The Regional Comprehensive Economic Partnership – what happened and what’s next?
All trade deals are challenging, but the current global geopolitical climate means the Regional Comprehensive Economic Partnership (RCEP) is more challenging than others.
What is RCEP?
Negotiations for a multilateral trade deal among the ten ASEAN countries plus Japan, South Korea, India, China, New Zealand and Australia began in 2012. The trade bloc covers 25 percent of global GDP, 30 percent of global trade, 26 percent of foreign direct investment flows, 45 percent of the world’s population, and AUD522.1 billion in trade with Australia.
However, challenges around issues such as movement of labour and services liberalisation have proved difficult for all countries to agree on. At the 4 November meeting in Bangkok, the text of the agreement was finalised, and 15 of the 16 countries committed to agreeing on the last outstanding matters and signing the deal next year. Despite projections of significant economic benefits, India remains reticent, largely because of potential impacts on domestic enterprises.
For Australia, RCEP countries account for nine of Australia’s top 15 trading partners, 66 percent of exports, and 58 percent of trade. The Australian government notes that the deal will open up new doors for Australian businesses and investors, particularly in areas such as telecommunications and professional and financial services. Other benefits would include improved mechanisms for tackling non-tariff barriers, greater investment certainty for business, clearer rules around e-commerce, and agreed rules on intellectual property and rules of origin.
What about TPP?
The US was a key driver of the Trans-Pacific Partnership (TPP) under former President Obama, as part of the ‘rebalance’ or ‘pivot’ intended to reassure South East Asia of the US’ ongoing involvement in the region. However, President Trump withdrew the US from the agreement three days after taking office in 2017. Neither does the TPP include China or India, although the door remains open to them if and when they can meet the requirements. The TPP agreement was signed in 2016.
The TPP is comprehensive and its goals are ambitious. It is described as a “gold standard” 21st century trade agreement with high standards in rules for labour and environmental regulations, intellectual property, the internet, the digital economy, competition policy, and state-owned enterprises. It applies these equally high standards for 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 accesses 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.
Several countries would be members of both RCEP and TPP – Brunei, Malaysia, Singapore and Australia – and this could increase as several Asian countries who would be part of RCEP have expressed interest in joining TPP. It is possible in the future that the TPP and RCEP could merge into a region-wide agreement with combines the high standards of the TPP with RCEP’s differentiated treatment for developing countries.
The geopolitical context
Much of the commentary around the slow progress of the RCEP deal focuses on the economic challenges, such as India’s concerns. However, while important, these are by no means the full picture. Broader geopolitical factors are also impacting RCEP negotiations. International norms as well as institutions are losing their rallying power. The difficulty for leaders to come to agreements at recent multilateral summits such as the G7 in France, the G20 in Japan, and APEC in Papua New Guinea clearly illustrates this point. While it is still broadly accepted that free and open trade is beneficial to economic growth, the current global climate is not one that is conducive to multilateral agreements. Political logic is replacing economic logic in leaders’ decision-making. As KPMG Australia Chief Economist Brendan Rynne notes, with India’s population still growing fast, it needs to be adopting policies that push its economy up the development curve as quickly as possible. RCEP could help them achieve that. It would make more economic sense for India to sign up”. Despite these challenges, the continued determination of the RCEP countries to reach an inclusive deal demonstrates Asia’s commitment to protecting the norms and institutions of free trade.
The Australian government is optimistic that RCEP will be signed by all 16 countries next year. If this is not the case, it could, like TPP, be finalised without all countries signing. However, there is a strong preference among most parties for the agreement to be fully inclusive. Other participating states are hopeful that in the next stage of finalising the last details India’s concerns will be addressed and the full deal will be finalised in 2020.