World’s largest free trade agreement kicks off

Most of its members have ratified the Regional Comprehensive Economic Partnership (RCEP). The huge trade deal will enter into force on January 1st.
RCEP Trade
© mgronline| RCEP trade pact good to go on Jan 1, 2022

From January 1st, 2022 on, the Regional Comprehensive Economic Partnership (RCEP) will govern trade between China, New Zealand, Japan, South Korea, Australia and the 10 member-states of the Association of Southeast Asian Nations (ASEAN), including the major economies of Indonesia, Singapore, Thailand, Philippines, Malaysia and Vietnam. RCEP will cover a market of more than 2.2 billion people and a combined GDP of USD$ 26.2 trillion, representing 30% of the world’s GDP. That makes the deal the World’s largest free trade agreement.

Businesses will be able to take advantage of RCEP’s opportunities. It will unlock huge economic benefits for exporters and businesses, as well as new market access.

Phil Twyford
Phil Twnford, New Zealand's minister of trade and export growth

RCEP started as an idea at an ASEAN+3 (Japan, China, South Korea) meeting ten years ago. It was signed in 2020. By November this year, enough of its member states had ratified the deal. The agreement contains 20 chapters. Apart from topics like trade in goods and service and investment, it also covers sections dealing with intellectual property, electronic commerce, competition, small and medium enterprises, economic and technical cooperation and government procurement.

RCEP and CPTPP: US and EU sidelined

Many experts believe that RCEP - China’s first multilateral trade deal - is an economic and a geopolitical win for Beijing against Washington. The new free trade area comes a four years after the US-Government under former President Trump had left Asia´s other big trade agreement: the Trans Pacific Partnership (TPP), which had brought countries in Asia an in America together. TPP renamed itself; it is now called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Trump´s successor, US President Joe Biden, has not reversed the US decision the leave CPTPP. According to US Trade Representative Katherine Tai, the United States is currently not considering rejoining the CPTPP. On the other hand, China and the UK are pursuing the opposite path: both have applied to join CPTPP. The EU or any of its member states are neither involved in RCEP nor in CPTPP. While both are huge deals, they are very different in substance. RCEP has much thinner trade provisions and lacks in-depth rules regarding agriculture and labor issues. Given leeway, China might try to influence regulations and standards within RCEP, said Robert Ward, the Japan chair of the International Institute for Strategic Studies.

ASEAN upbeat

Another important RCEP-member is Japan, which also belongs CPTPP. Tokyo may seek to balance Beijing´s assertiveness. In Southeast Asia, six of ten ASEAN countries have ratified RCEP so far. The others are expected to follow suit.

The expeditious ratification process by signatory States is a true reflection of our strong commitment to a fair and open multilateral trading system for the benefit of the people in the region and the world. The implementation of the RCEP Agreement starting January 1st next year will give a tremendous boost to the post-COVID-19 economic recovery efforts.

ASEAN´s Secretary-General
ASEAN´s Secretary-General Lim Jock Hoi

ASEAN member-state Singapore sound upbeat:

RCEP will reduce the trade restrictions and attract more investors. Businesses can enjoy greater cost- and time-savings, transparency and certainty. They will also benefit from streamlined rules of origin, enjoy simplified customs procedures, enhanced trade facilitation measures and enhanced investment rules and disciplines.

Singapore´s Minister of Trade and Industry
Gan Kim Yong, Singapore´s Minister of Trade and Industry

RCEP not as integrated as the EU

While RCEP with its 26.2 trillion US$ GDP is a bigger Free Trade Zone than the EU (11,3 trillion US$ GDP), RCEP is way behind in two aspects: it will take many years for it to be fully implemented and even then, RCEP will not create a single market, which is as deeply integrated as the EU. RCEP does not provide blanket guarantees for the free movement of goods, services, capital and persons. RCEP mainly enables trade facilitation. While the EU is not interested in joining either RCEP or CPTPP, Brussels has concluded free trade agreements with some countries in Asia (Singapore, South Korea and Vietnam) and is negotiating more, for example with G20 member Indonesia. Diversification makes sense, given the increasing tensions with China.

*Husai Chantarawirod is Regional Programme Officer at the Regional Office Southeast & East Asia of the Friedrich Naumann Foundation for Freedom.