Eight years after the official start of negotiations, the Regional Comprehensive Economic Partnership (RCEP) – a free trade agreement covering almost a third of the world’s population and 30% of global GDP – is now a reality.

The deal, concluded between China, the 10 Asean member states, Australia, New Zealand, Japan and South Korea, is almost unrivalled in its complexity. Its 20 chapters plus 17 annexes and 54 schedules of commitments manage to cover market access, rules and disciplines, and economic and technical cooperation between what are 15 very different trading nations. The agreement pulls together a pan-Asian basic standard for trade that goes beyond the terms provided by the World Trade Organization (WTO), supporting regional integration and engaging emerging markets and developed economies.

Although the RCEP was an Asean initiative, it is regarded by many as a China-backed alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a deal that excluded China but included many Asian countries. For the first time, RCEP brings together China, Japan and South Korea in one trade agreement, roundly cementing the primacy of the Asia-Pacific region in global trade.

However, not all is rosy in the RCEP area, as Australia and China are currently embroiled in a trade dispute that has rolled on since China imposed an 80% tariff on barley imports from Australia and an outright ban on beef imports from four major producers, citing compliance issues. Nonetheless, for many onlookers, the general mood seems to be one of optimism about the deal’s potential to bring the region together.

“RCEP may prove to be the tonic Asia needs to recover from the pandemic-induced slump,” says Stuart Tait, regional head of commercial banking for Asia-Pacific (Apac) at HSBC. “Although international trade continues to face uncertainty, the signing of RCEP underscores the belief that market openness will lead to greater economic growth for more. Intra-Asian trade, which is already larger than Asia’s trade with North America and Europe combined, will continue to power global economic growth and pull the economic centre of gravity towards Asia.”

Common rules of origin

Because many of the RCEP signatories already have bilateral trade pacts with each other, there’s little in the way of immediate tariff reduction in the pact’s 510-page document. Indeed, the average tariff of Asean countries on imports from RCEP partners had already dropped from 4.9% in 2005 to 1.8% currently. However, the agreement now delivers a single set of rules covering all 15 markets, making trade simpler and reducing compliance costs for exporters.

The biggest win in the deal is the creation of a common rule of origin certificate, which harmonises the information requirements and local content standards for businesses in the RCEP member countries. Effectively, this means that parts from any member nation would be treated equally, which Euler Hermes calculates will boost merchandise exports among signatories by around US$90bn a year on average, giving companies an incentive to locate their supply chains within the trade region – likely leading to a further boost for intra-regional trade, which already makes up close to three-fifths of total trade activity in the Apac region.

Another deal without the US

 The signing of RCEP marks the second mammoth Apac trade deal that excludes the US, after President Donald Trump pulled the country out of the CPTPP in 2017. With the International Monetary Fund (IMF) forecasting that the region will regain an average growth rate of over 5% by 2021, US exporters need access to its lucrative markets if they are to share in post-pandemic economic growth.

In a statement, Myron Brilliant, head of international affairs at the US Chamber, said: “The US Chamber welcomes the trade-liberalising benefits of the newly signed regional comprehensive partnership agreement but is concerned that the United States is being left behind as economic integration accelerates across the vital Asia-Pacific region. China has become the most important trading partner for most of the Asia-Pacific, and its central role in the RCEP will only cement this position. While the Trump Administration has moved to confront unfair trade practices by China, it has secured only limited new opportunities for US exporters in other parts of Asia.”

He calls for the US to adopt a more “forward-looking, strategic effort” to maintain its economic presence in the region, or risk “being on the outside looking in as one of the world’s primary engines of growth hums along without us”.

President-elect Joe Biden’s plans for the region are yet to be seen, but hopes are high among US exporters that, at the very least, the incoming administration may consider a return to the CPTPP fold.

Door still open for India

Trans-Pacific issues aside, the next step for RCEP will be working through the barriers to India’s accession. The country withdrew from negotiations last year due to mismatches between its protectionist-leaning trade policies and the market access commitments required by the deal. However, during the signing of the deal, RCEP signatories were keen to leave the door open for the South Asian nation.

“We would highly value India’s role in RCEP and reiterate that the RCEP remains open to India,” they said in a joint statement. “As one of the 16 original participating countries, India’s accession to the RCEP agreement would be welcome in view of its participation in RCEP negotiations since 2012 and its strategic importance as a regional partner in creating deeper and expanded regional value chains.”