RCEP: Recipe for 21st Century Regional Cohesiveness?

 

by Trivan Annakarage

The Regional Comprehensive Economic Partnership (RCEP) has been signed into operation and is gaining traction owing to its magnitude and composition. As of 2020, the collective Gross Domestic Product (GDP) of all member states in the regional trade bloc amounted to 30% of global GDP (US$ 38.81 trillion)[1]. This figure is larger than the GDP of both NAFTA 2.0 (US$ 22.20 trillion) and the European Union (US$ 15.17 trillion) combined[2]. Moreover, the 15 member states represent a cumulative population of 2.2 billion people, amounting to 30% of world population[3]. Thus RCEP is currently the largest trade bloc to have existed in the history of multilateralism. At a time when the concept of multilateralism itself is brought into question, a regional trading bloc of such magnitude gives credence to the potential of RCEP.

Background

Signed on November 15, 2020 when Vietnam hosted a virtual ASEAN summit[4], RCEP represents three regions - Southeast Asia, Far East Asia, and Australia & Oceania. The Southeast Asian nation-states include all 10 ASEAN members namely, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The Far East Asian countries include China, Japan and South Korea. The two countries from Australia & Oceania are Australia and New Zealand. RCEP is a key milestone for ASEAN since it was instrumental in its formation, and was able to bring China into the grouping without creating a fallout with Japan, South Korea and Australia, that experience tensed relations with Beijing.

RCEP is geared towards creating a tight knit market where member states can benefit from imports and exports with minimum trade barriers. In addition to trade in goods and services other focus areas include investment, intellectual property, dispute settlement and e-commerce followed by small and medium enterprises[5]. The latter is a very important focus area since SMEs comprise over 90% of business establishments in the 15 member countries[6]. Within the first 20 years of the trading bloc’s existence, RCEP plans to eliminate 90% of tariff imports between signatories[7] [8]. Furthermore, with the increasing traffic in the online market space and innovation that takes place in these regions, RCEP would establish common rules for e-commerce and intellectual property rights. The trade bloc has been criticised for not being explicit on labour laws, environmental protection and government subsidies[9]. Nevertheless, analysts argue that initiatives spearheaded by ASEAN begin with a broad vision and are gradually streamlined and achieved with necessary and timely amendments as time progress. This strategy has contributed to the longevity and relevance of ASEAN and would hopefully do the same for RCEP.[10] 

China’s prospects

The advanced democratic economies in RCEP (Japan, South Korea and Australia) are close allies of the United States. The recently invigorated military alliance; Quadrilateral Security Dialogue (QUAD) results in US, Japan, India and Australia’s joint effort to curtail China’s growing military prowess in the Indian Ocean and Asia Pacific. Against these developments RCEP becomes more intriguing as the United States is not part of it. This creates an absence of a power balance, with China being the most influential country in the grouping in terms of its economic and military might. If member countries work cohesively, RCEP would pull the economic centre of gravity closer to the East[11] [12]. The possibility of such a favourable outcome has therefore aided in softening the relationship between these three countries and China for a much larger purpose of economic prosperity.

The other trade bloc that would have rivalled RCEP was the Trans-Pacific Partnership (TPP) which was signed by 14 countries in 2016. President Donald Trump however withdrew USA from the trade bloc in 2017. This paved the road for the creation of RCEP due to the lack of momentum and cohesiveness in TPP[13]. Today, nine countries have membership in both RCEP and TPP.

In November 2019, New Delhi decided to stay out of RCEP sending out mixed signals. Prime Minister Modi outlined that the trading bloc did not address India’s need to commit to such an agreement.[14] Potential adverse effects to domestic industrial and agricultural sectors from Chinese manufactured goods and dairy products from Australia and New Zealand were cited as reasons[15] [16]. Yet experts predict Indian pharmaceuticals, cotton yarn and services industries would have benefitted enormously given the size of the market available[17].

If there was a vision for RCEP to become a mighty economic force from the East, this may have fallen short since India is the third largest economy in Asia after China and Japan. This may have been the reason why RCEP has provided flexibility to India to become a member-state in the future whenever New Delhi deems it fit[18]. However, Singapore’s former representative to the United Nations, Kishore Mahbubani, stated that the absence of both USA and India in this trace bloc has paved the way for China to proceed with its geopolitical ambitions and to create a unanimous economic ecosystem centred around RCEP where China would be its nucleus[19].   

