All about the regional comprehensive economic partnership

Published in

Age of Awareness

7 min readJul 9, 2022

Introduction

A group of 15 countries generating nearly a third of global economic output have signed the world’s largest-ever free trade deal. it’s a historic agreement that will have economic implications far beyond the region’s border and signals a seismic geopolitical shift, not only for the countries that are part of the deal but also for the ones that aren’t. The RCEP stands for Regional Comprehensive Economic Partnership and when ratified will create a trading bloc rivaling the European Union and the U.S Mexico-Canada agreement. 10 of its members make up the association of southeast Asian nations or ASEAN which include Malaysia and Singapore. the remaining five countries are Australia, New Zealand, Japan, South Korea, and most notably China. The world’s largest trade deal covers the market of 2.2 billion people or around a third of the world’s population. Its members are responsible for 22.6 trillion of economic output, accounting for roughly 30% of global GDP. While the RCEP is the long line of trade agreements coming out of Asia.it wasn’t supposed to be the biggest negotiation for the RCEP trade deal. It wasn’t supposed to be the biggest negotiation of the RCEP trade deal. Started back in 2013 but it attracted renewed interest in 2017 when President Donald Trump pulled the U.S. out of rival Asia-pacific grouping that included china. The transpacific partnership or TPP would have involved 12 countries covering 40 percent of the world economy. While both the RCEP and TPP were intended to create free and open markets, the TPP had more ambitious goals, covering stricter common standards on labor issues. human rights and environmental protection. the scuttled TPP pact was revived under a new guise involving the 11 remaining countries in the comprehensive and progressive agreement. observers have described RCEP as a way for China to counter influence in the region while writing rules in the 21st century. However, some analysts feel that the economic benefits of the RCEP are limited and could take decades to fully materialize. that’s because many members have already signed bilateral trade deals and benefit from reduced tariffs. critics include Australia’s former PM rules of origin which officially determine where a product was made. these eliminate tariffs on goods traded between member states providing greater simplicity than a series. The Regional Comprehensive Economic Partnership (RCEP) was unveiled in November 2011 during the 19th Asean meeting. The RCEP discussions began in November 2012, during the 21st ASEAN Summit in Cambodia.

Background

The RCEP was created during the 2011 ASEAN Summit in Bali, Indonesia, and formal discussions began at the 2012 ASEAN Summit in Cambodia. India, which participated in the early talks but subsequently opted to withdraw, was invited to join the bloc at any moment. Any additional nation or separate customs territory in the area might join the treaty 18 months after it enters into force (1 July 2023). The pact was formally signed on November 15, 2020, at Vietnam’s virtual ASEAN Summit. As of 17 January 2022, seven of the ten ASEAN signatories and all five non-ASEAN signatories had filed their instruments of ratification with the ASEAN Secretary-General. Regarding the RCEP comprises both high- and middle-income nations. It is projected to abolish almost 90% of tariffs on imports between its members during the first 20 years of its implementation, as well as establish standard regulations for e-commerce, trade, and intellectual property.

Why is RCEP important?

The 16 nations negotiating the RCEP together account for one-third of global GDP and almost half of the world’s population, with China and India accounting for more than half of that. The RCEP’s contribution to the global economy might account for half of the predicted $0.5 quadrillion (GDP, PPP) by 2050. RCEP is a significant event, both physically and symbolically. When signed, the Regional Comprehensive Economic Partnership will establish a free trade zone spanning around 30% of the world’s GDP, commerce, and population.RCEP, which has been in the works for almost a decade, would abolish tariffs on 91 percent of imports while also introducing restrictions on investment and intellectual property to support free trade. It has 15 members, however some overlap with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). RCEP strengthens trade and investment links among member countries primarily by lowering non-tariff barriers (NTBs) to goods and services trade. The agreement focuses on non-tariff barriers (NTBs), as import tariffs are already quite low among RCEP members. It harmonizes the requirements imposed by governments on goods trade, giving traders and investors more assurance. It encourages importing nations, for example, to accept the product standards of other member countries from whence the good originated provided other countries provide the same degree of consumer protection. The agreement’s most essential aspect is that it unifies origin laws for all 15 countries, easing the integration of RCEP members into the same manufacturing chain. This may assist RCEP members in attracting a bigger proportion of global value chains (GVCs) and deepening their expertise, which may be especially crucial at a time when the US-China trade war has expedited the reconfiguration of GVCs in and out of China. RCEP has pertinent provisions in services as well, including agreements by each member not to discriminate against other members’ investors in a variety of service sectors. Finally, it allows for the temporary mobility of people for investment and commerce purposes.

