What is the Regional Comprehensive Economic Partnership?

Summary

• Last weekend marked one of the most significant events in Australia’s trade history – signing the biggest multinational business deal in the world, Regional Comprehensive Economic Partnership (RCEP).
• It took nearly eight years for the 15 nations in the Asia-Pacific region to agree to and sign the deal. India was also supposed to be part of the treaty, but it backed out in 2019.
• The new deal might have a considerable impact on the US that had pulled out of the broader Trans-Pacific Partnership in January 2017.
• Other unions do not seem fussed about the current situation in the US, with the EU making new import and export arrangements aggressively with other countries.

After eight years of meetings, negotiations and discussions, Australia finally signed the Regional Comprehensive Economic Partnership (RCEP) deal on Sunday, 15 November.

RCEP is a big pact for Australia, as most of its imports and exports are connected to Asian countries. Apart from other benefits that come with RCEP, experts are hoping that the China-Australia trade war will slowly cease due to the newly signed trade deal.

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What is RCEP?

After 15 world nations had agreed on the deal via an online conference call, RCEP became the largest trade-free agreement across the globe.

Australia, New Zealand, China, Vietnam, Indonesia, Myanmar, Malaysia, Japan, Korea, Cambodia, Taiwan, Singapore, Philippines, Brunei, and Laos are new allies that together consist of 2.2 billion of the overall population. India was also supposed to be part of the RCEP force, but it backed out of the deal last year.

The deal brings together countries that contribute ~30 per cent of the world economy.

RCEP is broadly seen as proof of Chinese dominance on the world’s business and trade.

It had also grown to be a challenge to the upcoming Biden administration in the US, as Donald J. Trump pulled out of Trans-Pacific Partnership (TPP) back in January 2017. TPP was a much bigger pact, but since Mr Trump did not like the terms and conditions and withdrew from the deal, RCEP is now the most crucial trade deal worldwide. However, the President-Elect Mr Biden has still not made any statements about the US joining RCEP.

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What is RCEP expected to do?

The most important task that RCEP aims to address is to make the trade between the member countries cheaper. Asia-Pacific nations are relatively close to each other so signing a deal like this makes perfect sense. Low costs and fast export will allow efficient transport of goods and will not require additional conditions to be met before entering borders.

Another goal of the deal is to aid less developed countries to emerge on the trade market. Asia has a lot of potential, so the new pact will only boost other economies, which will have a positive impact on everyone that signed RCEP.

E-commerce business is also high on the list of RCEP priorities. However, the countries still have some deals to negotiate, such as digital trade.

Even though RCEP was signed on Sunday after almost a decade of negotiations, it is not expected to be ratified before next year.

What does Australia have to say?

Trade Minister Simon Birmingham welcomed the agreement as it looks immensely positive for the Australian economy. With the deal, farmers and exporters should do better business with the other 14 countries. Australia is widely famous for its quality products, and they now have an opportunity to explore and engage with markets other than China.

Industries such as aged care, banking, finance, education, and many more are also expected to benefit from RPEC, Mr Birmingham believes.

Australia was hoping to make the first free-trade agreement with India, but as the country pulled out last year, that will have to wait for an agreement with the Asian sub-continent nation.

What does this mean for the US?

RCEP is only one of the potential threats for the US economy. On the other side of the planet, the EU’s trade game had also been strong, pursuing additional agreements for free trade with more nations.

The US has not been involved in any of those trade deals. After the Trump administration could not bring the COVID-19 pandemic under control, the US put the focus on settling their house first before making arrangements abroad. That might come at a huge cost, as the US may lose important trade partners due to the currently divided nation.

What about the China-Australia trade war?

Some experts hope that the multinational RCEP will connect Australia and China once again, after a long battle that the countries had been fighting since the pandemic emerged. The trade lawyers believe RCEP might create additional negotiations between China and Australia while resolving former disagreements within the export business.

On the contrary, others say that RCEP will not be enough for the complete recovery of the China-Australia trade war. Professionals argue that the treaty will not have specific rules that would contain similar problems, so it is still unknown if RCEP will help reduce tensions or cause more of it. Some experts have also mentioned if the ongoing discussion (eight years) could not help end the trade war, there is little reason to believe that signing the pact it would resolve the issue anytime soon.

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