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The Limits of the RCEP

Dec 4, 2020 Lee Jong-Wha

The new Regional Comprehensive Economic Partnership, signed last month by 15 Asia-Pacific countries, represents a firm repudiation of the protectionism that has been gaining ground in recent years. But it cannot save the multilateral trading system – and might undermine it further.

SEOUL – Last month, 15 Asia-Pacific countries signed the Regional Comprehensive Economic Partnership. The occasion marked what might be the most significant economic achievement since the COVID-19 crisis began. And yet the RCEP – or, indeed, Asia – cannot save the ailing multilateral trading system alone.

To be sure, the RCEP is a firm repudiation of the protectionism that has been gaining ground in recent years. Economic integration is very difficult in the Asia-Pacific, owing to widely varying levels of development, diverse cultures and institutional structures, and ongoing territorial disputes. But, confronted with the COVID-19 downturn, the parties were eager to conclude the pact, after eight years of negotiations.

And this is no minor trade bloc. Signatories include China and Japan – the world’s second- and third-largest national economies, respectively – as well as South Korea, Australia, New Zealand, and ten Southeast Asian countries. The RCEP thus accounts for 30% of global GDP, making it the world’s largest free-trade area.

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j. von Hettlingen Dec 7, 2020

Lee Jong-Wha says the new Regional Comprehensive Economic Partnership (RCEP), signed last month by 15 Asia-Pacific countries, is “a firm repudiation of the protectionism that has been gaining ground in recent years.” The occasion - a virtual event - could be seen as “the most significant economic achievement since the COVID-19 crisis began,” as leaders hope that the pact will help spur recovery from the pandemic. The parties were eager to conclude the pact, after eight years of negotiations.
The RCEP is no “minor” trade bloc, accounting for 30% of global GDP, making it the world’s largest free-trade area, surpassing both the US-Mexico-Canada Agreement (USMCA) and the European Union. Signatories include China and Japan - the world’s second- and third-largest national economies, respectively - as well as South Korea, Australia, New Zealand, and the 10 ASEAN countries: Laos, Cambodia, Indonesia, Thailand, Singapore, Malaysia, Philippines, Vietnam, Brunei, and Myanmar.
The deal is a significant step towards removing trade barriers, as well as extending China's influence in the region. It excludes the US, which withdrew from a rival pact - Obama’s Trans-Pacific Partnership (TPP) - in January 2017, on the third day Trump took office. Japan’s former prime minister, Shinzo Abe was determined to save the pact, and the newly-formed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes seven RCEP members, was his brainchild.
The combined GDP of the RCEP was $26.2 trillion in 2019, or about 30% of global GDP. The deal will cover nearly 28% of global trade, and would have covered 1.4 billion more people had India not pulled out of negotiations last year due to concerns “about larger trade deficits with China and the inability to protect” its weak industries and agricultural sector. “India’s inclusion would significantly increase the deal’s economic benefits, not only because of the size of its market, but also given its position in services supply chains.” The RCEP has left the door open for India. an original negotiating state.
At first sight, “the pact is a major step forward for regional economic integration. Signatories will eliminate various tariffs on imported goods, align trade norms, and adhere to unified rules-of-origin standards. The agreement also includes provisions on intellectual property, government procurement, financial services, and e-commerce.”
But the RCEP – “or, indeed, Asia – cannot save the ailing multilateral trading system alone,” according to the author. It “will not revive multilateralism. On the contrary, despite reflecting an appetite for trade liberalization, the proliferation of regional trade blocs could weaken the multilateral trading system, because they necessarily exclude non-signatories. For Asian economies, which have secured their prosperity by participating in global markets governed by common trade rules, this should be a serious concern…. The rest of the world must contribute, with the United States leading the way.”
Unlike in Europe, “economic integration is very difficult in the Asia-Pacific, owing to widely varying levels of development, diverse cultures and institutional structures, and ongoing territorial disputes… such as China’s claim to territories in the South China Sea.” The situation in Asia is much more diverse than in Europe, due to the huge differences in economic and political structures. The ASEAN has tried to foster dialogue and exchange on regional integration. However, its capacities are very limited since it cannot interfere in the domestic issues of its member states.
According to the author, the RCEP “has its limits” and does not offer the same level of integration as the EU or the USMCA. Unlike the EU, which had long established unified standards on various issues, The RCEP “lacks rules to protect the environment and workers, and the tariff reductions it demands are not as large as the ones required by the other big Asia-Pacific trade agreement,” the CPTPP. “As a result, it will not bring major economic benefits, even for participating countries.”
Trump has thrown a wrecking ball at multilateral treaties and institutions, which had destabilised the global community. Now the Biden administration “must take a radically different approach, not only rejecting protectionism, but also supporting much-needed reforms to a fragmented and outdated multilateral system. For example, current WTO rules do not adequately cover data flows, the digital economy, state-owned enterprises, and technology transfers.”
Although “Biden has expressed a clear commitment to multilateralism. But he has also indicated that he will be tough on China. This raises serious risks for the RCEP and multilateralism more broadly.” The author urges the US not “to limit China’s inevitable economic and technological rise, and focus instead on persuading the country to open its markets further and adhere to global rules and norms. This will be possible only if the US strengthens its relationships with allies and deepens its commitment to institutions like the WTO.”
The author believes that US leadership would strengthen the RCEP, from which it will benefit. The pact is not a “China-led” economic bloc, but “an ASEAN conception of the regional order, not a Chinese initiative.” And most RCEP members feel - politically and militarily - closer to the US than to China. Even if the US does not want to join RCEP or the CPTPP, it could back regional governments help promote stability and lessen the prospect of conflicts in the region.
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Madurai Padmanabhan Dec 5, 2020

Even before the RCEP was signed the regional trade contributed to nearly 60% of the ExImp of the nations involved. This can only increase and also help smaller, weaker nations to build capabilities in a system that allows for greater degrees of freedom; not straitjacketed by the globalization “trilemma” in this economic transitory phase that the planet at large must find answers to.

The jury is out on whether a global multilateral deal makes better sense or if a progressive regional agreement that allows the economic minnows to upgrade before facing storms such as those wrath by neoliberalism and other ‘rules’ skewed to favor mature industrial countries.

One could well ask if the US leadership sought by many pundits, is just herd think prompted by an unwillingness to consider the RCEP as a more pragmatic approach that listened to the “new” voices.

Or maybe this author’s enlightened wisdom is lost on me!
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