A Big Deal: Signing of the Regional Comprehensive Economic Partnership

A Big Deal: Signing of the Regional Comprehensive Economic Partnership

On November 15th 2020, the Regional Comprehensive Economic Partnership was signed. An ASEAN-led initiative, the agreement was signed during a virtual ceremony in Vietnam. The bloc takes sole position as the world’s largest trading bloc, representing roughly 30% of global GDP.  

The signing of this imminent and long-awaited free trade agreement is between 15 nations: the 10 ASEAN members in addition to China, Japan, South Korea, Australia, and New Zealand. 

The timing of this pan-Asian trading agreement’s signing is symbolic – amid a global pandemic that has shaken the global economy and caused free trade and globalisation to be questioned; however, its significance goes far beyond symbolism. 

While this agreement appears to support ASEAN’s incrementalist approach, the pact will do little to halt China’s creeping dominance over the surrounding region, nor influence America’s position of distancing itself from China, or indeed influence any agreement in which China plays a part.

The Road to Partnership

Negotiations around the bloc began eight years ago, in 2012. The origins of the Partnership are in the marrying of two competing regional trade architectures – the East Asia Free Trade Agreement and the Comprehensive Economic Partnership. 

Discussions were due to conclude within three years, however the difficulties around agreeing terms amongst 15 very different countries, as well as the creation of another vital trading bloc – the Trans-Pacific Partnership (TPP) – rather got in the way. 

How Strong is the Deal, Actually?

The deal has been called a “shallow, 20th century style” trade arrangement because it predominantly focuses on reducing tariffs and skirts many of the more pertinent 21st century issues such as cross-border data flow and the environment. In addition, although up to 90% of current tariffs may be lowered, this is set to occur only after 20 years. 

Questions are also already being raised about the Partnership’s cohesiveness, given the frosty diplomatic relations that exist between certain countries and China. For example, it will be interesting to see how the partnership develops in the context of mounting deterioration between various member states, Australia and China being the example that first comes to mind. 

On the flipside, it may be the very ability these nations found to come together and formulate an agreement in spite of diplomatic deterioration demonstrates the strength of will of the bloc. Deborah Elms, Executive Director of the Asian Trade Centre, argues “For an agreement signed with countries that did not volunteer to participate and with such incredibly diverse membership, the quality of RCEP actually exceeds expectations”. Each of the 15 nations are different in almost every dimension, so that any agreement could be reached at all is a big achievement. 

Similarly, it may be that the flexibility in the Agreement will be its key to success. Given the diversity of partners, the degree of maneuver still left in many key policy areas, such as environment and labour standards, is arguably what prevents such a bloc from breaking down. 

However, the above arguments help demonstrate the vast differences that exist among members. The divergences that need to be overcome are not just of a diplomatic nature. Member states also differ in terms of economic might. Compare the fiscal might of Australia with that of the bloc’s poorest member, Cambodia

The strength of the deal has also been impacted by India’s exit. Until last year, India was a planned signatory, but it pulled out as a result of fears over opening its market to China, and dairy competition with Australia and New Zealand.  This has deprived the bloc of some of its main market-opening benefits. India is a member of few bilateral trade agreements in the region, and would have had the third largest economy of the members. 

In summary, it appears that while the RCEP is closer to a harmonisation of the pre-existing agreements that exist amongst the bloc’s members rather than a fresh, new pact, it still remains an important step toward coming closer to creating a robust trading bloc similar to the EU. Indeed, as noted by Elms, “Asia is integrated but it’s for the purpose of delivering goods to other markets. RCEP changes that.” 

The Agreement goes a considerable way to harmonise the “noodle bowl” of FTAs existing within ASEAN and is expected to do important work in promoting greater regional economic integration. ASEAN FTAs have a proven track record of improving with time. Who is to say the RCEP does not also have this potential? 


IISS, https://www.iiss.org/blogs/analysis/2020/11/rcep-trade-deal

What is the Significance of the Partnership?

One of the most significant and unique implications is that, as a result of the number of geographically neighbouring countries included, the RCEP will not suffer the “rules of origin” tariffs that so often befall trade agreements in today’s globalised world. Whereas tariffs may have been applied previously to something containing Australian parts being built in Indonesia, this will no longer apply. The impact this new situation may have in the coming decades could be astronomical. 

There is also great contextual significance. The signing of this pact comes at a time when all regions of the world are still reeling from the sheer economic impact of the Coronavirus pandemic. Members of this Partnership are hopeful that the RCEP will have a role to play in their respective recoveries. Estimations are already being made about the effect this partnership could have on the size of member states’ economic growth, 0.2% by 2030 being a prominent example

Given fears earlier in the pandemic that it was precisely this hardship that could put a stop to the trade deal, its signing is of even more importance. The successful agreement of this partnership appears all the more triumphant in light of the pandemic having forced many countries to put their needs first. 

The creation of this bloc also means that the US is now outside of two Asian multilateral trade partnerships. Just as the US set international standards a little under a century ago, the RCEP has the potential to permit Asia to be the region that redefines these in this century, especially given that the US (and EU) are outside of these agreements. This may further increase the Asia-Pacific region’s likelihood of setting global trade and investment standards for the next century. 

A further source of importance is the protection and increased resilience that will be offered to supply chains and their ability to withstand sudden restrictions, a fate the region has experienced as a result of the pandemic. 

The agreement will also provide a necessary buffer to China, currently in the midst of a trade war with America. The agreement helps build flexible supply chains in the region, something that will come in extra use if the US imposes sanctions. 

The significance of China specifically does not stop there. China already possesses various bilateral agreements with the Partnership nations, but this is the first instance of them signing up to a regional multilateral trade pact. 

The RCEP is a further move in the direction of a regional tilt by China towards Asia. In early 2020, ASEAN overtook the EU as China’s largest trading partner. The RCEP will only extend Chinese influence within the region, it being a further sign of their growing economic clout in regional trade, particularly in light of the 2017 US withdrawal from the TPP. 

Not only will this pact allow China to have significant say on rules governing regional trade, it will allow China to cast itself as a proponent of globalisation and multilateral cooperation and as committed to being bound by common standards and a greater level of transparency. 

Further pertinence is derived from the ability the pact may have to facilitate a trilateral trade agreement between China, Japan and South Korea, an agreement that has eluded the trio thus far. Such an agreement would be doubly significant given these nations’ power in manufacturing and technology. 

As the region grapples with both economic rebuilding after COVID-19, and a growing fallout from quarreling between the U.S. and China, the RCEP provides an invaluable tool that permits both the pursuit of economic recovery and stable diplomatic relations.

Categories: Asia Pacific, Economics
Tags: ASEAN, China, RCEP

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