RCEP: a timely mechanism for building ties and enriching connectivity and trust in the ASEAN region
After eight years of negotiation, on 15 November the Regional Comprehensive Economic Partnership (RCEP) was finalised. The deal between Australia, New Zealand, China Japan, South Korea and the ten ASEAN member states is an important development for trade, and has significant geopolitical implications.
From the trade perspective, the 20-chapter deal provides consistent trade rules among the member states and streamlined reciprocal access to goods and service markets, with tariffs eliminated for over 65 percent of goods traded. At a value of AU$37 trillion, the RCEP covers 30 percent of the global economy. The other 14 RCEP countries make up nine of Australia’s top 15 trading partners, account for 58 percent of Australia’s total two-way trade, 66 percent of its exports. According to HSBC forecasts the RCEP is projected to add up to AU$275 billion to the global economy by 2030. Australia’s commitment to realising this potential is reflected in its AU$46 million contribution to provide technical assistance and capacity building to help ASEAN countries implement the RCEP.
This makes the RCEP the world’s largest multilateral pact, surpassing the Trans-Pacific Partnership (TPP) after President Trump withdrew the US from that arrangement. The TPP could in time regain superior economic status, as President-elect Biden has signalled that the US may re-join, pending major revisions around labour and environmental regulations.
The TPP and RCEP are quite different kinds of trade agreements. The former is comprehensive, with ambitious goal and standards which it applies equally to all member countries regardless of development status. RCEP by comparison is about harmonising tariffs and rules of origin for Asia’s complex global supply chains, seeking improved market access in services and investment, and introducing a dispute settlement mechanism. It includes no regulations on environmental or labour standards. It has minimal transparency provisions. Unlike the TPP, RCEP is predicated on extensive flexibility, including gradual liberalisation of tariffs and longer transitions times for countries where required.
Because of Australia’s existing trade agreements with other RCEP member countries, substantial tariff cuts on Australian exports are not the major advantage for us. But just as significant as trade flows, however, are the geopolitical implications of RCEP. Even prior to the COVID-19 pandemic, several geopolitical developments have been creating regional uncertainty. The strategic competition between the United States and China, climate change, and rapid tech advances have all combined to unsettle the stability of the region. Social and political unrest, and the associated rise of populist leaders with their instincts for nationalism and protectionism, have also begun to erode multilateralism in the region. All of these dynamics have been exacerbated by COVID-19.
We often talk about how geopolitics affects business. At the same time, though, it is also true that business affects geopolitics. In situations where bilateral and multilateral ties at official levels are becoming stretched and thin, building strong connections among the business community creates resilience and builds trust in relationships. The finalising of the regional trade deal signifies that multilateralism in the Asia Pacific has not yet been superseded by insularity. RCEP is the first time China has been included in a multilateral trade deal, and it is the first time China, South Korea, Japan and Australia have been in a trade deal together. ASEAN has welcomed RCEP as an historic milestone which will “give a much-needed boost for a swift and robust recovery” for the region. China also has welcomed the deal, heralding it as a ‘victory for multilateralism’. In a time of uncertainty, RCEP’s signing will help create linkages that can build the kind of connections that the region needs. Of course, the fact that India has chosen not to sign on demonstrates that the challenge is not over. Australia and other RCEP members will continue to encourage India to overcome its concerns around protecting domestic enterprises.
In addition to RCEP’s importance as a trade deal, the multilateral partnership provides a timely mechanism for building ties and enriching connectivity and trust in the region.
With thanks to Olivia Gallimore for invaluable research support.