Fifteen countries in Asia and the Pacific have formed the world’s largest trading bloc under the leadership of China. The Regional Comprehensive Economic Partnership (RCEP) is a new free trade area comprising 2.2 billion people and 30% of the world economy. Is this a threat or an opportunity?
The RCEP is a deal between China, Japan, South Korea, Australia, New Zealand, and the ten Southeast Asian ASEAN countries (Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Myanmar, Cambodia, Laos, and Brunei). It comprises one-third of both the world economy and the world population, being larger than USMCA, the trade bloc of the US, Mexico, and Canada, and bigger than the EU.
The Free Trade Agreement
While the EU is an economic and monetary union with an inclination for political integration (particularly following the departure of the United Kingdom), RCEP is purely a free trade agreement which, for the time being, is limited to lowering tariffs, opening up markets and enabling the free movement of goods, especially industrial and agricultural products, and data. Politically sensitive issues such as standards for the protection of workers’ rights, the environment or intellectual property, and the protection of the economically crucial service sectors in Asian countries remain outside the deal. The deal represents a huge success for China which is now the undisputed leader of a regional bloc that includes old rivals such as Japan and South Korea. Not only will China become less dependent on Western markets and technology but it can also strengthen its Belt and Road Initiative for a new global Silk Road infrastructure and shine as “the champion of globalization and multilateral cooperation”.
Victory of Multilateralism and Free Trade
A huge free trade zone in Asia could be beneficial for European companies too. The EU will be able to conclude new trade agreements with RCEP, as it previously did with the South American Mercosur and the advent of RCEP, a fruit of Asian pragmatism, seems to strengthen the multilateral world in which the EU thrives. The symbolism of the founding of RCEP cannot be underestimated in that regard nor within the midst of the global corona pandemic and on the eve of Biden’s presidency. With RCEP, China positions itself as the world champion of the fight against the Trumpist protectionism of the USA. As the Chinese Prime Minister, Li Keqiang, said:
“The signing of RCEP is not only a milestone of East Asian regional cooperation, but also a triumph of multilateralism and free trade.”
What happens next?
However, as yet the RCEP is not a reality with agreement having only been reached on Sunday (November, 15th) and ratification by the Member States expected to take years. It is still unclear in which areas trade tariffs will fall (the text of the agreement remains undisclosed) although it is certain that this will vary from country to country. Poor countries will also be given more time to adjust their economies. In the meantime, this offers every prospect of quarrels breaking out over aspects such as China’s expansion in the South China Sea.
