On November 15, the Regional Comprehensive Economic Partnership (RCEP) became one of the largest free trade agreements in history, with 15 signatory states and ASEAN at its center.
Many observers see the deal as a political windfall for China, as it represents a historical step towards multilateralism in Asia and the US and India are nowhere to be seen. The agreement includes ASEAN, Australia, China, Japan, New Zealand and South Korea and represents 2.2 billion people.
“This is a major step forward for our region,” said Singaporean Prime Minister Lee Hsien Loong on the day of the signing. “At a time when multilateralism is losing ground, and global growth is slowing, the RCEP shows Asian countries’ support for open and connected supply chains, freer trade and closer interdependence.”
The RCEP’s immediate impact is primarily political and diplomatic, rather than economic. The deal will drive economic growth but it won’t shift trade in major ways: it eliminates tariffs primarily for goods already included in existing free trade programs. It also allows states to maintain tariffs around key industries and notably does not address issues around labor rights, intellectual property or the environment.
On the geopolitical level, the RCEP shows the value of Southeast Asian leadership in pushing multilateral cooperation. Large-scale trade agreements for East and Southeast Asia have been on the table for years and the RCEP was, at its inception, seen by political analysts as a vehicle for China and India to assert their geopolitical agendas in response to the Trans-Pacific Partnership (TPP), Washington’s answer to the RCEP.
After India expressed doubts and pulled out in November 2019 over concerns about protecting its economy, the deal was at risk of being subsumed entirely within Beijing’s foreign policy. The RCEP became politically acceptable for many leaders involved because ASEAN took over leadership in the negotiations—this reduced the chance that the deal would be seen as politically toxic among leaders working to balance Chinese and US influence.
At the same time however, Southeast Asian leaders weren’t able to shift the geopolitical balance of the agreement enough to bring Washington or New Delhi back into the fold. Washington abandoned the TPP and backed away from nearly all regional trade partnerships under the Trump administration. The RCEP signatories have maintained that New Delhi will still be welcomed into the pact, despite India’s refusal to join China’s Belt and Road Initiative and a border conflict between the two states earlier this year.
Amid seemingly ubiquitous concern over how to navigate US-China tensions, the RCEP shows how ASEAN may be able to add value to multilateral cooperation. Through the bloc’s neutrality, ASEAN can offer backing to multilateral efforts that help to stabilize the region. The incoming Biden administration in Washington offers a window of opportunity to promote stability: on issues from the South China Sea to the Mekong River, Southeast Asia-centric initiatives with broad support offer the possibility of progress on seemingly intractable disputes.
RCEP offers boost for ASEAN states by cementing cooperation
The RCEP primarily represents a commitment to standardization of existing cooperation and trade ties. Economists expect that the deal will allow for significant growth, contributing US$200 billion per year to the world’s economy by 2030 and $19 billion to ASEAN’s regional economy. The World Bank has predicted that signatory states will see GDP rise by 1.5%.
According to the US-based Peterson Institute for International Economics, trade among signatory states stands to increase by US$428 billion. These estimates of growth are stark considering that potential losses from US-China trade disputes could top $301 billion per year by 2030 if no major regional trade deals are signed.
The most significant terms of the RCEP deal with “rules of origin”: the rules used to classify a product’s country of origin. Under existing trade pacts in the region, the criteria for a product to qualify for free trade differ widely, limiting regional integration. The RCEP standardizes these regulations.
For ASEAN, states with large manufacturing as well as agricultural sectors, like Vietnam, stand to benefit significantly by gaining access to much wider markets.
The deal is clearly a boost for countries that can find a way to capitalize on more integrated ties with China. But while much of the political analysis of the RCEP focuses on Beijing, the primary economic benefits for ASEAN states lie in stronger ties with Japan and South Korea—and, to a lesser extent, New Zealand and Australia.
The deal is a major win for Southeast Asian states that are on track to bring in new investments as major corporations move their operations out of China—Indonesia and Vietnam, among others. Terms that strengthen supply chains will also allow states with large tech and other manufacturing sectors—like Malaysia and Thailand—to build closer ties with Seoul and Tokyo.
While the RCEP shows the value of ASEAN neutrality, it also leaves questions as to how Southeast Asia will balance its close ties to China and East Asia. With the Biden administration coming into the White House in January, leaders in the region from Hanoi to Jakarta and Manila will be looking for Washington to reinstate its commitments to multilateralism.
Through cautious navigation of the South China Sea and Mekong issues, as well as bilateral partnerships with China, most member states have shown a willingness to wait for the US to offer its own initiatives to support a regional balance. But with the RCEP in place and little cohesion from Washington on its Free and Open Indo-Pacific policy, the Biden administration faces a major challenge in proving its relevance.
As Jennifer Hillman, senior fellow on trade and international political economy at the Council on Foreign Relations, told the New York Times, “I’m not sure the rest of the world is going to wait until America gets its house in order.”
Source: Asean Today