RCEP, a New Driver of Asia’s Regional Integration and China-ASEAN Community with a Shared Future
By Yuan Bo, Zhao Jing
On November 15, 2020, ASEAN and China, Japan, Republic of Korea (ROK), Australia and New Zealand, a total of 15 countries, signed the Regional Comprehensive Economic Partnership (RCEP) Agreement, which not only marks a new stage of regional economic integration in Asia, but also creates a new platform for deepening cooperation and building a community with a shared future between China and ASEAN in the post-COVID era.
I. The RCEP is the embodiment of the Asian consensus and the culmination of difficult negotiations.
The RCEP negotiations began in 2012 and lasted for 31 rounds over 8 years. It was indeed extremely challenging to conclude the world’s largest negotiation among 16 parties on a regional trade agreement, even though India withdrew at the last moment.
First, it was not easy to start the negotiations. Before the RCEP negotiations were launched, there were long-standing differences among Asian countries regarding the path of regional integration in Asia. Some countries, such as China, wanted to promote 10+3 cooperation, while others, Japan for example, preferred the 10+6 model. It was therefore difficult to reach a common position. With the onset of the international financial crisis in 2008 and the start of the Trans-Pacific Partnership (TPP) negotiations launched under the US leadership in 2009, which drew in some countries from the region, East Asian countries woke up to the looming crisis as they sought consensus on cooperation. As proposed and promoted by ASEAN, these countries put aside their differences and commenced the RCEP negotiations in 2012 and reached the Guiding Principles and Objectives fornegotiating the RCEP. This document set the objective to conclude a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement between ASEAN member countries and ASEAN’s FTA partners, which covers trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues.
Second, it was not easy to bridge the divide. The 16 parties to the RCEP negotiations vary greatly in the level of economic development. In terms of economic size, there are not only the world’s second and third largest economies, China and Japan, but also Cambodia, the Laos and Brunei, which rank behind the100th place in the world. In terms of per capita GDP, there are countries like Australia with more than US$ 60,000 and those like Myanmar and Cambodia with merely US$1,000. It is precisely because of the huge differences in economic development that the parties have divergent interests, different levels of acceptance to market openness, and different understandings of investment, intellectual property, competition, and e-commerce rules and standards. Therefore, it was extremely hard to move forward the negotiations on market access and rules in the early stage. The RCEP negotiations were expected to be concluded in 2015, but had been postponed. RCEP members had a renewed sense of urgency when the TPP agreement was signed in February 2016. In 2017, the parties concluded the Framework for RCEP, which, on the basis of previous negotiations, reached consensus on the contents of each chapter of the RCEP Agreement.
Third, it was not easy to make a final push on the RCEP negotiations. Since 2017, the Trump administration has withdrawn from the TPP after it came into office and pursued trade protectionism and unilateralism. This brings huge risks, challenges and uncertainties to the global economy. East Asian countries were compelled to take forward the regional trade arrangement in Asia. They therefore accelerated the RCEP negotiations and made a final push. In this process, the leaders’ political will played an important role. For example, Chinese leaders made it clear on many international occasions that efforts must be intensified to complete the RCEP negotiations. To provide support for the negotiations, China, on its own initiative, promoted opening-up at a higher level. China took an active part and supported ASEAN’s centrality in the RCEP negotiations. It not only coordinated closely with ASEAN and other member countries on a joint position, but also took the lead in resolving remaining differences through practical actions. It also conducted bilateral consultations with Japan, India and other member countries to resolve mutual concerns and played an important role in the conclusion of the negotiations. Despite India’s last-minute withdrawal, the other 15parties still issued a joint statement on ending the RCEP negotiations on November , 2019. Since then, the parties have overcome the impact of COVID-19 and resolved the remaining issues through online negotiations, which led to the successful signing of the RCEP agreement.
II. The important contribution of the RCEP Agreement to regional economic integration in Asia.
The successful signing of the RCEP Agreement demonstrates the characteristics and vitality of Asia’s regional economic integration. It is a milestone in the process of Asia’s regional integration and a new model of regional economic cooperation, with great practical significance. Whether it is the negotiation process or the final text, the RCEP speaks volumes about the Asian wisdom and Asian model, and will become an important guide for free trade in Asia and beyond in the future.
