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OSAKA – On Sunday, 15 nations in the Asia-Pacific region signed the world’s newest multilateral trade deal, the massive Regional Comprehensive Economic Partnership, during this year’s ASEAN summit. While India has decided not to join the pact, which was seven years in the making, the new economic bloc accounts for about 30% of the world’s gross domestic product and 30% of its population.
What is RCEP and who are its members?
RCEP is an agreement between member states to reduce tariffs on a variety of agricultural and manufactured goods and to establish new rules on e-commerce, investment, service industries, intellectual property rights, and temporary migrant workers, among other issues.
Original RCEP members include the 10 nations of the Association of Southeast Asian Nations (ASEAN): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, plus Australia, China, India, Japan, New Zealand, and South Korea. India dropped out of the agreement in November 2019, citing concern about the impact on certain sectors of its economy.
Why is the United States not a member?
When negotiations were launched for RCEP in 2012, negotiations for a separate Trans Pacific Partnership (TPP) agreement, which included RCEP participants Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam, as well as the United States but not China or India, were underway. RCEP was seen by many participants as a less U.S.-centric regional agreement for Asia.
The original U.S. proposal for TPP was part of a larger American strategy under President Barack Obama for an “Asian pivot” that would be a combination of increased efforts on multilateral trade with Asian countries other than China and an increased military buildup in the region. However, enthusiasm for TPP in the U.S. Congress was limited. After President Donald Trump announced in early 2017 that the United States would pull out of the TPP agreement in favor of bilateral trade agreements, RCEP became the main Asian multilateral trade agreement under negotiation.
In the end, the TPP became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an agreement led by Japan that includes 11 countries. Many of the areas covered by RCEP are also covered by CPTPP. In addition, many nations that are part of both agreements have separate bilateral free trade treaties with each other.
It is unclear as to whether the U.S. might return to the CPTPP. President-elect Joe Biden, although a strong advocate of multilateralism, said almost nothing about U.S. participation in the treaty during his campaign. As the U.S. has bilateral agreements on trade with Japan and South Korea now, anti-CPTPP lawmakers in both the Democratic and Republican parties might balk at the idea of a U.S. return to the pact, arguing that Washington already has agreements with the main CPTPP economies. The U.S. would be even more unwilling to join RCEP, though there has never been discussion about asking it to join.
How is the RCEP different from the CPTPP?
Three key areas where the agreements differ are in tariff elimination, labor, and environmental standards. Compared to RCEP, the CPTPP, which also includes Canada, Mexico and Chile, aims for a greater elimination of tariffs (up to 99%), higher-level labor and environmental standards and attempts to place some restrictions on state-owned enterprises. That’s because the smaller, less economically developed ASEAN states in RCEP are economically unable, or unwilling, to commit to CPTPP-level standards.
What has Japan agreed to under RCEP?
In a concession to the agricultural lobby, tariffs will still remain on five imported agricultural products, including rice, wheat, beef and pork, dairy products, and sugar crops. For Japanese exports, the agreement means that China and South Korea will gradually eliminate tariffs on sake and shōchū. In China’s case, the reduction from the current 40% tariff on both will fall to zero after 21 years. South Korea’s 15% tariff on both goods now will be eliminated after 15 years. In addition, China’s 10% tariff on Japanese scallops (except cultivated scallops), will be eliminated as well.
Why did India decide to leave?
There had long been opposition to RCEP among Indian farmers, particularly dairy farmers, as well as small and medium-sized enterprises, and some in the service industry who worried about losing out to other countries under the agreement — particularly to China in the case of trade in manufactured goods and to Australia and New Zealand in the trade of dairy products. Human rights groups also wanted stronger language to ensure worker protection from abuse in RCEP’s chapter on temporary workers.
When India dropped out of the pact in November 2019, Prime Minister Narendra Modi cited all of the above concerns, saying that, when he measured the agreement with respect to the interest of all Indians, he didn’t get a positive answer. Although the other RCEP members have expressed hope that India will rejoin the treaty, the Modi government’s position is that it will not join the treaty as it currently stands.
What does the RCEP mean for China?
RCEP is the first multilateral free trade agreement China has ever participated in, as it normally prefers to negotiate bilateral free trade agreements. China already has bilateral trade deals with many RCEP members and still hopes for a trilateral pact with Japan and South Korea. The conclusion of the RCEP agreement is expected to strengthen economic relations between all three countries with ASEAN nations, and could lead to further bilateral arrangements among all members, but particularly China.