Tag Archives: Regional Comprehensive Economic Partnership

RCEP Arrives

THE CHINA-STEERED Regional Comprehensive Economic Partnership (RCEP) will come into effect on January 1, bringing together China, Japan, South Korea, Australia, New Zealand and the ten ASEAN nations in the world’s largest free trading agreement (FTA).

The 15 nations account for more than half the world’s exports and almost one-third of its GDP and its population. More significantly, they will likely account for most of the world’s economic growth in the coming decades.

RCEP was signed on November 15, 2020, having been hurried forward by Beijing. Ratification by the required nine signatory nations was achieved on November 2, and the agreement will come into effect in the minimum stipulated 60 days. Indonesia, the Philippines, Malaysia and Myanmar are the only four nations left to ratify it.

About 90% of goods will be traded tariff-free within RCEP, although that is largely the case already as ASEAN has FTAs with Australia, Japan, New Zealand and South Korea. The bigger benefit will likely come from dismantling non-tariff barriers.

This will bolster China, Japan and South Korea by strengthening their supply chains in the region. Regional supply chains are likely to become more China-centric, and, as the largest economy, China will be well-positioned to dictate terms and technical standards.

RCEP’s less industrially advanced nations such as Cambodia and Laos will benefit less substantially and have been given extensive phase-in periods to ease the transition. (Long transitions, exceptions, exclusions and non-enforceability of many of its 20 chapters are quite a feature of RCEP.)

The raw materials, machinery, motor vehicles and consumer products sectors are likely to benefit most, but trade in agricultural products, always contentious, is not covered under RCEP. RCEP also ducks other controversial issues such as subsidies for state-owned enterprises and labour rights.

Trade in services will be liberalised along two tracks. One group of countries — China, Myanmar, Thailand, Cambodia, Laos, Vietnam, the Philippines and New Zealand — will open selective service sectors on a ‘positive list’ basis. The others will open all service sectors unless expressly excluded.

RCEP’s membership has considerable overlap with that of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The latter addresses indirect barriers such as state-owned enterprises, subsidies, labour rights, environmental protections and climate change.

It also provides stronger intellectual property rights protections than RCEP. This may steer investment to RCEP members who are also part of CPTPP.

RCEP should help drive economic recovery in Southeast Asia in the short term as the region battles through the latest surge of Covid-19.

In the medium term, it should increase trade and investment within the region. Estimates vary widely, but there is agreement that it will be material and in part at the expense of other parts of the world.

This will accelerate the emergence of a China-centric regional economic sphere that has been occurring for some years and is distinct from markets in the West and the supply chains that feed them.

The shift of the world’s centre of economic gravity to the region would be slowed if the United States and the EU were to join one of the two groupings. Prospects for either are dim, with an increased number of bilateral trade agreements more likely, especially with security partners.

In the longer term, as RCEP’s member countries develop, they will have to address the structural, protectionist issues that the agreement has parked to the side. That will bring political tensions.

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RCEP Provides Beijing With A Win-Win

Schematic representation of membership of the East Asia Summit, RCEP, ASEAN, the Quad and the CPTPP or TPP-11. Graphic: China Bystander.

CHINA IS ON the north-northwestern rim of the Regional Comprehensive Economic Partnership (RCEP). Yet it will be at the heart of the economic bloc that the trade agreement will cement.

RCEP is due to be signed on November 15 during the virtual twin ASEAN and East Asia Summits. The latter involves the ASEAN Plus Six — the six being China, Japan, South Korea, India, Australia and New Zealand — and the United States and Russia. As RCEP does not include India, the United States or Russia, it will have a summit of its own, too.

The 15 RCEP members (China, the ten ASEAN nations, and the four other countries with which ASEAN has free trade agreements, Australia, Japan, New Zealand and South Korea) account for approaching 30% of the world’s gross domestic product and one-third of its population. More significantly, they will likely account for most of the world’s economic growth in the coming decades.

Whether that will make this the Asian century rather than the Chinese century in succession to the long American century, is a matter for the future. For the present, it is the world’s engine of growth that will drive the recovery of the global economy from its Covid-19-induced recession.

India withdrew from the RCEP negotiations late on, concerned about both the impact of the dismantling of regional tariffs on its farmers and Chinese imports on its manufacturers. It may return at a later date. Most ASEAN countries would welcome that. Beijing will be indifferent, especially if border tensions with India remain.

The United States was never in, pursuing the TransPacific Partnership (TPP) instead as a geopolitical counterweight to the China-led RCEP as part of President Barak Obama’s ‘pivot to Asia’. President Donald Trump’s withdrawal from the TPP as soon as he took office in 2017 left its successor, the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP, also known as TPP-11), a pale shadow of a competitor to RCEP, especially as Beijing moved purposefully to fill the resultant vacuum.

The Trump administration’s putative Indo-Pacific economic grouping based on private sector investment and the Quadrilateral Security Grouping (the Quad: India, Japan, Australia and the United States) never amounted to anything. Many ASEAN nations are uneasy about the Quad, uncomfortable with its security and military focus that pushes them towards choosing between Washington and their neighbour who is often their main trade and investment partner.

There is talk that the prospective incoming US president, Joe Biden, might join the CPTPP, but this Bystander feels it is too late; that horse has bolted. An alternative would be for the United States to seek to join RCEP, on the better-to-be–inside-the-tent theory. That would require a US-ASEAN free trade deal first.

There is more than symbolic significance in the fact that the RCEP is being signed before the next US administration takes office, even if it will not be implemented until the second half of 2021, following ratification by the signatories.

For Beijing, RCEP is an opportunity to write regional trade rules to its advantage, and also diversify its trade at a time of both unsettled relations with the United States and an eastward shift of the global economy’s centre of gravity. A win-win.

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