Prospects and Concerns

It is clear that China, Japan and South Korea will reap the most out of this trade bloc[20]. For China, RCEP helps to leverage its position as a world power and invigorates her geopolitical ambitions for world ascendency through the Belt and Road Initiative. Moreover, it provides China with the opportunity to tighten her cultural affinity with a growing ethnic Chinese community across Southeast Asia. For Japan and South Korea, RCEP would be a new market to export their high-end industrial products as the quality of life in ASEAN and its share of billionaires is on the rise. It is an opportunity to enhance soft-power diplomacy in ASEAN, Australia and New Zealand through their respective entertainment industries. For Australia and New Zealand, RCEP is beneficial for an economic recovery strategy from Covid-19 as they access new export markets and explore investment in Southeast Asia[21] [22]. RCEP would provide greater access to developed economies for Southeast Asian countries such as Indonesia, Thailand, Myanmar, Cambodia and Laos whose economies largely depend on exports of finished garments, agricultural produce and commodities[23]. Countries such as Vietnam, Philippines and Malaysia would benefit from further investments in the tech industry. RCEP would have less impact on Singapore and Brunei since these countries have already established strong trade relations with the advanced economies of Far East Asia, and Australia & Oceania. If all member states are equally optimistic in the success of this trade bloc, RCEP might gradually bring about a solution to the ongoing disputes in the South China Sea and East China Sea. This is too early to judge though.               

A major concern is that since signing the agreement in 2020, not all member states have ratified the treaty. Currently only four countries - China, Japan, Singapore and Thailand - have ratified the treaty. The latter was the first to ratify it. This is a clear indication that there is opposition to this bloc domestically in these countries where ratification is pending. It must be taken into account that many countries in South Asia have a booming tech industry. RCEP might be a threat to this domestic industry due to flooding of low cost but equal/better quality Chinese imports. Further integration with the Chinese economy would mean Tokyo and Canberra being unable to fully commit themselves to supporting Washington’s geopolitical rivalries against Beijing. This would be detrimental to US influence over Southeast and Far East Asia.

The gradual ratification and operationalization of RCEP will undoubtedly lead to an economic revolution that has the potential to create a model for regional cohesiveness further into the 21^st century. However early ratification and realization of strategies remain crucial at this juncture.

---

[1] New Zealand Foreign Affairs & Trade (2021). Regional Comprehensive Economic Partnership. Avaialble at https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/regional-comprehensive-economic-partnership-rcep/rcep-overview 

[2]BBC News (2020). RCEP: Asia Pacific Countries form the largest trading bloc. Available at https://www.bbc.com/news/world-asia-54949260

[3] Shotaro Tani (2020). India stays away from RCEP talks in Bali. Nikkei Asia. Available at https://asia.nikkei.com/Economy/Trade/India-stays-away-from-RCEP-talks-in-Bali 

[4] CNA (2020). Asia-Pacific nations sign world’s largest trade pact RCEP. Available at https://www.channelnewsasia.com/news/business/rcep-trade-pact-asean-summit-singapore-china-13534960

[5] Laura Zhou (2020). Explainer: What is RCEP and what does an Indo-Pacific free trade deal offer China? South China Morning Post. Available at https://www.scmp.com/news/china/diplomacy/article/3109436/what-rcep-and-what-does-indo-pacific-free-trade-deal-offer

[6] Association of Southeast Asian Nations (2021). Regional Comprehensive Economic Partnership. Available at https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership

[7] Ibid^5 

[8] Ibis^6

[9] Keith Bradsher & Anna Swanson (2020). China-led Trade Pact is Signed, in Challenge to U.S. The New York Times. Available at https://www.nytimes.com/2020/11/15/business/china-trade-rcep.html

[10] Peter Petri & Michael Plummer (2020). RCEP: A new trade agreement that will shape global economic and politics. Brookings. Available at https://www.brookings.edu/blog/order-from-chaos/2020/11/16/rcep-a-new-trade-agreement-that-will-shape-global-economics-and-politics/

[11] CNA (2020). US being left behind after Asia forms world’s biggest trade bloc RCEP: US Chamber. Available at https://www.channelnewsasia.com/news/asia/rcep-us-chamber-of-commerce-left-behind-asia-economy-trade-13576598

[12] Amy Gunia (2020). Why the U.S. Could be the Big Loser in the Huge RCEP Trade Deal between China and 14 Other Countries. Time. Available at https://time.com/5912325/rcep-china-trade-deal-us/

[13] Charles Riley (2017). Trump’s decision to kill TPP leaves door open for China. CNN. Available at https://money.cnn.com/2017/01/23/news/economy/tpp-trump-china/

