RCEP enters the podium and surpasses both NAFTA and the EU as the world's largest free trade agreement
On 15 November 2020 the ASEAN countries together with Japan, China, South-Korea, New-Zealand and Australia signed the Regional Comprehensive Economic Partnership (RCEP). It seems ambitious, unifying and game-changing. However, the reception is not warm everywhere and critics warn for too much optimism. This article takes a closer look at the RCEP. Is the deal as ambitious as it looks like? Or should expectations be nuanced and tempered?
After eight years of “negotiating with blood, sweat and tears” – as formulated in quite a dramatic way by Azmin Ali, Malaysia’s Trade Minister – on 15 November 2020 the time had finally come. At a virtual (read: corona-proof) ceremony in Vietnam’s capital Hanoi the world finally witnessed white smoke regarding the trade pact. Vietnam – currently holding the ASEAN presidency – acted as master of ceremony. The partnership will remove a large number of import and export tariffs between the member states or, in other cases, significantly reduces them. In reality, however, we already noticed an intensive trade between the participating parties. How ambitious is this RCEP really?
Let’s take a dive into the numbers. The partnership between the ten ASEAN member states and Japan, China, South-Korea, New-Zealand and Australia covers a third of the world’s population and around thirty percent of global economy. In this way, both the EU and NAFTA are being left behind. However, practice teaches us first of all that there already was intense cooperation between many of the member states. In addition, according to the Financial Times, an in-depth look at the deal also reveals another shortcoming: the deal eliminates fewer tariffs (90%) than other similar trade deals. Moreover, the agricultural sector is not included in the deal.
The exact value of the deal remains difficult to express in mere numbers. Yet the Peterson Institute for International Economics, a reputable think-tank in Washington, attempted to make a prognosis concerning the expected impact of the deal on real income over 2020-2030. Japan (1%) and South-Korea (1%) appear in their model as the prognosed winners. Malaysia (0.6%), Vietnam (0.5%), Thailand (0.5%), China (0.3%) and New-Zealand (0.2%) are in the chasing group.
What cannot be denied is its symbolic value. It will function as a building block for an economically stronger Asia-Pacific and will benefit both regional cooperation and development. In addition, it is a strong statement of unity and a boost for multilateralism at a time in which both the international community and the global economy are being hit hard by the Covid-19 crisis. Last but not least, it brings – for the first time ever – China, Japan and South-Korea together in a free trade deal. Maybe, in this way, the deal will work as a trigger for a final breakthrough in the negotiations of their own free trade agreement. Reasons enough to celebrate, we believe.
The coming year(s), the agreement needs to be ratified. Analysts predict that this formality should be fulfilled by 2022. In the meantime, we could still see India join RCEP. In any case, this marks the start of an interesting and challenging period for the entire region. It should also be a signal to European governments and companies to pay close attention to this growing Asian economic power in the midst of increased pressures on globalization and tensions between USA and China.