What the RCEP offers for the post-pandemic economy
The participation by outgoing US President Donald Trump in a virtual Asia Pacific summit last Friday highlights the importance of Asia in the global economic landscape. Held by Malaysia, the two-day Asia-Pacific Economic Cooperation (Apec) forum was also attended by Chinese President Xi Jinping, who was fresh from the success of signing the world’s largest free trade agreement (FTA) the previous weekend.
It was only Trump’s second appearance at an Apec forum since the 2017 summit in Hanoi. He was due to attend last year’s event but it was cancelled as host Chile was facing violent street protests. Vice President Mike Pence represented the US at Apec in 2018 amid heightened US-China tensions, which have since deteriorated to their worst level in decades.
Trump’s presence is one of the few appearances of any kind that he has made since losing the election to Joe Biden. Perhaps he wants to remind people that he is still in charge until January 20, but to me it also shows clearly that Washington is vying to compete with Beijing in strengthening its presence in Asia.
Last Monday, the US Chamber of Commerce expressed its concern that the world’s largest economy was being left behind after China and 14 other countries signed the Regional Comprehensive Economic Partnership (RCEP), cementing the mainland’s dominant role in regional trade. The US is also absent from the successor to the Trans-Pacific Partnership (TPP), from which Trump withdrew after taking office in early 2017.
The RCEP, which groups all 10 Asean countries with five key trading partners -- China, Japan, South Korea, Australia, and New Zealand -- will be the second major FTA to involve the region after the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Altogether, the 15 RCEP member countries have an estimated GDP of $25.8 trillion, accounting for roughly 29% of the world economy, and making up 30% of the world’s population. This makes the RCEP the largest trading bloc in the world by GDP size -- even bigger than the European Union and the CPTPP combined.
Nonetheless, the RCEP will only come into force after nine signatory countries (a minimum of six Asean and three non-Asean) have ratified it, which may take more than a year.
Some critics fear that Asean “centrality” could be eroded by the presence of a major economy like China in a trade pact, but the RCEP is expected to further strengthen Asean’s commitment to integrating with the world economy.
Even before the pandemic, China was one of Asean’s biggest trading partners, thanks partly to the China-Asean FTA. Even amid the pandemic, bilateral trade between China and Asean grew by almost 4% year-on-year from January to August, with a value of $416.5 billion, accounting for almost 15% of China’s total trade. China’s direct investment flows into Asean expanded by 53% over the same period.
With the rise of protectionism and trade tensions in the past few years, compounded by the pandemic, the signing of the RCEP sends a strong signal that member countries aim to continue their commitment to further regional integration and trade reforms.
But looking forward, further integration is needed. It is inevitable that the spread of the virus across the globe has resulted in countries closing their borders and restricting physical economic activities, consequently disrupting the smooth flow of international trade. Even some RCEP members have been among the countries taking trade measures, such as prohibiting exports of Covid-related goods in response to the pandemic shock.
According to data from the International Trade Centre (ITC), India and South Korea introduced the highest number of export restrictions as of October 15, with five each. They also imposed the highest number of restrictive trade measures from February to October, at seven and nine, respectively.
Such statistics highlight the need for the RCEP to include India, which is critical to mitigate the growing influence of China in the region and beyond. There is no denying that last year’s departure of India, amid fear of a major economic hit from greater tariff liberalization, lowers the value of the RCEP and members’ efforts to persuade Delhi back into the fold should be continued.
In all, the RCEP does provide significant new benefits for stimulating trade, particularly in a post-pandemic economy. Besides tariff reductions and other liberalization, the agreement is poised to become a critical platform for the discussion of trade and economic issues in the future with regular meetings between officials, ministers and even leaders of member countries.
Nareerat Wiriyapong is Acting Asia Focus Editor for the Bangkok Post. This article previously appeared in the Bangkok Post and has been reprinted by special arrangement.