As yet, not many people are familiar with the acronym RCEP, but they may well soon be. The four letters stand for Regional Comprehensive Economic Partnership and refer to what by Sunday could be the world’s biggest Free Trade Agreement covering 2.2 billion people in 15 countries and representing nearly one-third of the world’s GDP in a footprint stretching from Japan to New Zealand.
First proposed back in 2011, the RCEP could end up knocking as many as 90% off the tariffs on imports between its signatories within 20 years of coming into effect, which could be by as early as next year. It will also establish common rules for e-commerce, trade and intellectual property and strengthen supply chains with common rules of origin.
Along with One Belt One Road, RCEP rates among President Xi Jinping’s most ambitious attempts yet to extend China’s global soft power reach. Its launch is expected to be ratified this weekend at the ASEAN summit that is currently being virtually hosted by Vietnam. If so it would, according to Malaysia’s Trade Minister Azmin Ali, be the culmination of “eight years of ….blood, sweat and tears.”
Potentially the most serious obstacle in RCEP’s path appeared last year when India, which had very much wanted to join, said it was going to withdraw. Although increased trade liberalization would have benefitted several segments of its economy, particularly its pharmaceuticals, sector, it argued that it would make it almost impossible to protect others which would be exposed to an influx of low-priced goods from elsewhere in the region. This potentially flew in the face of the Modi administration’s own ‘Make in India‘ campaign, which aims to strengthen India’s manufacturing industries.
RCEP invariably draws comparison with the Trans-Pacific Partnership (TPP) that was originally envisaged to bring several major Asia-Pacific countries (including Japan, Malaysia Singapore and Vietnam) with several American nations (ie Peru, Mexico, Chile and, most notably, the US). In 2017, however, the then newly elected US president Donald Trump withdrew the US signature, effectively scuppering the entire initiative.The remaining countries then negotiated a new trade agreement called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which incorporates most of the provisions of the TPP and which entered into force on 30 December 2018.
The imminent ratification of the RCEP is now serving to highlight how Trump’s decision has the potential to undermine America’s ability to counterbalance China’s economic clout in the region. Even though the RCEP is not as far-reaching as the TPP in regulatory terms, its implementation could make it harder for US businesses to compete with their Chinese counterparts.
Coming so soon after the US elections. The timing of that ratification – if indeed the agreement is signed, sealed and delivered this weekend – puts Joe Biden in a very interesting position – assuming, of course, he for his part eventually gets the keys to the White House. Even without India, the RCEP remains the biggest FTA in the world and would represent the first-ever such agreement to bring together China, Japan and South Korea – Asia’s first, second and fourth-largest economies. Can the US afford not to join the party?