Fifteen countries in the Asia-Pacific region on Monday signed the Regional Comprehensive Economic Partnership (RCEP), one of the largest free trade agreements in history. Inspired by the 10 member states of the Association of Southeast Asian Nations (ASEAN), the agreement also includes Australia, China, Japan, New Zealand, and South Korea—a particularly notable feat at a time when China is engaging in ongoing feuds with its neighbors, most recently including Australia and regional heavyweight India.
Hailed by Chinese Premier Li Keqiang as a “victory for multilateralism and free trade,” critics worry that the deal will cement Beijing as the dominant economic power in Asia at a time when the U.S. has withdrawn from sweeping trade deals and further economic integration with the region. At The New York Times, Keith Bradsher and Ana Swanson reported on the deal’s symbolic weight, noting thats due to close existing economic relationships among RCEP, it is not likely to dramatically reshape trade between many countries:
The agreement, the Regional Comprehensive Economic Partnership, or R.C.E.P., is limited in scope. Still, it carries considerable symbolic heft. The pact covers more of humanity — 2.2 billion people — than any previous regional free trade agreement and could help further cement China’s image as the dominant economic power in its neighborhood.
It also comes after a retreat by the United States from sweeping trade deals that reshape global relationships. Nearly four years ago, President Trump pulled the United States out of the Trans-Pacific Partnership, or T.P.P., a broader agreement than the R.C.E.P. that was widely seen as a Washington-led response to China’s growing sway in the Asia-Pacific region. Joseph R. Biden Jr., the president-elect, has been noncommittal on whether he would join the T.P.P.’s successor.
[…] The pact will most likely formalize, rather than remake, business between the countries. The R.C.E.P. eliminates tariffs mainly for goods that already qualify for duty-free treatment under existing free trade agreements. It allows countries to keep tariffs for imports in sectors they regard as especially important or sensitive. [Source]
The Financial Times’ Robin Harding and John Reed reported on a key provision in the RCEP: the standardization of product rules of origin, which will make it significantly easier for countries to link supply chains across the region:
The first is rules of origin, the criteria that determine where a product was made. All of Asean’s trade agreements have different rules of origin so, for example, if a company in Indonesia makes a bicycle it might be eligible under a free trade deal with Japan but would need different components to be eligible under a deal with South Korea.
RCEP will sweep all of that away. “When you manufacture a product for RCEP it works for all 15 countries. And there’s only one piece of paper that you need,” said Deborah Elms, executive director of the Asian Trade Centre consultancy in Singapore. [Source]
It is also noteworthy that the RCEP contains no provisions relating to environmental standards and labor rights. In contrast, trade deals negotiated by countries in the region with Western nations have often included requirements relating to improving labor conditions. The Vietnam-E.U. Free Trade Agreement that recently went into force, for example, compelled Vietnam to ratify and implement International Labour Organization (ILO) principles such as the elimination of forced and child labor. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), another mega trade deal that succeeded the U.S.-led Trans-Pacific Partnership after the Trump Administration withdrew in 2017, also featured provisions on labor and environmental standards.
The RCEP stands out as the first free trade deal between China, Japan, and South Korea. Other experts have noted that while the partnership remains fairly shallow and does not compel significant change in the way the three countries do business, the signing is nonetheless significant coming at time of increased aggression from Beijing.
Most recently, China has been locked in a bitter trade dispute with Australia after the Australian government pushed for an independent investigation into the origins of COVID-19 in China. CDT recently wrote about Beijing’s threats to ban the import of key Australia products from barley to wheat to lobster. On Monday, Canberra and Beijing were able to set aside their differences to sign the RCEP. But, South China Morning Post’s Su-Lin Tang and Orange Wang reported that analysts have warned not to expect the RCEP to solve the trade dispute between the two countries:
But hopes that the RCEP could cool tensions between the two trading partners may not be realistic.
“The institutional structures set up along with the liberalisation commitments in the RCEP will provide an additional forum to negotiate on matters of common interest and to resolve the inevitable disagreements about technical trade issues,” said Brett Williams, principal at the Williams Trade Law firm. [Source]
Meanwhile, tensions between China and India have more strongly affected the outcome of the RCEP. An early participant in talks leading up to the agreement, New Delhi withdrew from the partnership in 2019 and refused to come back. The Asia Times’ Sumit Sharma reported on some of the reasons for India’s cool response to the RCEP:
New Delhi’s decision owed largely to concerns RCEP participation would expose Indian producers and manufacturers to a flood of cheap and mainly Chinese-made imports, an unequal trade flow Indian officials say would have jeopardized millions of local businesses, industries and jobs.
Indian textiles, agriculture and dairy sectors, which employ hundreds of millions of workers, are seen as the most vulnerable to Chinese and other RCEP signatory imports. Under the pact, India would have been required to steadily drop tariff levels.
China already enjoys a huge trade surplus with India, which hit US$48.6 billion in the 2019-20 fiscal year period, according to Indian official statistics.
Rising anti-China sentiment in India, which has spiked after recent clashes on the two sides’ Himalayan border, has crimped overall trade, which was down 7% year on year over the same period, the steepest fall since 2012-13. [Source]
Experts have warned that, due to the sheer size of the two countries, in India’s absence China may have a much more influential voice in negotiations between members. That worries analysts who see the deal as a further step in Beijing’s efforts to cement its position in the region.
Concerns over the U.S.’s waning influence in the region have been abundant in Washington since the Trump Administration’s prominent withdrawal from the Trans-Pacific Partnership in 2017.
1: Long thread follows … A lot of the commentary on RCEP today, some of which disses it as a minimalist trade deal, misses the point. If you’re American, you can’t just look at it while ignoring the larger context of 25 years of change in Asia.
— Evan Feigenbaum (@EvanFeigenbaum) November 15, 2020
For CNN Business, Jill Disis and Laura He reported on the incoming Biden administration’s potential to reorient the dynamic in the Indo-Pacific, noting that the president-elect has thus far been non-committal about rejoining the TPP or participating in other free trade agreements:
“Whether it means a shift in the regional dynamic in favor of China depends on the US response,” Reinsch said of the new trade deal. He pointed to the importance of the election of Joe Biden, who will succeed President Donald Trump in January.
“If the US continues to ignore or bully the countries there, the influence pendulum will swing toward China,” he added. “If Biden has a credible plan to restore the US presence and influence in the region, then the pendulum could swing back our way.” [Source]