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The RCEP trade agreement – one year later
FS Life / 27 January 2022
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BSc in Business Administration Class of 2025
Gabriele is currently studying in the Business Administration program at Frankfurt School. Highly interested in the course, he is also eager to delve into the connections between business administration topics and our globally and technologically interconnected world, as well as explore the implications that these topics have on the economic and geopolitical landscape.

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After eight years of strenuous negotiations, in November 2020, representatives from 15 Asian countries (10 ASEAN members, China, Japan, South Korea, Australia, and New Zealand) signed an historic free trade agreement (FTA) that aimed at reshaping the scope and extension of international trade globally, as well as create stronger trade links between Asian countries and enlarging the size of entire economies, especially their GDP. 

What is meant by a free trade agreement? 

A free trade agreement (FTA) between two countries (bilateral) or a given group of countries (multilateral) may be defined as a set of rules for how countries treat each other on doing business together (e.g., exporting / importing goods or services), making it easier for exporters, importers, and investors to do business between different countries. 

Brief overview of the RCEP agreement 

Built on existing bilateral ASEAN agreements with its FTA Partners, the RCEP’s objective is to establish a modern, comprehensive, high-quality, and mutually beneficial economic partnership and to contribute to global economic growth and development in a region that, as of today, covers approx. 30% of global trade, 30% of global GDP, and 30% of the global population. In fields such as free trade, RCEP members agree to achieve a reduction in custom duties and tariffs as well as facilitation for the transition of goods from one country to another. Further on, they will ensure to ease the movement within RCEP members’ borders, particularly for “business visitors” and “intra-corporate transferees”, and regulate and protect investors operating between RCEP member countries.  

Initial Prospects for Asian Countries 

With a decrease in tariff regulations and trade barriers, RCEP countries started to build the layers for the creation of a strong market in global value chains (GVCs), which could benefit from low trade barriers between participating countries. The free trade measures of the RCEP agreement are particularly important because products cross country borders multiple times, providing great incentives to RCEP members to liberalize trade policy, at least in sectors that are relevant for “Factory Asia” (i.e., intermediate goods for complex industrial goods). By 2030, if implementation is on track, the liberalization of trade policy and the increased flow of goods/services between RCEP members could increase members’ incomes by 0.6%, adding $245 billion annually to regional income and 2.8 million jobs to regional employment, improving the overall economic welfare of the region (even if there will be different gains among the various members). 

Moreover, the signing of the RCEP agreement was not only an economic success for the region, but also a geopolitical triumph for Beijing, which continues to fill the increasing void left by the US after years of “America First” foreign policy. This was also seen with the Belt and Road initiative which started in 2017, two policies that highlight Beijing’s goal of global dominance through trade and diplomacy to form strong economic and cooperative ties with potential allies.  

Current Challenges for Asian Economic Integration 

The RCEP FTA is certainly a historic success for the Asian region, in which Asian countries further acknowledged the importance of economic cooperation during the Covid-19 pandemic to try keeping supply chains open and connected. Nonetheless, the RCEP might have some serious implications in the future on the members’ economies, which could prove to be slowing the pace of economic integration in the region.  

RCEP members need to consider the wide differences in the economic development of the various partners, which could imply different gains for different countries. An example of this could be seen with the striking contrast between industrial/service economies such as China, Japan, or Australia and, on the other hand, economies based mainly on natural resources such as Cambodia, Brunei or Myanmar.  This difference could imply that the economic exchange between advanced and developing economies could lead to the more developed regions gaining the most from an increase in regional income and, thus, not improving the overall economic welfare of the region, but rather leading to a temporary detour from the current status quo. This could spark the separation between RCEP members based on economic development and not to an improvement of the degree of trade that RCEP members agreed at first, possibly being an issue to solve in the long run.  

Considerations for the future 

Even if the RCEP agreement might have some difficulties to be implemented, its signing seems to confirm a long-term shift in global dominance by Asian economies, most notably China. In recent years, Beijing is securing its position as the main driver for Asian economic growth through various means, such as the RCEP agreement, aiming to be the main economic point of reference in the trans-pacific region between Asia and North/South America. This foreign policy was further highlighted with China’s recent request to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a multilateral trade agreement that includes not only Southeast Asian countries but countries such as Canada, Mexico, Peru, and Chile. While the RCEP focuses mostly on Asia, the CPTPP agreement, coming from the original Trans-Pacific agreement (TPP) pushed by the US under former President Obama, aimed at liberalizing trade between Asian and American countries despite the seemingly long distance between the continents.

Nonetheless, when the US withdrew from the TPP under former President Trump, China saw in the CPTPP an opportunity for replacing economically the US as the center of trade in the Pacific region between Asia and the Americas. To reach this goal, China’s membership in the RCEP is key for strengthening its trade position in Asia and the whole trans-pacific region, further becoming the economic point of reference for both Asia and North/South America. As the Far East aspires and looks forward to preparing to become the new global economic center, East Asian countries need to overcome the striking differences in terms of economic and infrastructural development, along with the increasing geopolitical tensions in the region, to become a truly interconnected and cooperating trade region. 


Any FS student can contribute to the EcoPol Journal. If you would like to contribute, please send an e-mail to ecopol_journal@fs-ecopol.de with your idea proposal. Any topics that you believe relevant and interesting are welcome.


References:

New Zealand Ministry of Foreign Affairs and Trade. n.d. About free trade agreements. [Accessed 20 November 2021].

Flach, L., Hildenbrand, H. and Teti, F., 2021. The Regional Comprehensive Economic Partnership Agreement and Its Expected Effects on World Trade – Intereconomics. Intereconomics.eu.

The Economist. 2020. Who gains from RCEP, Asia’s new trade pact?.

Kang, J., Crivelli, P. and Tayag, M., 2020. Regional Comprehensive Economic Partnership: Overview and Economic Impact. Asian Development Bank.

Park, C., Petri, P. and Plumme, M., 2021. Economic implications of the Regional Comprehensive Economic Partnership for Asia and the Pacific. Adb.org.

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