Advancing sustainable growth in the United States and China

Regional Comprehensive Economic Partnership (RCEP)

Last September, the WTO announced that world trade growth in 2016 expanded at its slowest pace since the 2008-9 financial crisis. Now, with the effective demise of the Trans-Pacific Partnership, slow-moving progress at the WTO, and increasing protectionist rhetoric in the US and beyond, the future of free trade seems increasingly uncertain.

And yet, as much of the world turns inward, trade ministers from across the Asia-Pacific met recently in Manila, Philippines, to negotiate an ambitious mega-regional trade deal, known as the Regional Comprehensive Economic Partnership, which, if completed, would represent one of the world’s largest free-trade zones.

RCEP— covering half the world’s population and a third of global GDP—would be a big deal for trade. But the significance of RCEP goes beyond economics. The deal has become emblematic of a much wider discussion about Asian regionalism, geopolitics, and the future of the liberal world order. Here’s a quick guide for understanding some RCEP basics:

How did RCEP originate?

Negotiations for RCEP were first launched in November 2012 in Cambodia between the members of ASEAN (Brunei, Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) plus those countries that have FTAs with ASEAN (Australia, China, India, Japan, Korea, and New Zealand.) Members hoped that RCEP would be a vehicle to drive growth and deepen economic engagement in the Asia-Pacific region. Specifically, they sought to unify the five free trade agreements that exist between ASEAN and its six partners—thus solving the “noodle bowl” effect in which overlapping trade deals create confusing and conflicting rules.

Source: CNN Research

 

What’s being negotiated?

RCEP will cover a range of provisions on goods and services trade, investment, rules of origin, and dispute settlement, according to its Guiding Principles framework. However, the deal is unlikely to include provisions on issues such as labor, food safety, and the environment, or on sensitive political areas like government procurement. In this sense, RCEP is considered by many trade experts to be more of an “old-fashioned” deal—one that emphasizes reducing tariffs and trade barriers, not harmonizing standards and regulations.

Is RCEP a “China-led” deal?

The deal is commonly cast as “China-led,” but this is a bit misleading. The Obama Administration, for example, frequently alluded to RCEP in warning that China would “write the rules of trade” in the Asia-Pacific if the US failed to approve the TPP. However, while China is certainly the largest economy pursuing negotiations, and Chinese President Xi Jinping has been a vocal champion, in reality, RCEP is an ASEAN originated and centered proposal, one in which Beijing’s agenda-setting power is limited. As Shiro Armstrong and Amy King note in East Asia Forum, “allowing China to write the rules would require ASEAN, Australia, Japan, and India to all acquiesce to China’s demands”—a rather unlikely proposition.

Does RCEP threaten American interests?

There has been a rich debate on this question in recent years. One view is that the RCEP would have little impact on US interests. The deal would do what most trade deals do: lower tariffs and cut other barriers. This would ultimately lead to more economic growth and, ultimately, richer countries for the US to trade with. According to the opposite view, however, RCEP’s enactment would put the US at a “direct loss of competitive position,” potentially affecting 35 industrial sectors and 4.7 million employees.

What are the prospects for concluding RCEP?

RCEP was always going to be a difficult deal to conclude given that the 16 members come from different levels of development, the historical rivalries among some of the members, and a slew of other political pressures. According to Deborah Elms at the Asian Trade Centre, a number of thorny issues still need to be worked out—especially regarding provisions on rules of origin and country-specific tariff schedules. Members had hoped to conclude the agreement by November 2017, in time for ASEAN’s 50th anniversary, however, key negotiators recently announced this goal was unfeasible. Negotiators now seek “a significant breakthrough” or achieve a “substantial conclusion,” by November, 2017, according to Philippine trade undersecretary Ceferino Rodolfo.

By Andy Morimoto (Last Updated 10/4/2017)