17th November 2020
David Collins is Professor of International Economic Law City, University of London
The Regional Comprehensive Economic Partnership (RCEP) was finalized this weekend among the ten ASEAN nations, along with five other Asia-Pacific countries, including heavyweights China and Japan. Strengthening economic relations among its constituent members, the RCEP is a positive development for a region struggling to recover from the effects of the Covid epidemic. The much-anticipated deal, under negotiations for many years, is now the world’s largest trading bloc by GDP, dwarfing the Comprehensive Progressive Trans-Pacific Partnership (CPTPP) which the RCEP was initially created to challenge. The US’ departure from the CPTPP (then called the TPP) by President Trump in 2017 breathed new life into the RCEP and in some sense relegated the CPTPP as the instrument for strategic economic dominance in the Asia-Pacific region. While the importance of the 11-nation CPTPP should not be understated, it is difficult to depict any trade agreement as representing a seismic shift in global economic rulemaking without membership of at least one of the world’s superpowers.
Like most modern FTAs, the RCEP is focused on tariff reduction on goods, with some enlarged market access for services. The RCEP doesn’t go as far as the CPTPP in terms of tariff reduction, with the latter agreement covering 99% of products, mostly because some of the smaller RCEP partners felt they were unable to manage reductions of this magnitude. The RCEP also lacks the CTPPP’s ‘progressive’ provisions on the environment and labour, driven in large part by the liberal-minded consensus of the CPTPP’s Commonwealth signatories (Canada, Australia and New Zealand). The CPTPP additionally contains some restrictions on state-owned-enterprises which are missing from the RCEP because of China’s dominance in this area. Where the differences between the two agreements are not large, it would not be far wrong to characterize the RCEP as encapsulating a less-market oriented, less modern strategy for trade liberalization than the CPTPP.
One of the signature goals of the RCEP was to standardize rules of origin among its trading partners, streamlining the complicated process which decides where products are deemed to have been made for the purposes of accessing lower tariffs. China is poised to gain the most from this initiative because it is the country where most products have their final processing, ensuring that most RCEP countries are tied up to China-centric supply chains. The RCEP is historic also because it is the first FTA in which China agreed to disciplines on digital trade, allowing the free flow of data and prohibiting data localization, although subject to wide national security and public policy exceptions. Other RCEP members, such as Japan, had done this already, including in the new UK-Japan CEPA.
While India withdrew from RCEP negotiations over concerns that it would not be able to withstand competition from lower tariffs, especially in relation to agricultural products, there is no question that RCEP has shifted the world’s centre of economic gravity to the Asia Pacific, where it was already heading, at speed. The pressure is on the US to return to the negotiating table of the CPTPP, which broadly resembles commitments it has already made under the North American USMCA, to gain a piece of the action. Should the UK also join the CPTPP as is anticipated, with US coming on board, the CPTPP may yet consolidate itself as the world’s most significant mega-regional trade agreement.
The article was first published on the Global Vision UK website. Here is the link:
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