At a time when the benefits of free trade are being questioned and concerns about globalisation have risen around the world, the sealing of a pan-Asia trade agreement is a symbolic moment. The signature of the Regional Comprehensive Economic Partnership, or RCEP, marks a milestone for economic integration in the region; it spans 15 nations that together account for almost a third of the world’s gross domestic product. It is the first trade agreement to bring together China, Japan and South Korea and brings Asia a step closer to the prospect of a cohesive trading bloc.
Equally important, however, is what it signals about the diminution of American influence in the region. Donald Trump began his presidency by pulling the US out of the Trans-Pacific Partnership, a trade deal that would have strengthened American ties with 11 other regional economies. Mr Trump is now ending his presidency by witnessing China sign a deal with 14 other Asia-Pacific nations. President-elect Biden has made it clear he intends to rally American allies to push back against the growing global influence of Beijing. The signature of RCEP underlines the scale of the task.
It is important to note that despite its symbolic significance RCEP is a relatively shallow, 20th-century style trade arrangement — which concentrates on the reduction of tariffs, while largely avoiding more complex issues such as cross-border data flow, ecommerce and agriculture. It is also unclear whether RCEP’s dispute resolution mechanisms will have much effect. This matters a great deal, given China’s propensity for bullying its trade partners over political conflicts. Australia is currently suffering in this respect.
Nonetheless, there are key ways in which RCEP could strengthen China’s regional position. The most important step is the way it liberalises and unifies rules of origin for goods traded within the bloc. This will make it easier to build flexible supply chains — which could be helpful for China for several reasons, including if the US once again targets Chinese goods with sanctions. Convergence on rules of origin could also lead to broader progress on standards-setting by regulators, which might have spillover effects beyond RCEP as the bloc’s trading partners respond to its demands. This will only be possible if China works together with its fellow RCEP members, rather than trying to dictate terms.
These developments represent a challenge to the Biden administration’s professed aims to reassert US leadership on trade and to push back against China. In diplomatic terms, the obvious move would be to get the US to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the old TPP, repackaged without American participation. Such a move would make sense in diplomatic and economic terms but it is probably politically impossible in the current US climate.
India must also consider what to do. The Modi government has aspirations to emulate China’s rapid industrial growth and to see India emerge as this century’s second Asian superpower. Yet it has stood aside from RCEP, for fear that nascent Indian industries will be crushed by cheap Chinese exports. But India must take care it does not relapse into the defensive, inward-looking attitude that has served the country so badly in the past.
Whatever its limitations in practical terms, RCEP serves as an important reminder that — at a time when the Western world has grown suspicious of moves towards liberalising economic relations — free trade is the best route to greater prosperity.