ASEAN bargains on RCEP trade deal to secure 'centrality' in Asia
30/12/2020 23Southeast Asian nations leverage agreement to balance great powers US and China
The Regional Comprehensive Economic Partnership covering 30% of the world's population and gross domestic product was signed last month after eight years of marathon negotiations.
As the United States and some other nations are taking a protectionist path, RCEP is significant in a general sense in that it's an Asia-based free trade framework. But it brings different gains and losses for each of the 15 signatories made up of the 10 members of the Association of Southeast Asian Nations and five Asia-Pacific countries.
China in particular is gloating. "Multilateralism and free trade remain the main and correct course as well as the right direction for the global economy and mankind," Premier Li Keqiang said at the signing ceremony held online due to the coronavirus pandemic.
The Global Times, the Chinese Communist Party-affiliated newspaper, took digs at China's presumed enemies and rivals with headlines such as "RCEP will end US hegemony in [the] West Pacific," "India loses out on regional integration opportunity" and "Taiwan faces Asia-Pacific isolation after RCEP exclusion."
RCEP was initially expected to make two significant trade achievements. One was free trade between Japan, China and South Korea and also between China and India, the first for both groups of countries. For China, the former would have led to increased imports, and the latter bigger exports. But as India pulled out of the negotiations at the last minute, RCEP seems likely to bring more economic disadvantages to China than advantages.
Still, Beijing welcomes the pact, probably because it will result in the political advantage of an Asian trade order free of the U.S., thus making up for economic disadvantages. For the same reason, Chinese President Xi Jinping announced his country's intention to consider joining the Trans-Pacific Partnership, from which the U.S. pulled out in 2017.
Figures also suggest that RCEP will not necessarily benefit ASEAN members in terms of their economies.
An estimate by the United Nations Conference on Trade and Development, or UNCTAD, and the World Bank shows that RCEP's five non-ASEAN members (Japan, China, South Korea, Australia and New Zealand) will see their combined trade balance improve by $12.7 billion a year. But for ASEAN, the balance will worsen by $17.3 billion. By country, the balance is expected to deteriorate for seven of the 10 members, except for Singapore, Laos and Brunei.
China's trade balance is also estimated to worsen by $1.3 billion. Japan is estimated to enjoy the best improvement at $16.7 billion thanks to increased exports to China and South Korea, followed by Australia at $2.9 billion. But the estimate was issued shortly before RCEP was signed and does not reflect the tariff cuts for individual items that were not available while negotiations were ongoing.
Indonesia is the largest economy in ASEAN. President Joko Widodo sided with China and said the signing marks "a historic day that shows strong resolve for multilateralism." But the government estimates that RCEP will expand Indonesia's GDP by just 0.05% during about 10 years from 2021 when the agreement is expected to take effect. The Jakarta Post called RCEP a "two-edged sword," saying, "we would largely become a market for products from other RCEP members at the expense of our own manufacturers."
Such a scenario could have been imagined even before negotiations began.
The origin of RCEP is a regional FTA proposed after the 1997 Asian currency crisis. China called for an "ASEAN plus 3 (Japan, China, South Korea)" framework. Japan, hoping to curb China's influence, proposed "ASEAN plus 6" that would include the three nations as well as India, Australia and New Zealand.
But ASEAN was reluctant. It declared in 2003 that it would create the ASEAN Economic Community. Alongside preparations for the AEC, the regional forum signed FTAs separately with all "plus 6" countries and the pacts went into effect by 2010. For ASEAN, serving as a hub for regional trade while the six partners do not have FTAs among themselves was convenient for attracting foreign investment.
That self-centered stance had to be revised after U.S.-led negotiations on the TPP started in 2010 and Vietnam and Malaysia expressed their intention to join. ASEAN had to promote a region-wide FTA so as not to lose its leading position in creating a free trade zone. It thus made an about-face and proposed RCEP in 2011.
Malaysian Minister of International Trade and Industry Mohamed Azmin Ali's argument that this FTA is not directed by superpowers is a good point. The requirement for the agreement to take effect is not the ratification by a majority of the signatories but by six of the ASEAN members and three others. That clearly shows that RCEP is an ASEAN-led framework.
But what has ASEAN gained in exchange for a worsening trade balance? It's not the U.S.-free regional order that China got. Rather, it's the ability to maintain "centrality."
ASEAN is made up of mostly smaller countries. As its emblem -- 10 rice stalks bundled together -- shows, unity has enabled it to maintain a presence on the international level. It has provided diplomatic stages, including the East Asia Summit to which Japan, the U.S., China, India, South Korea and Russia are invited. The ASEAN Regional Forum is a rare opportunity for security dialogue in which even North Korea takes part. ASEAN has maintained its profile by sitting in the driver's seat of a bus that carries even nonmembers can ride.
Centrality also means neutrality. Keeping a fine balance between China's assertiveness in the South China Sea and excessive support from the U.S. is instrumental to maintain centrality.
Most ASEAN members were colonies of Western powers and some became battlegrounds during the Cold War. Those bitter memories have helped them learn how to survive by finding a place in the power game rather than being at the mercy of it.
Despite having been on the verge of disintegrating many times, RCEP negotiations came to a conclusion. ASEAN's centrality remains intact for now. But, warned Eduardo Tadem, a former professor at the University of the Philippines Diliman's Asia Center, "With the exclusion of the U.S. and India's withdrawal, the imagined trade benefits from the RCEP are greatly reduced and will now center on the China market. This will only foster dependency relations and make ASEAN regional integration even more unattainable."
China is exercising a greater influence in economics politics and security through the Belt and Road Initiative and vaccine diplomacy. It is likely to use RCEP to create a China-led Asian order. The U.S. is expected to return to multilateralism once President-elect Joe Biden takes office in January. The tug-of-war over ASEAN between the two world powers will further intensify.
ASEAN is facing the difficult task of maintaining balance between Beijing and Washington to maintain its centrality. The RCEP signing of RCEP is the start of a bumpy road for the regional forum in 2021 and ahead.
Source: Nikkei Asia