Asia Trade Pact on Tricky Ground Over Free Migration

https://www.bloomberg.com/politics/articles/2017-02-16/asia-trade-pact-skids-onto-tricky-ground-on-free-migration-issue

February 17, 2017, 2:30 AM GMT+5:30

• India and China to battle over service reforms, tariff cuts
• RCEP talks next scheduled for Japan in late February

An Asian trade pact in focus after President Donald Trump pulled out of a rival deal has struck trouble over an issue that’s tripped up politicians from Europe to the U.S. -- borders.

The free movement of people, something India wants for highly-skilled information technology workers, remains a major sticking point for the 16-party deal, even as China pushes for an accelerated time line to finalize the agreement. It’s set to come up again at the next round of talks in Japan in late February.

Having seen how migration has become a political grenade elsewhere -- from Brexit in the U.K. to Trump’s election win in the U.S. -- Asian nations are wary about the liberalization of services. The Association of Southeast Asian Nations, in moving toward economic integration, has carefully avoided decisions on allowing the free movement of people.

“In Asia, the issue of migrants has always been about control, especially in Asean,” said Bhubhindar Singh, an associate professor at the S. Rajaratnam School of International Studies in Singapore. “It’s not simply an issue of looking at the economic impact of migration.”

Some countries have significant domestic obstacles to a more relaxed policy, Singh added.

The dispute is expected to dominate talks on the Regional Comprehensive Economic Partnership in Kobe from Feb. 27, as China continues to champion free trade and pushes member states for across-the-board tariff cuts.

Read more: Asia Goes Back to the Future on Trade

India is arguing for the liberalization of services, a sector that contributes over 50 percent to its gross domestic product, while resisting broad tariff cuts, according to two officials. It has agreed to provide similar tariff reductions to all RCEP members, but wants a built-in safeguard regarding China that will involve a different structure for duty cuts, they said.

India is also seeking multiple entry visas and a single-visa card to facilitate entry to member economies, the officials said, asking not to be identified because the discussions are private. And it wants an easing of restrictions on services such as call centers and the establishment of foreign company subsidiaries providing services in other countries, like banks opening branches overseas.

The country is under no pressure for an early conclusion of the deal and will protect its interests in the talks, India’s Commerce Minister Nirmala Sitharaman told Bloomberg on Feb. 9. “We are clear that our commitments in goods will be as deep as their commitment on services,” she said.

TPP Versus RCEP

The meeting in Kobe follows Trump’s move to withdraw the U.S. from the 12-nation Trans-Pacific Partnership, turning the spotlight onto the RCEP, which would account for almost 30 percent of global GDP and over a quarter of world exports. It involves the 10 members of Asean plus its six free trade agreement partners -- China, India, Australia, New Zealand, South Korea and Japan.

China is expected to lead the talks and exert direct pressure on India to wrap up the deal as soon as possible, said Rajeev Kher, a former India commerce secretary.

Still, “since the U.S. has withdrawn from the TPP, the lateral pressure which was building on the RCEP is now gone," Kher said. "The discussions can now be based on their regional needs and not under the looming tension of TPP."

‘Hodge-Podge’ FTAs

Neither India nor China are interested in agreeing to actions that could diminish their domestic interests, said Razeen Sally, an associate professor at the National University of Singapore. For example, China is not going to open up sectors now dominated by its state-owned enterprises such as oil and gas, Sally said.

"It’s good to amalgamate the hodge-podge of FTAs in the region," Sally said. "It’s just difficult to believe that China is going to be a champion of global trade given what’s happening domestically”with Xi tightening political control.

Added to that, India is "particularly defensive vis-a-vis China because India is flooded with Chinese imports.” Its trade deficit with China widened to $52.68 billion in 2015-16 from $48.48 billion in 2014-15, according to government data.

RCEP will cover trade, investment, economic and technical cooperation, intellectual property, competition and dispute-settlement mechanisms. Unlike the TPP, it won’t include issues like labor rights or environmental protections. The RCEP negotiations started in late 2012.

Biswajit Dhar, an economics professor at Jawaharlal Nehru University in New Delhi, said the meeting in Kobe comes at a "very interesting juncture".

‘Goods First’

"There’s going to be more aggression to bring in services," Dhar said. "There will be problems -- I don’t think Asean members are really prepared to go that way. There is a clear sense that they want to clear goods first and then move onto services.”

China and India are the most important elements for RCEP in terms of market access. Kher said with China set to be a major beneficiary in goods, "India should identify products which come from that region and are used as raw materials, and insist on cutting down tariffs on these inputs."

"There should be an understanding that China will not create tariff or non-tariff barriers for these items," Kher said. "We can have special annexures with China on these issues."

**********