The Regional Comprehensive Economic Partnership (RCEP)

Holy Grail of prosperity?

The inking of the Regional Comprehensive Economic Partnership (RCEP) after a decade of hard-talks on the final day of the 37^th ASEAN Summit hosted virtually by Vietnam, definitely, heralds a new era of prosperity and free trade, not only across the member states of the Association of Southeast Asian Nations, but, also across the Asia-Pacific nations including China, Japan and South Korea that signed the agreement.

World’s largest regional free-trade agreement

With the Asia-Pacific nation such China, Japan and South Korea being signatories to the agreement, the RCEP has, now, become the largest regional free-trade agreement, incorporating nearly a third of the world’s population and accounting for one third of the word’s gross domestic production.  

Top officials from 15 nations including Australia and New Zealand also signed the RCEP.   ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), a regional grouping with the avowed aim of promoting economic, political, and security cooperation among its ten members, is made up of member states with a total population of 650 million people, accounting for an aggregated gross domestic product (GDP) of $2.8 trillion.

Benefits of the RCEP

The RCEP is widely hailed as an agreement that would develop pandemic-disrupted supply chains and support speedy economic recovery. In order to come into force, a minimum of six ASEAN countries and three non-ASEAN partners must ratify RCEP. According to Singapore’s Minister of Trade and Industry Chan Chun Sing Singapore would to ratify the deal in the next few months.

Once it comes into effect, the RCEP would rejuvenate pandemic-hit economies by reducing tariffs and reinvigorating supply chains with common rules of origin, and writing-down new e-commerce rules.

Major benefits of the Regional Comprehensive Economic Partnership include a tariff elimination of up to 92% on traded goods among signatory nations and in-build provisions to address non-tariff measures. In addition, the RCEP is expected to improve vital areas such as online consumer and personal information and data protection, higher degree of transparency and paperless trading. The agreement also simplifies customs procedures, complete opening up of no less than 65% of the service sector with enhanced foreign shareholding limits.    

Although India opted not to be an immediate party to the agreement due to Prime Minister Narendra Modi’s concern about protecting the livelihood of the most vulnerable segments of the Indian population, India is allowed to rejoin the trade pact later on.

RCEP changes the regional dynamics?  

What is noteworthy here is the fact that whether RCEP has the potential to change the regional dynamics in favour of China or has China been the direct or indirect beneficiary of RCEP.

The equation is, more or less, dependent on the US response to it. It is obvious that the US President Donald Trump’s decision to withdraw from Transpacific Partnership or TPP virtually deprived the US of a strategic advantage over China in containing its growing economic influence in the region.  It goes without saying that TPP, if the US did not withdraw from it, would act as a countervailing force against increasing Chinese influence in the region.    

Transatlantic Trade and Investment Partnership (TPP), an ambitious, comprehensive, trade and investment agreement between the United States and the European Union (EU), is poised to bring about a host of benefits to the both parties, paving the way for American families, workers, businesses, farmers to have easy access to European market for made-in- America goods and services.

According to the European Commission, the TPP would expand EU’s economy by €120 billion, the US economy by €90 billion. Its contribution to world economy would amount to €100 billion.

Without weighing its pros and cons, President Donald Trump unilaterally decided to withdraw the US from the TPP for reasons best known to him and declared that it was “obsolete and no longer relevant”.  

Subtle diplomacy

It is unclear how the US President-elect Joe Biden would react to the seminal developments being taken place in the ASEAN countries in general and in the Asia-Pacific region in particular against the backdrop of increasing China’s economic influence in the region.

The Regional Comprehensive Economic Partnership (RCEP) would add another challenge to Biden’s list of woes in the region.  One of the daunting tasks that Biden would, inevitably, confront is to mend fences with the US’s regional allies including EU and to rejoin the TPP negotiations. 

What is clear is that business would not be the same and easy as it used to be for the US. And as predicted, Biden will make use of his extensive knowledge, expertise and experience in Foreign Affairs and diplomacy to contain and control the growing Chinese economic influence in the region.  As opposed to President Trump’s bull-in-the China-shop type of diplomacy or bullying diplomacy accompanied by costly a trade war, anti-globalisation rhetoric, Biden would employ his subtle diplomacy that would, eventually, allow the US to achieve its long-term and short-term diplomatic objectives.

Nevertheless, RCEP would bring prosperity to the ASEAN nations and even to the Asia-pacific region, boosting economic growth and helping speedy recovery of pandemic –hit economies. China taking the upper hand in the affairs of Asia-Pacific region is remained to be seen. Containing the growing Chinese economic influence in the region and tilting the balance towards China, is, by and large, dependent on multiplicity of factors. Needless to say, the prominent among these is Biden Administration’s ability to win back US’s allies and forge new friendship in the region and to reclaim US’s leadership on the world stage. Perhaps, China may make use of RCEP to achieve its strategic goals in the region. It is up to the US to counter such influences in the region. Whether the US President- elect Biden would live up the challenge is remained to be seen.           

Edited by Elishya Perera