RCEP: A New Engine for Growth in Asia

It is called the Regional Comprehensive Economic Partnership, or RCEP, and it will go down in history as the largest trade deal in the world. 15 countries in the Asia-Pacific area – including China, Japan, South Korea, Australia, and New Zealand – have agreed on free trade in an area that represents approximately one-third of global population and GDP, and does not include either the United States or any countries in Europe. It is also the first time that historic rivals in Eastern Asia have reached an agreement that, according to some estimates, could increase annual global wealth by 186 billion[1] and contribute 0.2 percentage points to the GDP of each of the signatory countries. The agreement is particularly significant because the goods produced by the member states will require a single certification to be sold in the entire area. However, this does not apply in important sectors such as agriculture, due to the great diversity of the countries involved; they did not succeed in defining standard criteria that everyone could accept.

It took eight years, but on November 15, the last day of the 37th summit of the Association of South East Asian Nations (ASEAN) hosted virtually by Vietnam, Prime Minister Nguyen Xuan Phuc was pleased to announce that "the completion of the negotiations is a strong signal for the role of ASEAN in the multilateral trading system, for the development of the production and distribution chain interrupted by the pandemic and the support of the economy recovery." Malaysian Trade Minister Mohamed Azmin Ali echoed him: "After eight years of negotiations, tears, blood and sweat, we have finally reached an agreement that, in such a difficult moment, demonstrates the desire to open markets instead of relying on protectionist measures."

Among the points of the trade deal, that involves 2.2 billion consumers for a total GDP of over 26 trillion dollars, is the cancellation of tariffs for 92 percent of the goods traded between the countries, common rules on production and distribution chains, e-commerce, and respect for consumer privacy. Details are lacking on what products and countries will see an immediate reduction of tariffs, but Beijing has already called the agreement "a historic breakthrough." The country missing from among the signatories, though, is the third-largest economy in the area, India. Prime Minister Narendra Modi stated his worries regarding an increase of the trade deficit with China, and the influence the pact could have had on the wellbeing of India's population, especially the most vulnerable segments. The subcontinent may, however, join at any time.

How all of this will influence regional geopolitical dynamics is still to be seen. For China, whose 1.3 billion consumers represent the largest market in the region, it is certainly a great deal. It allows her to act as the promoter of globalization and multilateral cooperation, and also to heighten her economic influence in the entire area by dictating the rules of trade to the region (note that a small, but important country excluded is Taiwan[2]). Moreover, from the perspective of decoupling, this agreement could help Beijing reduce its dependence on European and U.S. markets and technology. This is in fact the point stressed by most analysts. When in 2017 President Donald Trump pulled out of the Trans-Pacific Partnership promoted by the Obama administration, the weight of the United States in the area decreased, in favor of the People's Republic of China, that in addition, has been increasingly assertive regarding the disputed islands in the South and East China Sea. And even if the new U.S. president Joe Biden wishes to somehow mend the break with China, everything leads us to think that the softening will be more in the form and manners than in the contents of new trade agreements.[3]