By Strauss Cooperstein
In order to pull the “economic center of gravity back towards Asia” amid the COVID-19 pandemic, one of the most powerful free trade agreements in Asia Pacific history was drafted on November 15th at a virtual summit in Vietnam. Led by China, South Korea, and Japan, the Regional Comprehensive Economic Partnership (RCEP) joins together Australia, New Zealand, and the 10 original members of the Association of Southeast Asian Nations (ASEAN). The RCEP calls for the abolishment of tariffs on imports between signatories, less red-tape, and establishes rules for e-commerce, trade, and intellectual property.
Compared to the Trans-Pacific Partnership (CPTPP), the RCEP is less comprehensive and open given its exclusion of provisions for labor unions, environmental protections, and governmental subsidies. Further, of the $2.3 trillion in goods distributed between signatories in 2019, 83% of those goods were already regulated by previous internal trade deals. Nevertheless, the RCEP signals a unification of China with Asia-Pacific economies and a focus on regional supply chains in face of the US-China trade war and US unilateral trade policies. Projected to add $186 billion to the world economy through improved regional trade, it is the largest trade bloc in history considering that its fast-growing member countries account for both 30% of the world’s population (2.2 billion people) and global GDP ($26.2 trillion).
The RCEP signals a threat to “America First” trade policy, as APAC economies want to engage in a stable region rather than drawing battle lines between the US and China. Even for countries with strong security ties to the US like Japan and South Korea, East Asia recognizes the long-term benefits of deeper trade integration. Given that India and the US will remain uninvolved as of now, Chinese Premier Li Keqiang views the signing as a “victory of multilateralism and free trade.” China taking charge in its first multinational FTA is a milestone compared to its purely bilateral talks in the past, proving that it has plans beyond its “dual circulation strategy” of domestic consumption. India, which remains out of the RCEP, recognizes the subtle Chinese threat of cheap imports that would hurt Indian manufacturers and thus has opted out, limiting a main market opening for the trade bloc.
With years before the treaty becomes fully operational, analysts predict the trade liberalization framework to prove less significant economically in the short-term but more importantly as a diplomatic message from China. Even if the expected impact on real income by 2030 for Japan and South Korea will be greater than for China, the RCEP’s framework serves geopolitical and economic interests for China that are positioned against US and Indian trade priorities.