The signing of the Regional Comprehensive Economic Partnership on Nov. 15 ushered in a new era of regional economic integration in Asia.
But as economically dynamic as Asia is, and despite the fact that it boasts three of the world’s top 10 economies — China, Japan and India — it has never bred a regional free trade zone on the scale of the EU or USMCA. The only regional free trade zone in the region, anchored by ASEAN, has a combined output less than one-fifth that of the EU.
The RCEP makes a major breakthrough by bringing together all the 10 ASEAN members and five key players in the region. Covering approximately one-third of the world’s population, global GDP and trade, the huge free trade deal constitutes the world’s single largest free trade zone.
Moreover, the RCEP represents a giant step toward an Asian Union. It may also serve as a springboard for other grand regional economic schemes. It may, for one, lay the groundwork for a possible Asia-Pacific free-trade zone. RCEP is set to accelerate regional integration.
However, the more immediate impact of the RCEP is a powerful boost to economic recovery and growth in Asia and globally. As the pact takes effect, the flow of capital, goods and people will be augmented, and the cost of transactions reduced, resulting in efficiency gains. In addition, the region stands to reap the benefits of economies of scale.
Asia, the fastest growing region during the past decade or so, has proved more resilient and resourceful than other regions during the pandemic. HSBC said the partnership would “help put Asia on its pre-COVID growth trajectory.”
Experts have said the RCEP will drive growth beyond Asia by providing the world with an expanded market, enabling the region to continue to serve as a growth engine for the world.
The significance of the RCEP goes beyond its economic impact. The signatories, including some of the closest allies of the United States, despite their territorial disputes and ideological differences, came together for their common good. They have chosen free trade over trade protectionism and multilateralism over decoupling. At a time when trade protectionism and deglobalization are scourging much of the world, the RCEP shows that free trade and multilateralism are still very much alive.
It is unfortunate, however, that the potential economic gains of the mega trade deal and its contribution to the global trading system have been largely lost on some mainstream media in the West. Little has been mentioned about the significant benefits of the historical agreement. Instead, the trade pact is perceived as a Chinese coup, a setback for U.S. influence in the region and a challenge to President-elect Joe Biden’s avowed goal — reaffirming U.S. leadership in trade.
The RCEP has been viewed through the prism of geo-politics. Zero-sum mentality has prevailed once again. Portrayed as a tug of war between China and the U.S., the true picture of the regional free trade agreement, to the dismay of numerous people in the region and indeed around the world, has been distorted.
In fact, RCEP has never been led by China, as some media in the West have suggested. It was an inititive of ASEAN, and the group took it to the finish line, providing effective leadership in the difficult and protracted negotiations. It was ASEAN that, in spite of doubts and hesitation from Japan, decided to proceed when India opted out of the negotiations a year ago. As the driving force behind the RCEP, ASEAN deserves all the credit for the successful conclusion of talks.
Admittedly, China has played an indispensable role in the evolution of the RCEP. It respected and supported the leading role of ASEAN while contributing its wisdom and resources to the making of the regional free trade zone. When ASEAN invited China as the first country outside its ranks to be part of the plan, China immediately warmed to the idea and proposed Japan and South Korea for inclusion.
China is expected to continue to be one of the major players in the RCEP. The country accounts for more than half the combined GDP and population of the RCEP’s signatories. With abundant productive capacity and a relatively well-educated work force, it is well positioned to contribute to the improved and expanded market access that the RCEP will induce in the region. The pact will thus enable China to more efficiently allocate resources, contributing to its desired high quality economic growth.
Meanwhile, China’s role in the RCEP will provide other signatories an unrivaled opportunity to grow and prosper with the country. Unlike the EU, where more then 80 percent of the growth over the next decade is anticipated to come from outside the bloc, China’s growth will largely be driven by internal demand, as dictated by its new development strategy.
As the Chinese economy pushes ahead, demand for products, technology and services from outside the country is expected to increase exponentially. This year has seen ASEAN overtake the U.S. and the EU to become China’s largest trading partner. The group now accounts for about 14 percent of China’s trade with the rest world, with its exports to China jumping by more than 6 percent in the first 10 months of this year. With RCEP, it can expect to acquire a bigger share of the fast-growing Chinese market, sharing the dividends of the country’s economic development and opening-up.
China’s active participation in RCEP underscores the country’s resolve to open up further to the outside world. But the RCEP is just one trade pact the country wants to be part of. As President Xi Jinping recently announced, China is pushing to conclude an investment treaty with the European Union before the year is out and on that basis begin discussions of a free-trade agreement between the two. Further, China has expressed interest in accessing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The RCEP may offer a different approach to regional economic integration. First, as it is designed to promote inclusive development, the pact has tried — quite successfully — to accommodate the special needs of its least developed members, providing them with different and preferential treatment.
Second, unlike the CPTPP, tariff reductions under the RCEP are gradual and incremental. Although the ultimate goal is to achieve zero tariffs on more than 90 percent of goods that are traded among its members, the starting point is just 65 percent, and it will take 10 years to achieve.
Third, the mega trade deal covers, in addition to issues related to market access, “modern issues” such as IP, government procurement, competition policy and e-commerce. However, some other issues that are included in the CPTPP and USMCA are conspicuously absent, which may cause some to question its comprehensiveness and progressiveness. For example, RCEP addresses neither labor nor the environment — two essential issues that Biden demands in any trade pact the U.S. enters. The seeming deficiency in the RCEP has prompted Biden to assert again that the U.S. and its allies should set the rules of the road.
However, the wearer of a particular pair of shoes is better positioned than the salesman to judge if they are sensible. Despite all the criticism by some outsiders, the pact is perhaps the best possible deal the 15 Asian nations were able to strike. Just as shoes should fit their wearers, any trade pact — if it is to serve its intended purpose — must suit the special circumstance of its signatories. We can have different approaches to regional integration, as there is no one size that fits all.
