External Affairs

Meet the New Asian Economic Order…It’s the Same as the Old One

The Sinosphere will be no different to Pax Americana and China’s rise should not prompt India to choose sides in a global contest.

Philippine President Rodrigo Duterte (L) and Chinese President Xi Jinping attend a signing ceremony held in Beijing, China, October 20, 2016. Credit: Reuters

Philippine President Rodrigo Duterte (L) and Chinese President Xi Jinping attend a signing ceremony held in Beijing, China, October 20, 2016. Credit: Reuters

While the erratic president of the Philippines, Rodrigo Duterte, was busy announcing his country’s “separation from the United States” in Beijing last week, a group of negotiators, including some from India, gathered in the neighbouring Chinese city of Tianjin for the 15th round of talks on the Regional Comprehensive Economic Partnership (RCEP). Duterte’s rhetoric would not have been lost on the RCEP negotiators: the agreement, perceived as a counterweight to the US-led Trans-Pacific Partnership (TPP), reflects the future economic architecture of Asia.

Duterte’s comments certainly received attention in American chambers of commerce. In addition to a “military” separation, Duterte added that the Philippines would distance itself from the US on “economics” as well. His comments have dealt a body blow to US efforts to bring ASEAN into the TPP’s fold. If the Philippines – the current chair of ASEAN – is unlikely to join the TPP, there is even less hope for Thailand, Cambodia, Laos, Myanmar and perhaps even Indonesia. In other words, it seems the US’s “pivot” to Asia, driven primarily by a desire to rewrite its rules of economic engagement, is faltering.

But before Duterte’s statements are heralded for tipping Asia’s balance of power towards China, India would do well to assess the strategic implications of the rearrangements that are already under way in the region. The Beijing Consensus is increasingly looking a lot like the Washington Consensus – articulated to create captive markets (in Central and South East Asia); liberalise trade regimes (to satiate the export glut of Chinese suppliers); and enhance the yuan’s standing as a global currency. With the yuan being accepted as a global reserve currency in the IMF last month and the first-ever sale of China’s sovereign debt in May through renminbi bonds in London, China has made it clear that it plans to channel the post-war financial institutions created by the hegemon. As of now there is no evidence to suggest that Beijing will fundamentally alter the rules of multilateral engagement in Asia. When it comes to this bilateral struggle for power between China and the US, India should not be drawn into choosing sides by thinking its interests will somehow be protected by a stronger partner.

Take the RCEP, for instance. The RCEP is no antidote to the TPP. It, in fact, reflects many of the TPP’s provisions that are aimed at having stricter protections for intellectual property and weaker settlement mechanisms for investor-state disputes. Notably, Japan has pushed for a stronger patenting regime for software, which may have the effect of limiting technological innovations in India, as well as hinder the procurement of software for e-governance. South Korea and Japan have also sought to eliminate, through the RCEP, the flexibilities that TRIPS provides for issuing compulsory licenses in the pharmaceutical sector. To its credit, New Delhi has steadfastly opposed the introduction of “TRIPS plus” provisions that burden emerging economies with intellectual property rights regimes stronger than those required under the WTO.

Nevertheless, it appears India may have to give up on its “three-tier” approach to phasing out RCEP tariffs. The commerce ministry initially suggested a gradual withdrawal of duties, which favoured ASEAN countries with an 80% reduction over a ten-year period but only a 42.5% drawdown for goods from China, with whom India already suffers a trade imbalance. But RCEP negotiations now seem to be heading towards a single-phase reduction of tariffs, which is likely to further tilt the balance of trade between India and China in Beijing’s favour. Like any other trade liberalisation regime, the RCEP will favour net exporters. And with China close to attaining self-sufficiency in most components of the global manufacturing supply chain, it will, like the US, advocate for open markets and stronger IP protection in Asia. The RCEP is merely a vehicle for this purpose. India’s economic interests, however, remain unchanged in this new configuration.

Will regional institutions incubated by China be any different from the existing US-led regimes in Asia? Examining how Beijing has set up the Asian Infrastructure Investment Bank (AIIB) offers some clues. As Scott Morris’ excellent overview of the the bank’s Articles of Agreement highlights, there are striking similarities in the governance models used by the AIIB and the Bretton Woods institutions. For starters, the Chinese have sought weighted representation from the region: China, India and Russia get their own seats in the AIIB Board, but the other 34 regional members will have to pack themselves into six seats. With a weighted voting share of 26%, China can veto crucial decisions relating to the AIIB’s management. India, who for so long has been a vocal opponent of weighted votes at the IMF, now finds itself in the same boat at the AIIB, with a 7.5% share of the votes but with a board seat to boot.

Though the hegemon may change in Asia, these examples illustrate that the rules of the game will likely remain the same. The change of guard is, of course, significant. For instance, we don’t yet know what forms of political returns China is expecting from smaller states in exchange for underwriting their infrastructure projects.

For India, two concerns stand out. China’s growing and unqualified embrace of Pakistan serves no ostensible purpose but the consolidation of its strategic footprint in South Asia. The region could easily accommodate two major powers, but Beijing’s use of Pakistan as a conduit for its influence will be unacceptable to any government in New Delhi. Second, China’s deployment of the One Belt, One Road project in smaller Asian countries should not result in the creation of industry norms and standards that work to the disadvantage of Indian businesses.

Important as these concerns are, they are purely a factor of India and China’s bilateral relationship. India can manage China’s rise by creating the political and economic space needed to pursue New Delhi’s interests – the rise of strong and independent regional groupings like the ASEAN, BIMSTEC and the Forum for India-Pacific Islands Cooperation are positive outcomes that ensure Asian countries do not succumb to Chinese influence. Duterte’s wayward remarks should be a warning to major powers that attempts to “contain” China can also backfire spectacularly. The reality is that there is no economic convergence between the US or China’s objectives on the one side and Indian interests on the other. New Delhi stands to gain little by aligning itself with one camp or the other, except getting caught in the crosshairs of a larger geopolitical contest.

Arun Mohan Sukumar is at the Observer Research Foundation, New Delhi.