The Regional Comprehensive Economic Partnership, or RCEP, was signed virtually on Sunday during the annual summit of the 10-nation Association of Southeast Asian Nations (ASEAN).
Fourteen countries under the initiative of China have formally agreed to form the world’s largest free trade bloc, encompassing nearly a third of all economic activity. After 8 long years of negotiations the deal was finally sealed as leaders world over are anxious to nudge their pandemic hit economies back on track.
What is RCEP?
The RCEP is a trade bloc conceptualised in 2012 that includes China, Japan, South Korea, Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations (ASEAN): Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and the Philippines. India too was a part of the negotiations but withdrew last year.
The bloc encompasses 2.1 billion people, with RCEP’s members accounting for around 30 per cent of the global GDP. Its aim is to lower tariffs, open up trade in services, and promote investment to help economies from Asia to Australia be at par with the rest of the world. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights.
The RCEP was born after former US president Barack Obama announced a multinational trade deal – the Trans-Pacific Partnership (TPP) – that would have excluded China.
Why is India not a signatory?
Indian pharmaceutical companies were all in favour of the RCEP because they wanted to export generic drugs to China, but fears that cheaper products from China would “flood” the market, and a $50 billion trade deficit with China kept the Indian government from joining.
Textile, agriculture, and dairy were three industries that were expected to be hit particularly hard if cheaper goods were readily available in the market. Even though doors have been kept open for India, the Ministry of External Affairs (MEA) secretary (east) Riva Ganguly Das said at the 17th ASEAN-India virtual summit, “Our position is known. As far as India is concerned, we did not join RCEP as it does not address our outstanding issues and concerns.”
Why is China pushing for RCEP?
TPP, the largest regional trade accord in history, would have set new terms for trade and business investment among the United States and 11 other Pacific Rim nations. It became a cause for discontent in the United States across party lines, and when Donald Trump took office all plans for TPP were shelved.
Obama’s successor started an entrenched trade war with China, abandoning all plans of seeking cooperation with the budding economies of Asia, and hit China with high tariffs. Unable to find a market for its goods, China began to look for consumers within Asia and hence RCEP began to gain prominence.
China has an annual surplus of almost $1 trillion, i.e. it sells much more than it buys from other countries. Almost half of that surplus is due to its trade with the US. An entrenched trade war with the US threatens China with dire consequences, no other country can buy as much as the US does. In the first half of 2019, after the trade war began, China’s overall exports to the US declined by 8.5% and rose by only 2.1% with the rest of the world.
Faced by a production surplus, China was forced to lower its own high tariffs in May last year. Emphasis was put on labour intensive and low tech industries producing goods which its immediate neighbours would be more interested in buying.
This current push to seal the deal on the RCEP comes from China’s anxieties about the policies of US President-elect Joe Biden, who has given no indication that Trump’s China policies would be recalled. The European Union too has been opening its eyes to the atrocities committed by the Chinese Communist Parties in the Xinjiang region. Both Trump and the EU’s push to stop doing business with Chinese military-backed tech companies like Hikvision and Huawei amongst others has added to the communist nation’s anxieties, as it continues to push forward with renewed vigour for a comprehensive trade pact to insulate itself from the storm Beijing knows is coming.
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