Understanding the RCEP Trade Agreement: Pros and Cons

RCEP Trade Agreement: All You Need to Know

RCEP Trade Agreement: All You Need to Know

January 11, 2021


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Key Takeaways


The Regional Comprehensive Economic Partnership (RCEP) trade deal, which was concluded in November of 2020, is now the world’s biggest trade deal, connecting 15 countries in Asia and other parts of the Pacific. The combined population of the member countries is said to account for 30%of the world’s population, according to a statement released by the RCEP. Let us explore this trade agreement, what it entails and the implications of its implementation.

What is the RCEP?

The RCEP is an agreement between 10 of the ASEAN members as well as 5 additional Asian and Pacific countries. The RCEP is essentially a type of intergovernmental agreement in which the trade barriers between the member countries will be reduced and, in some cases, eliminated. One of the largest benefits of this agreement for the member countries is the reduction in tariffs on products that are sourced within the trading bloc.

Although there will be a reduction on tariffs regarding particular goods and services, experts say one of the major benefits is the ‘rules of origin’, which allows for companies to setup supply chains across multiple countries. Practically, this would mean that companies could construct their products and sell them within the region, without having to go through the usual rules and procedures each country would generally require.

Who is part of the RCEP?

The member countries consist of 5 Asian and Pacific countries and 10 members of the ASEAN. The full list of signatories includes:

Brunei Myanmar Australia
Cambodia The Philippines China
Indonesia Singapore Japan
Laos Thailand New Zealand
Malaysia Vietnam South Korea

When does the RCEP come into effect?

Although the RCEP was signed by the 15 member countries on the 15th of November 2020 at a virtual conference in Vietnam, it will only take effect 60 days after it has been ratified by at least 6 ASEAN and 3 of the non-ASEAN signatories. While the agreement may take a couple of months to start, it may take years before it is in full effect.

The RCEP also provides a degree of flexibility for the less developed member countries to implement the procedural and legislative changes required. Furthermore, after 18 months any country will be able to join the agreement, provided that consensus has been reached by the other members. The addition of any new countries may slow down the full implementation of the agreement.

Implications of the RCEP

As this is the largest trade pact to come into being, the gravity of this agreement affects not only the member states, but also companies and supply chains across the globe. With the COVID-19 Pandemic continuing to disrupt global trade, policymakers urge that this agreement will encourage trade and assist in the recovery of local economies. According to the Asian Trade Center, it will be a lot easier to manufacture goods and sell them across borders of the member countries.

Many of the member countries currently have Free Trade Agreements (FTA’s) between them, however, the RCEP offers more freedom than the existing FTA’s. Furthermore, the RCEP is predicted to add an estimated $200 billion to the global economy.

For China, the member with the largest economy, this is the first multilateral trade deal. This is also the first time China, Japan and South Korea, East Asia’s 3 largest economies, have all been party to an agreement.

For The US, this trade deal may have long lasting implications and is indicative of the loss of power they are facing in the Asian region. By pulling out of the TPP (now known as the CPTPP), the US has now allowed China to be the largest trading partner with all the member countries of the RCEP.

The difference between RCEP and CPTPP

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a FTA which includes the Signatories from the Trans-Pacific Partnership (TPP), but excludes the US who rescinded their inclusion under the Trump administration. The CPTPP is currently between Canada and 10 other countries including: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Singapore.

Like the RCEP, the CPTPP aims to promote trade between the member countries. As the name suggests, the CPTPP is comprehensive in its purpose and scope, and not only aims to reduce trade barriers but also impose stricter standards relating to labor issues, dispute resolution and environmental protection.

Unlike the CPTPP, the RCEP does not match the high standard set by the former. The CPTPP imposes higher standards by outlining clear protection regarding intellectual property and by removing up to 90% of trade barriers between the countries. Nonetheless, the RCEP imposes lower standards driven more towards encouraging free trade between the member countries.

RCEP and China

While this is the first multilateral agreement China is party to, China is viewed by many experts as standing the most to gain from this agreement. For China, the conclusion of this deal was of great importance as it as it sets the stage for an opportunity to shape the rules and processes of multilateral trade, without the influence of the US.

The RCEP also provides a platform for China to have greater economic integration with ASEAN countries. According to the South China Morning Post, President Xi Ji Ping promoted the idea of free trade based on specific predefined rules for political social and cultural purposes, in his Bilateral meetings at the G20 summit.

The RCEP and its Challenges

The coming into existence of the RCEP is not met without challenges and criticisms. From Geopolitical power plays, to a lack of detail in its provisions, some critics argue that the agreement still has a long way to go before all parties can truly benefit from its terms.

Furthermore, many critics argue that the strength of China is set to grow under the RCEP. Even though China is currently a major trading partner to many countries under the agreement, this agreement further inflates their influence in the region and ultimately the world.

Initially planned to be a part of the agreement, India had turned around their decision and opted out in 2019 due to growing concerns of cheaper imports affecting local producers. The RCEP does allow for any nation to join after 18 months, however member states have agreed that India will be allowed to join at any time. Notably, some experts say that dependent on the success of the RCEP, it may become increasingly difficult for India to join as time goes on.

The RCEP is set to propel the Asian region to center stage in terms of trade. Although there is a mix of countries, the general prediction is that this agreement is good for all those involved. This agreement reaffirms China’s position as a powerful player in today’s economic climate and further shows the initiative of the member countries to build political and economic bridges. Despite all the prospective challenges, the RCEP will definitely shift the landscape of international trade.

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