What is the objective of RCEP?

RCEP intends to establish an integrated market with 16 nations, making it simpler for each of these countries’ products and services to be available across this area. The talks are centered on the following topics: trade in products and services, investment, intellectual property, dispute resolution, e-commerce, small and medium-sized businesses, and economic cooperation. The RCEP will attempt to gradually eliminate tariff and non-tariff obstacles to essentially all goods commerce among the parties to establish a free trade zone. Such discussions should seek to achieve a high degree of tariff liberalization by expanding on the existing levels of liberalization among RCEP participating countries and by eliminating tariffs on a large proportion of both tariff lines and trade value. Tariff obligations should be scheduled to maximize the benefits of regional economic integration. The RCEP will be comprehensive, of high quality, and will significantly reduce barriers and/or discriminatory measures on trade in services between RCEP participant countries.

Why did India walk out?

India was a member of the RCEP drafting committee since its start in 2011, but it opted to withdraw in November 2019, alleging that some of its primary concerns had not been addressed. This is widely regarded as an economic and geopolitical setback for India Bloomberg even addressed it in an open letter to Prime Minister Modi. Many commentators fear that India’s refusal to join RCEP will give China total control over the world’s largest commercial blocs, thus isolating India. India left last year because of worries about low-cost Chinese goods entering the country, although it can rejoin at a later date if it so desires. It expressed concern over market access difficulties, saying that domestic producers would suffer if the nation was swamped with low-cost Chinese items. Prime Minister Narendra Modi faced rising domestic pressure to adopt a stronger position on the conditions, and he remained unwavering until the RCEP negotiations concluded.

Role of China in RCEP?

Beijing pushed for RCEP in 2012 to counter another FTA that was in the works at the time: the Trans-Pacific Partnership (TPP). The TPP, which was led by the United States, did not include China. However, US President Donald Trump withdrew his nation from the TPP in 2016. Since then, the RCEP has emerged as a key instrument for China in countering US efforts to stifle trade with Beijing.

Merits of India’s decision

India was concerned that the pact will compel it to offer benefits granted to other nations in critical areas such as defense to all RCEP members. The RCEP also lacks concrete assurances on market access difficulties in countries such as China, as well as non-tariff obstacles for Indian firms. India withdrew from the China-backed trade pact after talks failed to resolve its main concerns. These included fears of circumvention of origin rules owing to tariff differentials, the inclusion of a fair agreement to resolve trade deficit difficulties, and the openness of services. The agreement would have reduced import levies on 80 percent to 90 percent of the commodities, as well as simplified service and investment restrictions.

Demerits of India’s decision

A sector of the Indian business believed that becoming a part of RCEP would have given the nation access to a massive market. Some industries, including medicines, cotton yarn, and the services sector, we’re optimistic about generating significant gains. Analysts fear that India may lose investments while paying more than it should, especially as global commerce, investment, and supply chains confront unprecedented obstacles as a result of the Covid-19 outbreak. Countries participating in the RCEP deal would also miss out on an opportunity to enter the Indian market, which is notoriously difficult to enter, particularly given the present global economic scenario.

Conclusion

The parties were unable to reach an agreement with India on key issues such as market access concessions for goods and services, rules of origin, people movement, dispute resolution mechanisms, and carve-outs for sensitive industrial and agricultural sectors such as steel, rubber, dairy, and food processing. One major point of contention was India’s refusal to agree to the same level of market access commitments, fearing that vulnerable sectors in India would suffer and be unable to compete with more advanced and efficient producers in other RCEP member countries such as China, Australia, and New Zealand. During the ministerial level discussion, India allegedly expressed specific worry about the potential of the rule of origin circumvention owing to pricing differentials across RCEP countries, claiming that this would lead to a serious influx of agricultural and industrial imports and compound India’s already large and growing trade deficit with China.