BANGKOK – The Regional Comprehensive Economic Partnership (RCEP), a 15-member Asian trade pact that was first broached nearly a decade ago, was signed and sealed today at a virtually-held regional summit.
The Association of Southeast Asian Nations (ASEAN) ten members, China, Japan, South Korea, Australia and New Zealand are all included in what will be the world’s largest free trade pact.
The virtual summit showed RCEP nation leaders take turns standing behind their respective trade ministers who one by one signed copies of the agreement.
The 15 Asian nations account for roughly a third of the world’s population and gross domestic product (GDP) even without India, which decided to leave the deal last year due to concerns it would hurt local industries and producers.
The combined GDP of signatory nations is a whopping US$26.2 trillion and will be bigger than both the US-Mexico-Canada Agreement and the European Union.
The RCEP will eliminate as much as 90% of tariffs on imports between signatory nations within 20 years and will establish common rules for e-commerce, trade and intellectual property while shying from any commitments on labor or the environment.
The RCEP is designed to reduce costs and time for companies and traders by allowing them to export their wares to any signatory nation without meeting separate requirements for each country. The deal is expected to come into force by 2021.
Significantly, too, the RCEP represents the first-ever free trade agreement among China, Japan and South Korea, Asia’s industrialized economic powerhouses.
The three Northeast Asian nations have been in talks since 2012 about forging a trilateral free trade pact with little progress towards a deal in recent years as geopolitical rivalry has intensified.
The RCEP is expected to expand Beijing’s extending reach into Southeast Asia, where trade has increased this year despite the pandemic.
The pact is not only expected to help ASEAN nations to recover next year from the pandemic’s economic devastation, it also symbolically highlights the importance of the region in what some analysts still believe will become known as the “Asian Century.”
Forecasts suggest that the ASEAN bloc could be the fourth-largest economy in the world by the end of this decade. The region had a combined GDP of $2.57 trillion last year.
Many reckon that the RCEP will be leveraged by China, the main architect of the deal, as a signal to US President-elect Joe Biden’s camp on how Beijing has expanded its multilateral free trade agenda during the more unilateralist and inward-looking Donald Trump administration.
Indeed, the RCEP became the world’s largest trade deal only because Trump pulled the US out of the Trans-Pacific Partnership on his first full day in office in early 2017, a move that greatly disappointed America’s Asian allies, namely Japan, Singapore and Vietnam.
The RCEP’s signing, just months before Biden’s inauguration in January, could put the US on an even weaker footing next year, as the Biden administration will likely face huge domestic opposition if it seeks to rejoin the now-named Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as he has said he will.
Trump pulled out of the TPP on the basis it would cost American jobs, including in manufacturing. The CPTPP promises even greater and faster elimination of tariffs than the RCEP and significantly includes rules and provisions on labor and the environment.
America’s multilateral reputation was further eroded when the Trump administration decided to send a relatively junior official, National Security Adviser Robert O’Brien, to lead the US delegation at this year’s ASEAN summit and today’s broader East Asia Summit staged by Vietnam.
Last year, Southeast Asian leaders perceived a slight and some subsequently boycotted an adjoining ASEAN-US summit when neither Trump, Vice President Mike Pence or Secretary of State Mike Pompeo turned up for the meeting held in Bangkok.
The RCEP will give China some breathing room from Trump’s tariff-raising trade war and generally rising protectionism.
No doubt aware of the symbolism and significance of the deal, China’s Foreign Ministry spokesperson Wang Wenbin said last Tuesday: “The year 2020 has seen an increase in both trade and investment between China and ASEAN against the odds.”
Indeed, the ASEAN bloc leapfrogged the European Union to become China’s largest trading partner in the first eight months of 2020, with total trade worth $416.6 billion, according to recent data from the Chinese government.
Even though this 3.8% year-on-year growth is consistent with rapidly increasing trade between the bloc and China, it is largely an anomaly due to falling import demand from Europe and years of trade conflict with the US. The EU will most likely return as China’s largest trading partner next year.
While the RCEP’s signing dominates the news, other agreements spoke to a desire to look inward for greater regional cohesion and collaboration.
One was the launch of the Southeast Asia region’s reserve stockpile of essential medical supplies, which will provide member states with easier access to vital equipment should their Covid-19 case numbers resurge.
This could be essential for a country like Cambodia, whose underfunded health sector could be severely tested if concerns raised this week about the threat of a localized outbreak in the capital Phnom Penh are accurate.
More importantly, the regional bloc agreed to the ASEAN Comprehensive Recovery Framework, an economic and social “exit plan” from the pandemic to be implemented next year, as well as a Covid-19 ASEAN Response Fund, which will pool financial donations and aid for the region.
Singaporean Trade Minister Chan Chun Sing has said of the Framework “represents our collective efforts to enable the ASEAN economies to maximize the benefits of greater economic integration to spur recovery and longer-term resilience.”
Some analysts see the agreements as an indication of the region’s desire to be less, not more, dependent on outside assistance, a shift that will require richer regional nations to be more willing to support the bloc’s poorer states.
Malaysia first proposed the idea back in April and on Thursday its prime minister, Muhyiddin Yassin, said that “If the Covid-19 pandemic has taught us a lesson, it is that ASEAN must be self-reliant in the face of unprecedented crisis, be it for now, or future.”
“We must show that we are masters of our region’s destiny and that we can work together to achieve shared aspirations and solve common problems,” chimed in Philippine President Rodrigo Duterte at the virtual summit on Thursday.
While the summit’s conclusion will be considered momentous with the signing of the world’s largest trade deal that puts Southeast Asia at its center, Vietnam’s Prime Minister Nguyen Xuan Phuc will no doubt feel a pang of regret when formally handing over the grouping’s rotating chairmanship to Brunei.
Vietnam, one of the rising stars of the international community and a big beneficiary of Trump’s trade war with China as multinational firms move their factories out of China to avoid US tariffs, had sought to use its position to reform regional affairs, including in regard to disputes in the South China Sea.
But the pandemic hampered those ambitions, due in part to virtually-held conferences that prevented the more discreet face-to-face meetings that Southeast Asian diplomats prefer when discussing sensitive issues.
With Brunei taking over the chairmanship, there are already certain concerns it could be more willing to accept the terms that Beijing wants to set in a long-negotiated Code of Conduct for the South China Sea.
Moreover, with Bandar Seri Begawan hosting next year’s summits, it could add one more problem for US relations with ASEAN at a time Biden will likely seek to restore alliances and ties.
Successive US administrations have made peace with Vietnam’s repressive government – and have no problem showing up in Hanoi or Da Nang for summits.
But they have been more willing to openly critique Brunei’s repression, including President-elect Biden’s comments last year that its treatment of homosexuals is “appalling and immoral.”
2020 ended on a positive note for ASEAN with the signing of the world’s largest trade deal.
But attention is already turning to 2021, when the bloc will renew its focus on more traditional concerns, namely regional unity and outside threats that some suggest could yet hamper the RCEP’s ultimate implementation.