BANGKOK -- Sixteen nations, including China, India, Japan and the 10 ASEAN members and Australia, on Monday failed to reach an agreement on a free trade agreement touted as largest in the world: the Regional Comprehensive Economic Partnership.
A joint statement issued at the RCEP Summit in Bangkok said all participating countries other than India had largely agreed on the "text-based negotiations" and will proceed with "legal scrubbing," while continuing to work with India on outstanding issues.
An Indian official told a news conference after the summit that India "conveyed its decision at the summit not to join the RCEP agreement." This spurred speculation that New Delhi has withdrawn from the talks.
What happened at the summit and what comes next? Here are five things to know about the complicated trade talks.
What happened?
Going into the RCEP ministerial conference on Friday, most of the participants aimed to reach a "substantial conclusion" to the negotiations -- not a final conclusion, but close enough to call it a deal. But sources say India began making new demands just a week or so before the ministerial meeting, such as requiring companies investing in India to procure more than 30% of their components and materials locally. This was unacceptable to the other members, making a substantive agreement unlikely.
After that, it was a question of saving face. Having the word "conclusion" in the joint statement was seen as crucial for the remaining 15 nations. The RCEP negotiations have been going on for six years. Merely saying that they had "made progress" would echo previous years and heighten the sense that the talks are interminable.
The joint statement ended up saying the 15 nations "have concluded text-based negotiations for all 20 chapters and essentially all their market-access issues." It added that India has outstanding issues, and that the others will work to resolve them "in a mutually satisfactory way."
Is India pulling out of the talks?
Because of the wording of the statement, officials from some member nations had said there was a breakthrough and that the talks had concluded successfully. India, however, made it clear that it was not part of that consensus.
After the RCEP summit on Monday, Vijay Thakur Singh, India's senior Foreign Ministry official for East Asia, said her government "conveyed its decision at the summit not to join the RCEP agreement." She did not elaborate on whether India was withdrawing from future talks, or only from Monday's agreement. That led some in the media to conclude India's withdrawal is permanent.
It is unclear whether it will return to the fold. Diplomatic sources from Southeast Asia, Japan and South Korea said India is unlikely to pull out from the negotiations immediately. Some see Singh's remarks as a tactic aimed at squeezing concessions from the other RCEP members.
Why not have an RCEP deal without India?
China floated that idea much earlier, because India also blocked a deal at last year's ministerial meeting. But some others, notably Japan, are against leaving India out. The basic idea of RCEP, for these members, is to create a trade deal that spans the Asia-Pacific and avoids creating an economic zone that could become increasingly China-centric as time goes on.
Pankaj Jha, a strategic affairs analyst and associate professor at the O.P. Jindal Global University in India's northern state of Haryana, believes the other RCEP countries will try to persuade India to come back to the negotiating table. "The whole charm of the pact is the huge market that India offers," he said.
Why is India so reluctant to sign on?
India already has a large trade deficit with China and fears that a deal without safeguards would make things worse. India's recent economic slowdown does not help. On the political front, the ruling Bharatiya Janata Party, led by Prime Minister Narendra Modi, failed to hold on to its majority in a recent state election in Haryana despite opinion polls predicting an easy BJP win. Voter discontent with the economy is smoldering.
RCEP is unpopular with many Indians, including farmers and owners of small and midsize businesses. Modi's government has had to include sweeteners to win over these skeptics. Manish Chand, a foreign affairs analyst and CEO and editor-in-chief of India Writes Network, a web portal focused on international issues, believes the deal broke down because there was insufficient attention paid to India's demands. "Probably, the Chinese side played hardball and India also played hardball," he said.
So can we say it was a victory for India?
Perhaps, but not a big one. The joint statement said that the 15 nations will proceed with the talks, so unless India pulls out completely, it will have to keep trying to persuade the others to meet it halfway. Although the negotiators say an RCEP without India is unlikely at the moment, if New Delhi withdraws, it will lose the opportunities to bring in more investment and increase exports.
Chand of India Writes Network points out that domestic lobbies, including industry, which have been campaigning against RCEP would feel vindicated by a pullout, but India's global image would be tarnished. Many will also argue that a decision not to participate in RCEP contradicts India's strategic goal of playing a larger role in the Indo-Pacific region.
"So, there will be a lot of questions that will be asked about India's credibility as an important player, and Modi's image as a statesman would be dented," Chand said.
Additional reporting by Kim Jaewon and Takashi Tsuji.
