RCEP “and give China further space in the regional trade and security architecture”.

Mr Modi’s reluctance is a sharp departure from his government’s “Act East” slogan. As we know, tariffs ultimately hurt Indian consumers and are a clamp on jobs and economic growth. Mr Morrison was right to make clear “the door will always be open to India”. He added there was a prevailing view the RCEP was a “bigger and better deal” with India in it, and that for the first time it would bring India and China into an arrangement. In a bilateral meeting the Prime Minister urged Mr Modi to sign on to the trade deal and said he would press the Indian leader on the issues when he visited India in January. Details of the RCEP will be finalised in February and signed off in Vietnam later next year.

Mr Morrison said the economic integration of the Indo-Pacific was not only important for prosperity; it also would aid stability, with easier flows of people and investment. Businesses in this region would be dealing with each other in a more free and open ­commercial environment, he said. The deal would ensure greater international market access for our service industries in finance, education, health, communications and transport, and allow them to invest for the first time in a range of countries, including China.

Although Australia has free trade agreements with all RCEP nations (other than India, with which we have been in talks since 2011), the new deal gives us a chance to refresh aspects of existing arrangements, some of which have been in place for over a decade. Trade Minister Simon Birmingham argues service exports will come to the fore, as many FTAs are focused on trade in goods. One area of unfinished business, of course, is trade with India. The two nations have a lot in common, culturally and socially, but have not integrated more closely in an economic sense. Although we compete in some areas, such as resources, opening up trade in services and high-value goods would be beneficial to both countries.