[14] Ibid^15

[15] ET Bureu (2019). India decides to opt out of RCEP, says key concerns not addressed. The Economic Times. Available at https://economictimes.indiatimes.com/news/economy/foreign-trade/india-decides-to-opt-out-of-rcep-says-key-concerns-not-addressed/articleshow/71896848.cms

[16] Business Standard (2020). What is RCEP? Available at https://www.business-standard.com/about/what-is-rcep 

[17] Ibid^15

[18] Bangkok Post (2020). What happens now the RCEP trade deal has been signed? Available at https://www.bangkokpost.com/business/2020503/what-happens-now-the-rcep-trade-deal-has-been-signed-

[19] Kishore Mahbubani (2021). Why Attempts to Build a New Anti-China Alliance Will Fail. Foreign Policy. Available at https://foreignpolicy.com/2021/01/27/anti-china-alliance-quad-australia-india-japan-u-s/

[20] Ibid^2

[21] Qu Caiyun (2020). Australia needs Southeast Asia for market, not politics. Global Times. Available at https://www.globaltimes.cn/content/1203633.shtml

[22] Ibid^1

[23] Heimkhemra Suy & Phnom Penh (2021). How RCEP benefits Cambodia in the long term. East Asia Forum. Available at https://www.eastasiaforum.org/2021/02/13/how-rcep-benefits-cambodia/

EUROPE DAY: HOW REGIONALISM TRANSFORMED EUROPE

 70^th anniversary of the Treaty of Paris

By George I. H. Cooke

Whilst Europe Day is marked across the European Union on 9^th May each year in marking the anniversary of the Schuman Declaration, in which a former French Foreign Minister articulated the need for political cooperation across Europe to make war unthinkable, it is the steps taken thereafter and in particular the Treaty of Paris on 1951 that deserves due emphasis.

Considered to be the deepest form of integration experienced in modern world, the European Union has member States who have pooled resources, personnel, services and even sovereignty to emerge as a formidable force on the global stage. In April 1951, France, Italy, West Germany and the three Benelux countries, Belgium, Luxembourg and the Netherlands took a bold step of signing a treaty which came to be known as the Treaty of Paris. Establishing the European Coal and Steel Community, the measures taken seventy years ago have borne fruit over the decades since then.

Whilst the treaty was expected to ensure stability in Western Europe as the Cold War had commenced and the rapid division of the world was taking place, the significant aspect of the Treaty was that countries were pooling their most important resources through this agreement in a bid to consolidate their positions, collectively. Seen as the precursor to the current day European Union, the Treaty of Paris was a harbinger of its time as it provided an example of integration, collective action and a sharing of resources which would ultimately benefit the signatories. The advantageous situation would then spread across the rest of the region too, and lead to the EU of today.

The treaty which came into force on 23^rd July 1952 and would end half a century later in 2002 revolutionized trade and regionalism, as it aimed to organize the free movement of coal and steel and more critically it opened access to resources of production.  Through the Treaty these countries witnessed the established of a common High Authority which was geared towards supervising the market, monitoring compliance with competition rules and also ensuring price transparency.

Given the animosity, destruction and tension that the Second World War had spawned the efforts made to collaborate at this juncture were laudable as the common market that was being created would give rise to economic expansion, generate employment and improve living standards, all of which was in a debilitated state following the travails of conflict that had been witnessed in the preceding years. Interestingly the Treaty ensured fair and equal access to the sources of production, and guaranteed prices whilst improving working conditions.

Institutionalization of the Treaty

The Treaty led to the creation of a series of institutions including a High Authority, an Assembly, a Council of Ministers and a Court of Justice, all of which ensured the implementation of the Treaty and adherence to that which had been pledged by member States. The High Authority, which is today’s European Commission was independent. This is the unique characteristic of even the Commission today where Commissioners though coming from countries across the EU, sit as Europeans as opposed to natives of their respective countries. This allows for decision making that is beneficial for the entirety of the Union. The lesson that could be derived from the European Commission is that in a regional grouping while the voices of all member States are relevant and crucial, it is the objective of ensuring that action is taken to promote the integration of the whole that matters the most. The model of the European Commission is the only one of its kind in existence today and is worthy of emulation given its reflection of the views of the whole, rather than its parts. This is where true synergy is harnessed.

Seven decades ago when the High Authority was established it became a supranational entity tasked with supervising the modernization and improvement of production, ensuring the supply of products under identical conditions, developing a common export policy and, from a labour perspective, was entrusted with the mandate of improving the working conditions in the coal and steel industries.  To ensure clarity of purpose and efficiency of service the Treaty also saw the creation of a Consultative Committee which comprised the key stakeholders in the Coal and Steel industry, notably the producers, workers, consumers and dealers, who were directly responsible and would have the task of ensuring the success or failure of the Treaty.

