Australia and New Zealand have ratified the Regional Comprehensive Economic Partnership Agreement (RCEP), paving the way for the Asia-Pacific trade deal to take effect on January 1, 2022.
The government of Australia announced its ratification on Tuesday, November 2. New Zealand followed a day later.
As noted by Phil Twyford, New Zealand’s Minister of State for Trade and Export Growth, in the official press release: “New Zealand’s ratification yesterday, alongside Australia, triggered the entry into force of what will become the world’s largest free trade agreement and further accelerate our Covid economic recovery.”
The RCEP has now been ratified by Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, Australia, New Zealand, Japan and China. The agreement was reached on the condition that it would enter into effect 60 days after being ratified by at least six ASEAN members and three other signatories. That condition has been met.
Indonesia, Malaysia, Myanmar, the Philippines and South Korea have not yet ratified the agreement, but all except Myanmar appear likely to do so.
The New Zealand government’s press release goes on to say that: “For New Zealand exporters, businesses and investors this means:
- A single set of trade and investment rules across the entire RCEP region, increasing certainty and reducing complexity.
- The opportunity for the country’s exporters to get their products into RCEP-wide regional value chains.
- More market access opportunities, especially for services and investment into China and some ASEAN member states.
- Less red tape for exporters, and more streamlined trade; and
- New rules on government procurement, competition policy and electronic commerce, which will help New Zealand exporters take advantage of increased business opportunities.”
This is important because those who see Asia-Pacific trade solely through the lens of US-China competition are fond of portraying RCEP as a China-led initiative aimed at rewriting the rules of international trade to Beijing’s advantage. That is contrary to the facts.
What eventually became RCEP has its origin at the ASEAN+3 (China, Japan, South Korea) conference in August 2011, which adopted a joint Japanese-Chinese proposal entitled “Initiative on Speeding up the Establishment of an East Asia Free Trade Area (EAFTA) and Comprehensive Economic Partnership in East Asia (CEPEA).”
All the Asia-Pacific democracies were involved in the long process of RCEP’s development and all of them signed it on November 15, 2020.
When Japan ratified the RCEP on June 25 this year, Hiroshi Kajiyama, its minister of economy, trade and industry, told the press: “The deal will strengthen the link between Japan and the [Asia-Pacific] region, which is the world’s growth center, and will contribute to Japan’s economic growth when it comes into force.”
RCEP, which covers roughly 30% of the global economy, is also the first trade agreement linking Japan, China and South Korea. It eliminates tariffs on about 90% of traded goods and standardizes many customs, investment, IP and e-commerce regulations.
Despite claims – primarily by Americans – that the RCEP is a substandard agreement that offers limited benefits, the Japanese government estimates it could add 2.7% to Japan’s $5 trillion GDP. In other words, the potential gains are huge.
Australia ratified the RCEP despite its acrimonious dispute with China, its press release stating: “When in force for all 15 signatories, RCEP will be the world’s largest free trade agreement, bringing nine of Australia’s top 15 trading partners into a single economic framework.”
ASEAN’s press release included the following statement by Secretary-General Dato Lim Jock Hoi: “The expeditious ratification process by signatory states is a true reflection of our strong commitment to a fair and open multilateral trading system for the benefit of the people in the region and the world.”
India has an open invitation to join the RCEP but has so far refused for fear that its economy would lose out in a less protectionist environment.
The United States has also refused to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) for the same reason. It has never been included in plans for RCEP.
Meanwhile, American freedom of navigation exercises in the South China Sea are presumably intended to keep the sea lanes open to free trade.
The risk there is that overactive naval exercises might interfere with commercial navigation. In 2017, one American warship collided with a Philippine-flagged container ship off the coast of Japan and another collided with a chemical tanker near Singapore.
On October 2, an American submarine ran into what the US Navy has since determined was an uncharted seamount in the South China Sea. “Near-misses” between US and Chinese naval vessels have also been reported.
Scott Foster is an analyst with Lightstream Research, Tokyo.