The new Regional Comprehensive Economic Partnership (RCEP) has been signed between China, Japan and Asian-Pacific countries. To quickly introduce the RCEP, it is one of the most extensive and substantial trade agreements signed to date!
Let’s back up for a second. Before we talk about the contents of RCEP, let’s ask ourselves: what are trade agreements and trading blocs?
Trade agreements are essential for the economic growth and international trade. There are three types of trade agreements that countries can enter into:
- Unilateral Trade Agreements
- Bilateral Trade Agreements
- Multilateral Trade Agreements
Without trade agreements, countries would have to pay certain (and probably high) tariffs, have quotas placed on their goods and services, and it would ultimately restrict and slow down the growth rate of international trade.
In the case of no international trade, we would see ‘protectionism’ (quick definition: this is where countries protect their domestic industry through high tariffs and quotas), which were the measures that were in place during the periods of inter-war. Therefore, it is clear that these trade agreements not only increase international trade (by making it more efficient, increasing the levels of imports and exports, and also raising the standard of living) between countries. It also keeps the balance of peace and international trade. I don’t know about you, but, with the state of the ongoing pandemic, a trade war is the last thing that the world needs!
Now, back to international jargon busters! We also have ‘trading blocs’. The difference here is that trading blocs are countries which are within a geographical zone. So, for example, the EU would be classed as a trading bloc because all EU member states are in close proximity to each other on the map. (Quick Fact: RCEP now overtakes the EU as being the biggest ‘free trade zone’). There are also different forms of trading blocs:
- Preferential Trade Area
- Free Trade Area
- Customs Union
- Single Market
The ultimate goal of these trading blocs is to reduce, or completely see rid of barriers to trade (barriers meaning tariffs and quotas). But more importantly, the idea of working together and the idea of reciprocity is also crucial. (In the sense that countries are working together for a mutual benefit of an exchange for e.g. both knocking down tariffs).
A Quick Background:
So now that we’ve got the low down on all things international trade related, let’s talk about RCEP and its purpose! To come to grips with this trading bloc, it’s worth our time dipping into the past and looking at the ASEAN trade agreement.
ASEAN stands for: The Association of Southeast Asian Nations. The ASEAN trade agreement is a trade agreement signed by Indonesia, Malaysia, the Philippines, Singapore and Thailand (and later five more Asian-Pacific countries joined). So, you are now probably wondering what has this got to do with RCEP? It is important to note that during the 1960s, trade between these Asian-Pacific states was not on the cards as there were strife tensions in the Asian-Pacific which ultimately led to political ‘beef’ between them. It was only in 1967 that they finally came together and formed a trading agreement which had the strength to move beyond trade agreements, and incorporated co-operation in relation to security and human rights.
Now, fast forward to 2020 and the RCEP has been signed. The RCEP has been in development for 8 years through various rounds of negotiations. Intriguingly, it was developed and signed during the ASEAN meetings! The main aim for the creation of RCEP was to create a trading bloc to over time, remove all barriers to trade. Now, only time will tell how long it takes for the signatories of RCEP to annihilate all tariffs and quotas. But, speaking realistically, it may take some time but it will eventually happen.
A Further Dive into the Contents of the Agreement:
The RCEP agreement also set out terms for:
- Intellectual property;
- Financial services;
Most importantly, each signatory will be treated equally when importing and exporting goods and services to other countries. This is known as the ‘Most-Favoured-Nation (MFN)‘ where one country can’t favour another in terms of their goods.
The only down-fall is that, the RCEP doesn’t go as far as the EU as being a trading bloc. As they are not completely integrated, it means that it only goes as far as trade, and doesn’t include human rights, or labour provisions. In the long run, this may not cause any serious problems, as we can see a modern example of a trading bloc breaking down (England leaving the E.U.). A problem that England have felt for a number of years now, is that, the EU has become too integrated (E.G. the E.U. covering too many areas like migrant policies), thus impacting the sovereignty of the nation.
For now, it may be in the best interests of the signatories to focus on keeping the balance of peace and international trade to help the growth of their economies and to lead them out of the economic horrors of the global pandemic.
Current signatories of the RCEP include China, Japan, South Korea, Australia, New Zealand, Thailand, Vietnam, the Philippines, Singapore, Cambodia, Indonesia, Laos, Malaysia, Myanmar and Brunei. It is astonishing that the RCEP is now the biggest free trade deal to date, because these 15 countries make up close to a third of the world’s population! Interestingly, all of these countries had free trade agreements somewhat with each other, but when you think of it in the long run, the signatories to RCEP are hoping that the new, biggest trade agreement will help them survive the economic effects of the global pandemic, and to further the growth of their exports, and gaining imports at already low tariffs, to in a couple of years, no tariffs at all. This can be seen as great for the 14 countries who have signed this deal with China, as they are global dominators and this is China’s first signing of a multilateral trade agreement – this is a big step for China!
India and the RCEP:
Now all this sounds great on paper, but don’t be fooled. Free trade agreements do come with their disadvantages! India was also planning to be a signatory to the RCEP, however, the nation had its own reserves and queries about the agreement. Some of these reservations included how India’s issues on the protection of their industries, such as agriculture and dairy were not being understood. The main factor behind these issues was China. India had fears that the new RCEP agreement would flood India with exports from China (known as ‘dumping’ goods), which would ultimately out-do their domestic products. India was also fearful that they would ultimately have no protection over the influx of Chinese goods. While the RCEP signatories have welcomed India to become a part of the multilateral agreement when they feel ready, it seems unlikely. The disadvantages of the RCEP outweigh the advantages for India. This could be concerning for India in terms of their existing bilateral/free trade agreements with the RCEP signatories for the following reasons:
- It will be hard for India to get its foot into the RCEP region to export its goods.
- India is currently in a free trade agreement with Japan and Australia. It is feared by the members to this agreement that it may cause unwanted tensions, and possibly even risk the collapse of this free trade agreement.
- India already has ‘trade deficits’ with over half of the RCEP signatories, meaning there are already existing tensions which will not help India’s rate of exports.
To wrap things up, the RCEP will go down in the history books as being one of the biggest trading blocs to be signed…and not only just signed…but virtually signed international trade agreements! It gives hope to the signatories that economic stability will again return once we move past this global crisis and will help them further drive their industries. To finish up, we can sarcastically compare the signing of RCEP to the infamous quote from Donald Trump on the U.S. signing of NAFTA…so, in short, no, the new RCEP is NOT the worst trade deal ever to be signed!
This article was written by Sarah Barry. Sarah is a BCL Graduate from the National University of Galway, Ireland, and a current Masters student in the University of Limerick, Ireland. Sarah is a Content Writer for According To A Law Student (ATALS), and an an aspiring Commercial Law Solicitor. Sarah has a keen interest in international commercial law, especially in Intellectual Property and Mergers and Acquisitions.