Further, the Treaty established the Assembly, which would lead to the European Parliament as we know it today, which at the time had 78 members, drawn from national parliaments. Whilst there were 18 representatives from Germany, France and Italy, 10 from Belgium and the Netherlands and 4 from Luxembourg, the supervisory power they possessed ensured guidance in keeping with national sentiments. Even the European Parliament which gradually transformed from a body of appointed individuals to one which consisted of elected representatives, displayed the potential of integration and collective decision making for countries which only a few years before had been at war which each other.

The Council that was formed led to the subsequent Council of the European Union that is in existence today, with 6 members at the time from the member States, and with a rotating presidency for 3 months. Geared towards ensuring smooth functioning of the action being taken by the High Authority, this was also the body that was responsible for the final decision making process.

Finally the Treaty also created a Court of Justice, which later transformed into the Court of Justice of the European Union with 7 judges to ensure that the Treaty was accurately interpreted and implemented.

Evolution of the Treaty

The Treaty of 1951 would see several amendments pursuant to discussions among member States who perceived the review as being necessary to keep the values and principles enshrined in the Treaty relevant and timely. While the Merger Treaty of 1965 brought together the European Coal and Steel Community with the European Economic Community and the Eurotom, there was also the Treaty of Greenland in 1984, the Treaty of the European Union in 1992, The Single European Act of 1986, the Treaty of Amsterdam of 1997, the Treaty of Nice in 2001 and the most significant could be considered to be the Treaty of Rome of 1957 which truly moulded the EU into what it is today.

Taking Regionalism forward

Upon reflection of the journey taken by Europe from the Treaty of Paris onwards, it is evident that visionary decision making, clear strategizing and effective implementation of policy were highly essential and valuable attributes. The decision to pool the most important of resources, notably coal and steel and the creation thereby of an oligopoly controlled by the signatories of the Treaty would lead to integration in Europe which went beyond the economic dimension and gradually saw it progressing to its current state of being the deepest form of integration on the planet.

Whilst regionalism as a concept has evolved from its original form of being dependent on geography alone, to now embracing economics, finance, defence, language and even religion, the notion and potential of regionalism was first given meaning through the European Union. Other regional groupings aspire to progress accordingly but of essence is the need to develop indigenous models as opposed to attempting to emulate the same journey taken by the Europeans. The Coal and Steel Pact was of prime importance to the Europeans, and while economics and trade are crucial for all geographical regions, it is but one of the means through which integration can and should be achieved. Similarly the comparison of the EU with other regional groupings is unfair and irrelevant as the conditions, circumstances and context of Europe is vastly different to other regions.

From an Afro-Asian perspective, the Association of South East Asian Nations (ASEAN) has been able to make steady progress, and the African Union (AU) has also attempted deeper integration. However the South Asian Association for Regional Cooperation (SAARC) which is brimming with potential and has the ability to become a shining example of harnessing the value of collaborative action is far from where its founders expected it to be, owing chiefly to bilateral issues which are spilling over onto the regional table. Whilst this must be avoided for the sake of the whole, it needs to be a part of the past, as countries surge forwards to realize the potential of the 21^st century. Similarly the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is another grouping with much opportunity as it bridges SAARC and ASEAN, and brings together key countries who can achieve much more than is being experienced at present. Unfortunately the realization of potential has not reached fruition as member States still discuss the visionary potential and are slow to take concrete steps towards realizing that true value.

Whilst multilateralism continues to dominate the international sphere and augments bilateral engagement, models of regional groupings like the European Union which bring together a multiplicity of countries, need to be studied for what they have achieved and the mistakes they have made, analyzed for their progress and understood for the realization of scope in similar bodies elsewhere in the world, especially in Asia. The world of 1951 was vastly different from the one in which we exist today. Having come out of a deadly destructive world war, a few countries of Europe took the bold decision of cooperating to ensure stability, development and prosperity. The fruits of their endeavours are being felt decades later. It was the visionary leadership of the time to which the Europeans of today are thankful, as a region shattered by war, rose once again, and become a contender on the global stage as a collective unit, and not individual countries. This is the effect of collective action and as Europe Day is marked on 09^th May in commemoration of the Schuman Declaration, the lessons of the Treaty of Paris ring true today and are worthy of critical study, to promote stability, cooperation and prosperity.