Trade momentum within Asia to pick up — IHS Markit

MANILA, Philippines — The signing of the China-led Regional Comprehensive Economic Partnership Agreement (RCEP) faces delay as India opts out of the agreement, but trade momentum within Asia is expected to pick up in the coming year, according to macroeconomy intelligence company IHS Markit.

In a report, IHS Markit said moves by other countries covered by the agreement may convince India to reconsider its decision to pull out of the agreement.

“With India having already left in November, the other RCEP members have stated that they will sign the agreement by February 2020. However, India remains the key attraction for RCEP members, so a delay is likely as RCEP members would continue to face the same trade-related issues with India like high tariffs and preference for domestic industries. So RCEP may not go ahead, but the momentum now is intra-regional trade within Asia,” IHS Markit said.

“A few interesting indicators have appeared over the last few weeks. First was that Japan’s Prime Minister Abe Shinzo is trying to renegotiate India’s entry. He may travel to India in the coming months to reposition RCEP in a way that is favorable to India. We’ve also see media reports in China suggesting that it’s important to renegotiate with India and keep them committed to the agreement,” it said.

IHS Markit noted that India is hesitant to join RCEP because it believes it stands to lose the most from the free trade agreement because it has a much larger trade deficit than China.

“Given RCEP now focuses on free trade in goods, India would want to utilize its comparative advantage of free trade in services. Otherwise, the India market is vulnerable to Chinese dumping,” the report said.

The Philippines expects the 15-country Asia-Pacific trade deal to increase Philippine trade in goods and services and boost investment prospects amid global trade tensions.

RCEP has been in the works for a few years now, but the momentum for this mega trade pact increased as the trade war between the US and China escalated and Asian countries began to focus more on trade within the region to respond to global risks.