Implementation of RCEP: Envisioning its future

In comparison the Trans-Pacific Partnership was a trade deal that’s in place with 12 member countries. It sets up trade between Asia and Pacific. One of the reasons why intra-Asia trade is relatively less because of the complexity of doing business in the region. RCEP will make it more likely that firms will establish supply chains in Asia. This is because it will make the agreement more meaningful for firms. To make the RCEP happen, at least six out of 10 members of the Association of Southeast Asian Nations (ASEAN) and three out of the dialogue partners must ratify the agreement.

Japan and China have already said yes to the RCEP, which is a miracle, as approval through the Diet can be very time-consuming. Although it has huge benefits for China and South Korea, RCEP also has certain political minefields for Japan. Four of the six members of the Association of Southeast Asian Nations have already said that they're ready to get started. They expressed the need to get on with the other dialogue partners to get the full implementation of the ASEAN agenda. The officials can get so engrossed with all these other things that they forget about the RCEP. So, they might miss the deadline. In comparison, the TPP and the CPTPP came into force earlier than expected.

In the past week, there have been double rounds of tariff cuts. It’s because they were so excited about the deal that they wanted to see it happen immediately. The RCEP is especially important for the post-COVID recovery. One needs new sources of economic growth. Having an Asian agreement is very helpful for businesses, especially those that are smaller. It will help them start seeing that rebound in growth. Numbers are just keep going crazy in the COVID-19 case. For anyone, this is a region that is going to be hit hard by this issue, and they need all the help that they can get to push through a recovery. There is a big gap in coverage and quality because of the different reasons why people joined. In RCEP, for instance, countries joined because they were a member of ASEAN.

The diversity of the RCEP members is also astonishing. On any dimension, from population size to wealth, from commodity prices to transportation, from services to trade, RCEP is truly diverse. The RCEP agreement is designed to be more ambitious than its goals, but it will likely be improved over time. It must be balanced, but it doesn’t mean that it will stay that way. There are long time-horizons for RCEP. For instance, it has 20-years horizon. RCEP is good for intellectual rights coverage. This region is not known for doing IP rules. IP is hard, and it must be put together properly. But what surprises the most is that the commitments are not rules, they don't have anything to do with labour or the environment. There is no interest in doing so now. The members will engage in other settings. They said they would focus on key economic issues, and that they would not deal with environmental rules. As RCEP continues to evolve, will there be new features that will make it more competitive? For a layman, it would be very surprising. In part, due to the wide differences in the standards and environmental provisions of various countries, one should not be surprised if these changes were adopted.

It doesn't mean that they are against the environment or the workers, but it means that they would rather have something that makes everyone happy than something that makes everybody happy. Those who are way down are going to say, well, this is too big of a stretch. The signatories are going to focus on what one can do and move on. RCEP was launched in 2012 and they started negotiations in 2013. Then, India dropped out in 2014. They had planned on signing in March 2019, but due to India dropping out and COVID, they could not get there. It was a big deal for both Japan and India. For the former, it was a blow to their trade agreements with India, as there are no free trade agreements between them. It was also a loss for RCEP members wanting to be part of India's supply chains. There’s also a special provision that allows India to rejoin the agreement at any time, without having to wait 18 months.

Most experts dislike trade agreements because they are preferential and have various benefits. Having a large supply chain is a good thing to have to align it with the geographic space. Once deadlines are set those in place, they will be very hard to dislodge. RCEP will have business changes among companies that are not using it. Once you have executives who are thinking about Asia, it doesn’t really matter if the agreement covers the region or not. It’s going to be self-reinforcing. One must have people who are going to push the envelope and think Asian First.

From a trade perspective, having this platform makes it easier to discuss and negotiate future rules on trade. As for the new standards for blockchain and AI, having this platform makes it possible to discuss these in RCEP. This is going to be a process that will involve a lot of brainstorming and developing new standards. Many of the members still believe in the importance of the World Trade Organization (WTO). So maybe they should just do something in Asia first. During this negotiation, some countries could not be in the same building together. They sat side by side in RCEP. The way they managed to get around some of the potential flashpoints was very pragmatic.

Is China leading RCEP to change global order?

Since 1945, the rise of China has presented a unique opportunity for the international community to adapt to the changes brought about by the new world order. Therefore the establishment of China-led multilateralism has been widely welcomed. And from 1995, the World Trade Organization has been unsuccessful in its efforts to reach major trade agreements. The failure of the Doha Round has added to the organization's list of issues. The Trump administration’s protectionist policies, which primarily affected the US’ participation in international agreements and institutions, have not helped the cause of multilateralism.

