In a 2020 world full of surprises, here’s another one: when we were all focused on the COVID-19 third wave, renewed lockdowns, the United States’ election drama, Brexit, trade friction and weighty social issues, out of the blue came the signing of a new trade deal. And this one is no minor footnote; it’s the largest deal on the planet, thus far. When does it take effect, and what are its possible implications for global trade?
The Regional Comprehensive Economic Partnership (RCEP) was signed on Nov.15 on the sidelines of the Association of Southeast Asian Nations (ASEAN) Summit. The signing stands in stark contrast to recent U.S. and global trade rhetoric, which has generally been quite negative on the trade liberalization front.
It seems that 2016 was a watershed year, with the Brexit referendum, the trade-bashing U.S. election and rising global populism. Since then, America pulled away from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and Brexit negotiations, at a fever pitch this week, have struggled to achieve a domestic and continental consensus. Until the RCEP signing, it was all looking rather bleak for multilateral trade.
Huge is the right word for this one. Not only is it a tide-turner, but it’s now the world’s largest trade bloc, which includes Australia, China, Japan, New Zealand, South Korea and the 10 ASEAN member nations. This covers almost one-third of the global population, about 30% of world GDP and 28% of the planet’s trade activity. It could have been even bigger had India stayed in.
Experts are still hashing through the deal’s details, as the text wasn’t available ahead of signing. Significantly, it’s the first-ever deal to include China, Japan and South Korea, quite an achievement given recent regional tensions. Although all signatures are now dry, full ratification still requires the blessing of six ASEAN and three non-ASEAN signatories. Pundits believe that it may get a rough ride in more than one case.
The RCEP deal builds on pre-existing ASEAN+1 agreements and covers wider ground on goods trade. The agreement covers 61% of imports from ASEAN members states plus Australia and New Zealand, 56% of China’s imports and 49% of South Korea’s.
Key features of the agreement include flexibility on rules of origin, which are thought to aid in the promotion of intra-regional supply chains; more specifics on cross-border data flows; more country-specific carve-outs than in CPTPP, particularly in the agri-food space, with Japan in particular maintaining import duties in five key sectors where tariffs were nixed in CPTPP.
While something of a breakthrough, this deal is already being referred to as less ambitious and progressive as the next-generation CPTPP deal. It’s less comprehensive in human rights, not a surprise given China’s perspective. It’s also less forward-looking in intellectual property provisions, labour issues and environmental targets and stipulations. And notable by their absence are chapters on investor-state dispute settlement and state-owned enterprises–each a hot-button regional issue.
So, what does it all mean? First, it may not be as big a step forward as CPTPP, but RCEP is a step forward in a world where trade has slipped in the past four years. Second, and perhaps as significant, this is a big deal that China is a part of, for which there is no U.S.-led counterpart. This is perhaps the most significant commercial move that shifts the economic alignment of regional players in Asia, creating greater competition for their business attention. In essence, if they will be expected over time to gravitate more to one superpower and supply chain hub, what are the global policy implications of that shift?
A third and related implication is that over time, it may well be more difficult for the U.S. to regain regional traction. Its initial leadership in CPTPP was key to nations lining up to be a part of the deal, and in achieving the progress on issues critical to securing next-generation trade. Finally, the fact there is country overlap between the two deals and that they have very different stipulations, sorting out which rules apply and when could be increasingly tricky.
