RCEP: A BOLD STEP FORWARD FOR THE ASIA PACIFIC
Channel: A Singaporean
Date: 2020-11-16

RCEP: A BOLD STEP FORWARD FOR THE ASIA-PACIFIC

What is RCEP?

The Regional Comprehensive Economic Partnership (RCEP), signed on 15 November 2020, is now the world's largest trade pact. It involves 15 nations, including all 10 ASEAN member states, Australia, China, Japan, South Korea and New Zealand.

It is a heartening show of multi-lateralism against a rising tide of protectionist populism around the world. This is especially significant as Singapore has a small domestic economy and as such is highly dependant upon globalisation to power its economy.

RCEP contains many countries at differing stages of economic development, and this partnership will permit them to work together to further one another's economic progress.

It reduces costs for firms in the region, as numerous tariffs are either lessened or eliminated, providing opportunities for cost savings to be passed onto consumers.

Furthermore, RCEP economies may be percieved by investors to be an integrated market, increasing the allure of the grouping to global financial capital, and hence rendering the Asia-Pacific to be the engine for worldwide economic recovery.

Ultimately, RCEP was conceived of and initiated by ASEAN, demonstrating to all others our capacity as an organisation to ensure regional peace and prosperity for all members.

What implications does RCEP have?

As Jack Ma, co-founder of Alibaba Group, once said, "Globalization is good... when trade stops, war comes."

RCEP is not only significant as a driver of economic growth, but also as a tool to intertwine our respective economies. By having signatories gain an interest in ensuring each other's continued success, this will reduce the possibility of conflict between nations.

By easing trade in goods and services, enhancing intellectual property rights and foreign shareholder limits, RCEP will serve to soften blows dealt by Covid-19, aiding post-pandemic recovery efforts. Therefore, many countries will experience a lessening in internal pressures (as unemployment falls), reducing the need to redirect such pressures to an external opponent, enhancing regional peace.

It must also be noted that India pulled out of RCEP in November 2019, citing concerns about trade deficits, lack of free movement (of labour) clauses and issues over how rules of origin were defined. It was also most likely due to recent border skirmishes with China that the agreement with them fell through. Despite this setback, RCEP leaders have reiterated that the door remains open for India any time and there would be little need for India to renegotiate the deal. Henceforth, India may not feel too alienated and this would likely reduce potential negative fallout.

There were also concerns expressed by foreign observers that China, being the largest economy in the group, may have exterted disproportionate influence in the process of drafting the agreement. Western critics also expressed worries that this would draw Asia-Pacific nations (including those not even part of the pact) closer to China's sphere of influence. This conundrum was also further exacerbated by the fact that the Trans-Pacific Partnership, which used to be a potential US-led trade pact, being resoundingly abandoned by the Trump Administration. This lack of an equivalent deal in the region with the US signifies a decline in US influence in the region as compared to China.

It is believed that the RCEP deal may also soften China's perception as a belligerent entity, to one willing to pursue regional cooperation, in spite of having territorial and political disputes with many within the partnership.

Despite the aforementioned concerns, RCEP members will still gain prized access to the vast Chinese consumer market. As all nations involved in the deal are fully sovereign, it can be assumed that whatever political concerns surrounding the pact were outweighed by the benefits of market access, meaning that RCEP was largely viewed as a win-win for all involved, rather than an unequal treaty with China at the helm.

The final, most important conclusion that can be drawn from RCEP is that the American strategy to contain China economically is now dead in the water. While China and US may experience a traumatic decoupling of their economies, it is highly unlikely that China will be as heavily impacted, as they are now able to diversify their supply chains and reduce reliance upon American consumption and exports.

This is a bold step forward for the Asia-Pacific, and it is hopefully a sign that we are truly in a new Asian Century.

An interesting opportunity

An RCEP secretariat has yet to be introduced to monitor the progress of the agreement and settle disputes. Hopefully, Singapore can strengthen its reputation as a conflict resolution hub and potentially become a major player in trade disagreements that can be sure to come. This might elevate our reputation globally as we are held up as the gold standard for promoting peaceful resolutions.