While President Donald Trump was quick to re-open the Paris Agreement and the WHO, Vice President Joe Biden has indicated that their focus is on domestic issues. With the RCEP, China is flexing its muscles in the new geoeconomics order. Its emergence as a global power is evidenced by its numerous initiatives and programs. The Regional China-Japan Free Trade Agreement, which was signed on November 15, 2020, will boost China's influence in the Asia-Pacific region.

RCEP was proposed as a massive free trade agreement between 16 countries, which included India. Prime Minister Narendra Modi has decided to opt out of the deal. There are various issues related to the elimination of various tariffs in China. However, these are usually not transparent and result in a flood of imports from India. Allowing China unlimited access would have a negative impact on India's balance of payments. While it does have some free trade agreements with other nations, such as Japan and Korea, it should start playing protectionist politics and stop playing politics with trade. India’s decision to stay in the RCEP shows that its economic interests are not on the agenda. If it had stayed in RCEP, it would have been able to benefit from the RCEP’s favorable terms and enter the global market with greater ease.

RCEP is mainly beneficial for China, Japan, and South Korea as it will create new economic links between the three nations. Much of the RCEP is built on the existing unilateral trade treaties of the Association of Southeast Asian Nations. The RCEP is a multi-lateral trade agreement that will unite the economies of China, Australia, South Korea, and Japan. It is expected to create a competitive economic bloc with strong growth potential. The US was not a part of the RCEP negotiations because an FTA with the Association of Southeast Asian Nations was required to be part of the agreement. The Trans-Pacific Partnership was a US-led effort to counter China's growing influence in East Asia. It was also seen to boost the country's economic growth. With the US pulling out of the Trans-Pacific Partnership and India exiting the RCEP, China has gained an advantage in the East Asian region. To balance China’s growing influence, Biden will have to develop a strategy that maintains the security position that China needs to maintain.

According to the Peterson Institute for International Economic Research, the RCEP will boost global gross domestic product by US$ 186 billion a year in 2030. The institute also projects that China will become the second-largest economy in the Asia- Pacific region after Japan. This will allow China to set its own regulations and trade rules. It will also strengthen its grip on the region's supply chains. Despite the RCEP’s goal of uniting China and the rest of the world, the country still has restrictions on the internet. This contrasts with the EU, which has no restrictions on its citizens. China will remove its 14 percent tariff on imported wine next year, but it has also placed a 200 percent tariff on Australian wine in response to Australia's efforts to reduce its influence in the country. While China has been trying to play the role of a new guardian of the rules-based international order, its supply chains have shifted toward those of other nations that are more compliant. As a counterweight to China, Japan will play a vital role in the RCEP. Its participation in the TPP and other free-trade agreements will help ensure the stability of the region.

The US would have returned  to be part of the CPTPP, but it is difficult for the country to rejoin the trade deal now as it is unwilling to risk losing its existing agreement. The European Union has started negotiations with various Asian countries for free trade deals. The region's growing middle class has prompted the EU to sign bilateral agreements with various countries in the region. If China surpasses Europe in terms of economic power, the latter would be degraded to a second-tier economy. This would threaten the stability of the EU and its member states. Establishing a strategic alliance with the ASEAN would help the EU maintain its geopolitical advantage in the region.

About 60 percent of Asian trade is concentrated in Asia, which is more than double the region’s share in North America. This explains why the US pushed for the Trans-Pacific Partnership (TPP) during the Obama administration. If the UK and the US decide to join the Trans-Pacific Partnership, they would be in a weaker position in the RCEP group due to the higher standards that would be demanded in the deal. Almost all of China's trade with RCEP members is with the US. This suggests that its diplomatic disputes with the US could become economic disputes. Many of these countries have also had territorial disputes with China. This could create sporadic political opposition to the RCEP's dominant position.

Conclusion:

While many in Southeast Asian countries support the US military power, they are aware that China's growing military might could create a conflict. Despite these concerns, the Southeast Asian nations will do well to remind themselves that the region was formed in 1967 during a time of regional instability. The US-China relationship is complex and difficult to disentangle. There is a need for the Indian government to step up its efforts in terms of development and boost domestic manufacturing. Australia should also strengthen its ties with India due to its Prime Minister Scott Morrison's stance against China. A 2019 survey revealed that most citizens of various countries have a negative view of China. These included the Philippines, Japan, Australia, and Canada. The results of the RCEP impact assessments might have a significant impact on the way the project is implemented in partner countries.

Pic Courtesy-Ian Taylor at unsplash.com

(The views expressed are those of the author and do not represent views of CESCUBE.)