RCEP is a big deal

It took 8 years, 46 negotiating meetings, and 19 ministerial meetings to get the agreement done, but finally, on the 15th of November, the Regional Comprehensive Economic Partnership (RCEP) was signed by 15 Asian nations.

RCEP includes all 10 members of Asean, along with Australia, China, Japan, New Zealand and South Korea. This marks the second major multilateral trade deal in recent years. After Donald Trump pulled the US out of the Trans-Pacific Partnership in 2017, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, or TPP minus the US) was agreed upon in 2018. 7 of the 15 RCEP members belong to the CPTPP.

Accounting for nearly a third of the world's population and GDP, and comprising of USD12.4 trillion in trade, the 15-country RCEP is easily the world’s largest trade agreement. The agreement includes 20 chapters of rules covering trade in goods, investment and e-commerce, intellectual property, and government procurement. The goal is to increase rules-based economic interaction among the members.

Goods tariffs are not high in the region, and many Asian economies have existing bilateral free trade agreements in place already. While the agreement will not lead to large cuts in overall tariffs, it would harmonise rates and standards, which would take the region closer toward a coherent trading zone like the EU or North America. This would be beneficial for supply chain efficiency, market access, and investments. Implementation will be challenging, as member countries have highly diverse levels of development and institutional capabilities. Still, experience from other regional trade agreement suggests that net benefits would accrue nonetheless.

As it prepares to move on from Trump’s isolationist and protectionist policies, for the US, a large trade agreement that includes China but excludes it underscores the reality that trade can progress without the world’s foremost superpower. We don’t think Joe Biden will find it easy to erase Trump’s trade legacy, but we also don’t expect the present level of antagonism toward a rule-based trading system to sustain. Even without being a member of RCEP, US firms ought to find the agreement beneficial for their investment plans.

For China, RCEP is a major positive. It had viewed TPP as a push-back against its burgeoning trade-related prowess, whereas RCEP cements it. Beijing also hopes RCEP will add tailwind to other deals currently in the works, including a China-European Union investment treaty and a China-Japan-South Korea free trade agreement.

RCEP noticeably excludes India, which dropped out of the discussions in late 2019. India’s key concerns were that competition from China would affect its domestic textiles, agriculture, and dairy sectors, although these sectors are presently characterised by low productivity. Both the ruling and opposition parties are united in their opposition to the deal, reflecting a strong distrust of China and growing inward focus on development strategy. Most RECP members nonetheless will likely see their trade ties grow with India in the coming years, and we expect some of the benefits of the agreement to spill over to India.

After several years of trade wars and growing mistrust about the benefits of trade, RCEP signifies lingering promises of free and fair trade. We hope that this marks the beginning of a new chapter in regional cooperation that begins with trade and commerce and ends with enduring peace and prosperity.