2016 is a critical year for the Asia-Pacific region. After seven years of negotiation, the Trans-Pacific Partnership (TPP) was signed on 4 February 2016 in Auckland, New Zealand. In addition to this, another Asian free trade agreement (FTA), the Regional Comprehensive Economic Partnership (RCEP), is expected to conclude at the end of the year.

At the Global Economic Dynamics Project we examine the spread of mega-regional trade agreements, like RCEP, and use the latest tools and methods to help make complex economic dynamics transparent and understandable.

 

RCEP in Perspective

 

Negotiations for the RCEP began in 2012 at the Southeast Asian Nations (ASEAN) summit in Cambodia. The RCEP is a proposed free trade agreement between the member states of ASEAN (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the states with which ASEAN already has existing free trade agreements (Australia, China, India, Japan, New Zealand and South Korea).

In the Guiding Principles and Objectives for Negotiating the RCEP endorsed by RCEP Ministers, the aim of the agreement is to “achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement establishing an open trade and investment environment in the region” and to “boost economic growth and equitable economic development, advance economic co-operation and broaden and deepen integration.” In addition to this, key areas of focus are:

 

  • Trade in goods
  • Dispute settlement
  • Trade in services
  • Investment
  • Intellectual property
  • Competition

 

If successfully negotiated, RCEP would become the largest free trade agreement in existence, larger than the TPP. In 2015, trade among RCEP countries was valued at $260 billion, and the inclusion of India and China would mean it accounts for almost half the world’s population (3.35 billion people).

The implementation of the RCEP would come into effect gradually. Under the first step tariffs covering 65 percent of trade will be removed completely. In the next phase, during a 10 year period, the tariffs on another 20 percent of trade in goods will be gradually reduced to zero. The remaining 15 percent of import duties will either stay in place or be gradually reduced to 5-10 percent – the list of these goods will be drawn up by the respective member states.

 

RCEP: Upgrading and Aligning ASEAN Free Trade Agreements

 

The proliferation of free trade agreements throughout Asia has begun to raise concerns about the “noodle bowl effect”. This refers to the overlapping of regulations as a result of multiple trade agreements, as well as the exclusion or preferential treatment of particular states in accordance with these. One of the most widely recognized benefits of the RCEP is the potential to calm this effect among ASEAN countries. By providing a common framework, the RCEP is expected to unify standards between ASEAN member states and their trading partners, encouraging investors and facilitating internal economic cooperation and integration.

 

Pivot to East Asia: RCEP vs TPP

 

RCEP would act as an expansion and consolidation of the five existing free trade agreements between ASEAN and its six trading partners. Based on this, ASEAN plays a central role in the RCEP, acting as a single platform to increase its negotiating power and promote the interests of member states.

High on this agenda is the welfare effect of the TPP. The current TPP agreement includes just four ASEAN member states: Brunei, Malaysia, Singapore, and Vietnam. It is expected that the TPP will have a direct impact on the global value chain of several industries. For example, the technology economies of Laos and Cambodia are expected to experience a loss as a result of American and Japanese companies relocating production to Malaysia and Vietnam. RCEP offers these countries the chance to advance sustainable development by participating in global supply chains. We explore this issue, as well as several other free trade negotiations, in our GED Fact Sheet ‘‘TTIP, TPP, RCEP… How do Mega Trade Deals affect your Country?’.

While the RCEP negotiations are an ASEAN led process, China is also an important player. With China being excluded from the TPP negotiations, there is increasing speculation on how free trade agreements are being used by countries to benefit themselves at the exclusion of others. RCEP could enable China to address the shift of American foreign policy as it seeks to expand trade and investment and engage with regional multilateral institutions in East/South Asia. For more information on how globalization intensifies competition between nations read our study ‘‘TTIP, TTP and the Formation of a New World Trade Order’.

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