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HANOI: Backed by China, the expanding Regional Comprehensive Economic Association (RCEP) is seen as a coup for Beijing to extend its influence in the region and mark its dominance in Asian trade.
After eight years of discussing the details, the trade pact, the world’s largest in terms of GDP, analysts say, will be signed on Sunday (November 15).
WHAT IS RCEP?
Launched in 2012, RCEP is a trade pact between the 10-member ASEAN bloc, along with China, Japan, South Korea, Australia and New Zealand. India was supposed to sign, but withdrew last year.
The deal includes 2.1 billion people, and RCEP members account for about 30 percent of global GDP.
READ: Southeast Asian leaders kick off ASEAN summit amid ‘major power rivalries’
Its aim is to reduce tariffs, open trade in services and promote investment to help emerging economies catch up with the rest of the world.
Specifically, RCEP is expected to help reduce costs and time for companies by allowing them to export a product anywhere within the block without meeting separate requirements for each country.
It also touches on intellectual property, but it doesn’t cover environmental protections and labor rights.
“A key priority area for future RCEP negotiations is likely to be e-commerce,” said Rajiv Biswas, chief Asia Pacific economist at global business consultancy IHS Markit, after nations struggled to reach full agreement. on some of the provisions on digital commerce.
It’s unclear when the pact will be ratified, but it could go into effect next year.
WHY DOES IT MATTER?
It matters mainly because it sets new trade rules for the region, and it is backed by China, but does not include the United States.
Observers say it solidifies China’s broader geopolitical ambitions in the region, where it has faced little competition from the United States since President Donald Trump withdrew from a trade pact of his own.
That deal, called the Trans-Pacific Partnership (TPP), was on its way to becoming the world’s largest trade pact, until Washington pulled it off and said it channeled American jobs.
READ: Asia-Pacific approaches the world’s largest trade deal
However, observers say that the RCEP is not as extensive as the TPP, or the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), as its successor is known.
“It is not a fully finished and fully streamlined agreement,” said Alexander Capri, a trade expert at the National University of Singapore Business School.
“The problem with RCEP is that it has 15 incredibly diverse countries at different stages of development and with completely internal priorities,” he added.
WHY NOT INDIA?
India withdrew last year over concerns about cheap Chinese goods coming into the country, though it can join at a later date if it so chooses.
It raised the alarm about market access problems, fearing that its domestic producers could be seriously affected if the country was inundated with cheap Chinese products.
Textiles, dairy products and agriculture were identified as three vulnerable industries.
Prime Minister Narendra Modi faced increasing pressure at home to take a tougher stance on the terms, and proved inflexible when the RCEP negotiations came to a close.
WHAT DOES IT MEAN FOR THE UNITED STATES?
A new US administration under President-elect Joe Biden is likely to focus more on Southeast Asia, analysts say, although it is unclear whether he would want to rejoin the CPTPP.
The issue remains a politically sensitive issue in the United States.
“The administration will look at this very closely,” Capri said.
