Asia Pacific countries form the world’s largest trade alliance

Summary

• The RCEP agreement has been signed between 10 ASEAN Countries and 5 partner countries, forming the world’s largest trade bloc.
• The agreement excludes the United States after it decided to step out of the Trans-Pacific Partnership.
• The agreement is expected to boost global GDP as well as the GDP of the member countries.
• RCEP aims at reducing trade barriers between countries by reducing tariffs and improving international ties.
• China, being one of the member countries, could gain immensely by fostering new trade ties after its fallout with the USA.
• RCEP omits important areas like agriculture, environment, standardisation of products, and human rights.
• The actual effects of the agreement might take a considerable amount of time to realise.

Fifteen countries in the Asia-Pacific region have joined hands in the largest free-trade bloc ever witnessed in history. This comes after 8 years of negotiation and deliberation. The member countries include 10 ASEAN members: Brunei-Darussalam, Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam & Laos. The five partner countries are South Korea, Japan, Australia, New Zealand, and China.

The Regional Comprehensive Economic Partnership (RCEP) Agreement excludes the United States, which had also pulled itself out of the Trans-Pacific Partnership in 2017, immediately after former President Donald Trump took over the office. India pulled out of the RCEP in 2019, citing concerns about the protection of domestic markets against Chinese goods.

This new trade bloc is bigger than the North American trade agreement. It is expected to boost trade between the ASEAN members and the pacific countries by way of reduced tariffs and easier access to international markets. It may provide the member countries with increased overseas demand for their goods, especially in times of a pandemic when such a transformation is much needed.

The Importance of RCEP

The RCEP covers 2.2 billion people which accounts for about one-third of the global population. The combined GDP of the RCEP countries was about 30% of global GDP. It is expected that the deal would bring about improvements in the GDP of the member countries along with boosting job creation and strengthening regional supply chains.

The idea behind the inception of the deal is to improve trade ties and reduce trade restrictions among the countries in the Asia-Pacific region.

The inclusion of China into the RCEP could help foster new trade ties with the country as its previous trade relations were foiled due to the trade restrictions imposed by ex-President Donald Trump. China is looking for trade partners, and RCEP might be a bridge in achieving the same.

The agreement also sets the terms of trade in goods and services, foreign investment, and better rules for areas like e-commerce, telecommunications, and intellectual property.

The Trade Policy Changes Under the RCEP

The main aim of the agreement is to reduce or eliminate a range of import tariffs over a period of 20 years. However, a larger focus has been given to the “rules of origin” definition in the agreement. Now only one Rule of Origin document, which defines where a product comes, would be needed to cover all RCEP nations.

RCEP might add a sizeable amount to the global GDP. This will happen as the benefits of cheaper goods would spread to the European Countries through ASEAN and the RCEP members.

Countries like Australia, New Zealand, China, South Korea, and Japan are more technologically advanced than their ASEAN counterparts. However, even these countries have a lot to gain from the agreement. They would benefit in the form of reduced labour costs in the ASEAN countries. Most advanced nations do not have cheap labour, so production would be cheaper for them when they outsource labour costs.

Also read: The milieu between China and Australia when it comes to trade talks

Areas Left Behind in the RCEP

The RCEP omits important areas like agriculture, standardisation of products, environment, and human rights. In this sense, the deal is not yet all inclusive. Rules and regulations guarding e-commerce trade are also missing.

Cross border negotiations are on the way, and hopefully, the dust will settle on these unresolved issues in some time. Also, the countries are yet to define strategies that help them benefit from this agreement.

The backing out of India decreased the population of the member countries by less than 1.4 billion. India’s decision to opt out was fuelled by the differences over some provisions in the agreements. However, the remaining of the RCEP countries remain hopeful that India would sign the agreement sometime in the future and have kept the doors open for the country.

Who Will Gain from the Deal?

The deal is likely to have a huge positive impact on China, because of a possible diversion of its trade channels from the USA to other member countries. It is speculated that Japan and South Korea would also gain from the agreement. 

The South-East Asian countries would only marginally benefit from this deal. They might be the suppliers of labour to these advanced countries or would be potential markets for their produce.

However, there still remains a lot of time before the full effects of the agreement are realised. The countries need to finalise the course of action post signing of the agreement, the proper implementation of which might take a few years’ time.

Related: Australia-China Trade Relations Worsen; Are the Aussies Staring Down the Barrel?