The Regional Comprehensive Economic Partnership (RCEP) is a historic agreement that brings together 15 Asia-Pacific countries that generate almost one-third of the global economy with more than a 2.2 billion-strong population and a total gross domestic product (GDP) of $26 trillion. The members are 10 Association of Southeast Asian Nations (ASEAN) countries along with five other countries, namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, China, Australia, New Zealand, South Korea and Japan.
The RCEP was proposed in 2011 at the 19th ASEAN Summit after 10 years of negotiations. It officially launched on Jan. 1, 2022.
The agreement itself is quite detailed and spread across 20 chapters. Some of the important chapters of the agreement are Trade in Goods; Rules of Origin; Customs Procedures and Trade Facilitation; Sanitary and Phytosanitary Measures; Technical Regulations and Conformity Assessment Procedures; Trade in Services; Investment; Intellectual Property; Electronic Commerce; Competition Rules; Small and Medium Enterprises; Economic and Technical Cooperation; and Government Procurement.
The RCEP agreement aims to reduce tariffs, unite trade rules and strengthen the supply chain between the member states. Under the RCEP, trade and customs procedures have been simplified with convenient certification that reduces custom clearance time. For example, Japan and South Korea do not have a trade deal, but under the RCEP they have free access to each other's markets. This is also the first common trade agreement between South Korea, Japan and China. This situation is the same for the rest of the member states. It shows that the RCEP has great potential to create tangible benefits for all its members.
The RCEP’s "Rule of Origin" chapter is one of the most important parts of the agreement. For example's sake, let's use the terms Country A, Country B and Country C. Country A uses material from Country B to produce semi-finished products to use in Country C. In this scenario, the product can be classified as originating in the final production country. This example demonstrates that the RCEP also is expected to reduce the cost of production so that there will be no need to import equipment and materials within the RCEP with tax and other additional expenses. Furthermore, countries like China, Japan and South Korea will enjoy the same kind of benefits when it comes to their infrastructure projects across the region. At this point, China’s advantage would be its Belt and Road Initiative (BRI) and financial support for projects under BRI.
According to the Asian Development Bank data, the RCEP will increase its members’ incomes by 0.6%, adding $245 billion annually to regional income. It is also expected to create nearly 3 million jobs by 2030. The population of the region is young and the countries have huge potential for startups and small and medium-sized enterprises (SMEs). Therefore, it is very important for enterprises and startups to reach the larger economic marketplaces.
China, as the world’s second-largest economy, plays a leading role in this agreement. Therefore, the future of the agreement mostly depends on China’s economic policies for the rest of the 14 countries.
The RCEP is a very important agreement that will help to establish economic integration in the Asia Pacific region. In this context, it will help China have more integrated economic relations with the region.
ASEAN became China’s largest trading partner in 2020. China has been ASEAN’s largest trading partner since 2009. China’s trade totaled 1.35 trillion yuan ($212 billion) in the first quarter of 2022, an increase of 8.4% with ASEAN. China’s trade with RCEP countries has already increased 6.9% to 2.86 trillion yuan in the first quarter of this year. This number is equal to 30.4% of China’s total foreign trade.
China as an Asian country is prioritizing its region. China is known for only pursuing bilateral trade deals, but the country signed its first multilateral regional trade deal with the RCEP. China’s close relations have already shown how much importance it gives to the region. Moreover, 11 of the 18 free trade agreements (FTAs) are with Asian countries and regions, and this is also a clue to understanding the significant economic ties between China and its region.
The RCEP is a victory of “multilateralism” for the region and for China in particular. It is expected to positively impact the Chinese economy. China is the center of the global supply chain, and the RCEP is also a supply chain-oriented agreement. In this regard, China’s role is crucial. Moreover, China, as one of the biggest constructers of infrastructure projects around the world, will enjoy the market potential in many senses, especially in the ASEAN region. Under the "rule of origin," the cost of the construction will be less than before. This will give China a competitive edge over nonmember countries’ companies. However, this situation might increase competition between Chinese, South Korean and Japanese contracting companies.
China, as the world’s second-largest economy, is very potent in production, innovation and more importantly consumption. On the one hand, China is strong in the high-technology sector, so its high-technology products will be able to reach the regional market at a competitive price. Also, China will promote Chinese brands and manufacturing across the region. On the other hand, China’s high consumption is an advantage for the RCEP region’s producers. It is important to note as an example that China’s two major online shopping websites racked up around $139 billion of sales during its unofficial holiday and shopping festival known as Double 11 or Singles' Day in 2021. Reaching such a market is noticeably important for RCEP countries. What is more, RCEP also provides a platform for e-commerce cooperation. China’s strength in e-commerce digital infrastructure is a chance for regional countries to catch up on the latest digital IT trends. This situation may help China lead the e-commerce network of RCEP countries. Lastly, policies for the internationalization of the yuan may strengthen its growth in the region.
RCEP’s total worth is larger than United States-Mexico-Canada Agreement (USMCA) and the European Union. China’s role in the RCEP is very significant. Many policymakers, economists and scholars have focused on future geopolitical balances and conjunctures. The RCEP includes the world’s second-largest economy, excluding the top economy, the United States. Therefore, its economic implications go beyond the region; the agreement may also cause a geopolitical shift.
Due to economic concerns, India has not joined the RCEP. India’s further attitude is important for regional geopolitics. If the U.S. returns to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), that may cause a conflict of interest to some degree with RCEP. Although China submitted a formal application to join the CPTPP in 2021, there is still no result yet.
Currently, the U.S. is trying to protect its national interest and balance China under President Joe Biden’s new Indo-Pacific strategy. But the Indo-Pacific Economic Framework for Prosperity (IPEF) is not a free trade agreement nor does it provide free market access without tariffs like RCEP. Therefore, it does not appear as an alternative to RCEP. Under the current "trade war" between the U.S. and China, Washington may put pressure on some member countries to reshape their ties with Beijing, especially now that NATO and "Asia" are being mentioned together. The RCEP agreement itself was a geopolitical win for China but also for the region in terms of the balance of power.
To conclude, ASEAN and Southeast Asian countries show promise in development and economic fields. Realizing this potential is only possible with an agreement like RCEP. RCEP will push countries to carry out domestic reforms like improving their intellectual property and e-commerce infrastructures. It expects to bring members brings closer both in economics and politics as they will have closer partnerships and create markets for each other. The tariff-free network brings more connectivity for ASEAN as well as the region. However, RCEP's success mostly depends on China. Because of China’s leading role in RCEP, China’s regional leadership is important.
