After 8 years of work, last week, on 15 November, 15 nations have signed the Regional Comprehensive Economic Partnership, or RCEP.
The nations include ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and China, Japan, South Korea, Australia and New Zealand.
This agreement is extremely important on many levels. Let’s see why.
The biggest trade agreement of history
RCEP encompasses the most fast growing nations of the world (with the notable exception of India). This agreement alone accounts for 30% of the global GDP, and 2.2 billion people. Furthermore, the agreement is open for new entries – India itself got out of it just one year ago, and may always go back, according to what ASEAN declared.
While the agreement confirms a lot of previous deals, it also provides the foundation to make more. China, among all the countries, is clearly the one with the biggest economy and potential. It is also important to notice developed countries in the group: Japan, South Korea, New Zealand and even Australia.
While Japan and Korea have always been in a relationship of love and hate with China. Still, the political issues do not stop economic cooperation between the three. This agreement, though, is the first trade agreement that involves these three countries together. Australia had recently been more and more in conflict with China, but it took part to the agreement anyways. Like Australia, New Zealand is also exporting a lot to China and other RCEP countries, which makes it a very valuable deal.
RCEP is a counter to TPP?
Few years ago, the President of the United States Barack Obama advocated for the Trans-Pacific Partnership, or TPP. This agreement was to help countries from Asia and America cooperating. US has withdrawn from the agreement in 2017, under Trump administration.
After that, CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) was signed in 2018. This agreement is not TPP, although it is inspired by it.
As of now, CPTPP puts together the following countries: Australia, Brunei, Canada, Chile, Japan, Mexico, Singapore, New Zealand, Vietnam, Peru and Malaysia.
Practically speaking, CPTPP doesn’t exclude RCEP countries from joining, and viceversa. But RCEP is succeeding where America withdrew from TPP, part of the Pivot on Asia promoted by Obama. A trade agreement in the area was a good idea, regardless of who brought it up. The fact that US left what it started let China seize the opportunity. And yet, RCEP doesn’t include even a single North American or South American country, limiting itself to Asian and Oceanian nations as of now.
Furthermore, RCEP is a good counter to the trade war with US – since China has strengthened relations with other countries, it can count on them thanks to this free trade deal.
How does RCEP materially help the member countries?
The first step of RCEP is to promote international cooperation and free trade in a increasingly protectionist era. A very important point, considering the past spikes of instability in Asia, the conflict with US and the COVID-19 outbreak.
The second step will be starting to reduce tariffs on specific products in order to improve trade inside the RCEP. Member nations will have to fit within the requirements in 2 years. Technically speaking, removing some of the tariffs will take up to 10 years, but many won’t need much time.
If this deal can last so long, it will indeed change the direction of the world economy and society.
Will 2020 be remembered as the pivotal point from which Asia started leading the world again, and this one as the decade of Asia?