RCEP: APAC mega-pact signed and ready to deliver

March 2021 | FEATURE | GLOBAL TRADE

Financier Worldwide Magazine

March 2021 Issue

Following eight years of intensive negotiations, in November 2020, 15 Asian states signed the Regional Comprehensive Economic Partnership (RCEP) – an agreement that ranks among the largest free trade deals in history.

A mega-pact between the Asia-Pacific (APAC) nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam, the RCEP potentially includes more than 3 billion people – 45 percent of the world’s population.

“Many global events have shaped the RCEP,” says Julian Chaisse, professor of law at City University of Hong Kong. “However, in the last two years, two events have strongly affected the RCEP, namely the US-China trade tensions and the coronavirus (COVID-19) pandemic.

“From 2018, China took a leading role in the preparation of this economic agreement, which had been led by the Association of Southeast Asian Nations (ASEAN). In fact, Beijing was thus reacting to Donald Trump’s decision to limit Chinese imports to the US. Additionally, at the start of 2020, there was the drop in purchases of Chinese products by European countries, handicapped by the COVID-19 crisis.”

Waning

The signing of the RCEP, alongside its expected advantageous impact on trade, is of particular significance in terms of US influence in the APAC region, which is decidedly waning. This decline can be attributed to a large extent to previous retreats from major trade deals, such as the Trans-Pacific Partnership (TPP) in 2017.

“If the RCEP fulfils the objectives it sets for itself, the shift in the centre of gravity of global economic activity toward Asia would be confirmed, which would come at the expense of the US,” asserts Mr Chaisse. “On the Chinese side, the agreement is proof that the US is in decline, and that the development model, as well as the attractiveness, are now in China. Chinese leaders therefore see the RCEP as a victory, which they will, however, have to confirm.”

“The signing of the RCEP, alongside its expected advantageous impact on trade, is of particular significance in terms of US influence in the APAC region, which is decidedly waning.”

Furthermore, Mr Chaisse considers the date of the RCEP’s signing – shortly after the US presidential election – to be a thunderous call to order for the new president Joe Biden, who for eight years was in the shadow of Barack Obama and his strategy of pivoting toward Asia Pacific.

“Beijing is in the process of organising its economic presence in APAC and around the world by force, so that the US is no longer the sole dominant power there,” says Mr Chaisse. “The RCEP is a first challenge for the Biden administration. It also puts into perspective the ambitions of the Indo-Pacific strategy forged by the US, Japan, India and Australia, supported by France and Germany, to counter Chinese expansionism.”

Another key issue is whether India, having left the negotiating table in 2019 due to concerns over domineering Chinese influence, will reconsider and join the RCEP. “New Delhi does not want Chinese products to overwhelm its industry,” contends Mr Chaisse. “Nonetheless, RCEP signatory countries have indicated that negotiations can resume at any time for India’s entry.”

Cementation

With the RCEP encompassing some 2.2 billion people – more than any previous regional free trade agreement – it appears to cement APAC’s burgeoning trading status, China’s image as a dominant economic power, and waning US influence in the region.

In Mr Chaisse’s view, there are two main yardsticks that will determine if the RCEP is deemed a success. The first is economic. “China is in a strong position in the RCEP because of its economic weight, but also because Beijing has been calling for this type of structure for more than a decade to allow it to strengthen its influence on a continental scale,” he suggests. “By 2025, it will be possible to assess Chinese trade gains and see whether the RCEP is an economic success.”

The second yardstick is political. “The RCEP brings together countries that are in economic competition and sometimes have difficult political relations,” continues Mr Chaisse. “Japan and China especially, but also Vietnam and China or even Japan and South Korea. Will this agreement reduce these competitions? Nothing is less sure. It is therefore necessary to remain cautious, both on the reasons justifying different countries to be part of it, and on the capacity of this agreement to reduce disputes.”

Overall, while the RCEP is by no means perfect – it does not, for example, promote regional digital standards or contain social or environmental standards, nor restrictions for state-owned enterprises – it does provide a major signal to investors that the APAC region is fully committed to multilateral trade integration. It is a mega-pact which creates the most populous trading area in the world.

Fraser Tennant