The RCEP embodies the Asian wisdom. Different from traditional regional trade agreements driven by big economies, the RCEP Agreement is ASEAN-led and ASEAN-centered. It not only underscores the ASEAN way, but also demonstrates the Asian wisdom. When there are differences among the parties, ASEAN played the role as a coordinator, and, through tremendous communication and coordination, put forward a plan of compromise acceptable to all parties. Even when India was about to withdraw, the other members tried all means to persuade it to stay and change its position, provided special arrangements for India’s later accession, and agreed that India can participate as an observer in RCEP meetings and economic cooperation activities held by RCEP signatories before joining the agreement. This also reflects the Asian wisdom of diversity, balance, harmony and inclusiveness.
The RCEP highlights the Asian model. Asia is a latecomer in regional integration, but has gradually explored and developed its unique development models. And the RCEP Agreement is eclectic. The rules and standards adopted in the RCEP Agreement are moderately higher than those of the WTO, yet still leaving space for follow-up negotiations and consultations. While pursuing higher standards, it is gradualist, inclusive and open, which can give countries a certain degree of comfort and policy space, attract more countries to participate in it, and ensure the FTA will benefit wider regions, more countries and more communities at a faster pace. The Agreement gives special preferential treatment to developing members, which not only provides new ASEAN members with looser tax reduction arrangements and moderate transition periods, but also prioritizes capacity building and technical assistance to developing countries and least developed countries in the chapter on economic and technical cooperation.
The RCEP shapes the future of Asia. Following the principle of free trade and facing the future, the RCEP integrates the rules of five ASEAN+1 (10+1) agreements, and sets unified economic and trade rules and systems on such areas as market access, competition, intellectual property, e-commerce, and government procurement. This is aimed at tackling challenges facing economic globalization, maintaining the competitiveness of Asia, and promoting the sustainable development of Asian countries. To lead future cooperation on digital economy, the Agreement has made a high-level commitment in the field of e-commerce, requiring that electronic transmission be exempted from tariffs, avoiding unnecessary regulatory burdens on electronic transactions, eliminating the requirement for localization of digital storage while ensuring national security, and allowing all parties to transmit information across borders by electronic means for commercial activities. At the same time, in the chapter on intellectual property, rules are set on the law enforcement concerning infringement in the digital environment and the electronic patent application system, so as to better meet the regulatory needs in the era of digital economy.
III. The RCEP Agreement will become a new platform for the building of China-ASEAN community with a shared future.
In 2002, China and ASEAN started to build a bilateral free trade area, which ushered in a new era of China-ASEAN cooperation. Under the framework of China-ASEAN FTA, bilateral economic and trade cooperation keeps surging ahead. The two sides have become each other’s largest trading partners, with two-way investment exceeding US$ 240 billion. On the occasion of the 10th anniversary of the China-ASEAN FTA in 2020, the successful signing of the RCEP will take China-ASEAN cooperation to new heights, and will also provide new impetus for China and ASEAN to build a closer community with a shared future.
The RCEP will provide a more open and prosperous regional market for Chinese and ASEAN enterprises. The signing of the RCEP Agreement marks the birth of the world’s largest FTA, and also means the formation of a large regional market covering 15 members in the Asia-Pacific with a total population of 2.27 billion, a GDP of US$26 trillion, and a trade volume of US$10.4 trillion. By reducing tariff and non-tariff barriers among member countries and expanding market access for services and investment, the agreement is not only conducive to forming a broader and more open integrated market, but also beneficial to regional trade and investment growth and economic development of various countries, thus creating a more prosperous and dynamic regional market. The signing of the RCEP Agreement fully demonstrates the strong commitment of China and ASEAN members to opening up further and deepening cooperation, and their recognition of the potential of this regional market. According to the United Nations Conference on Trade and Development (UNCTAD), the RCEP will, by 2025, increase the exports of member countries by more than 10%, and, by 2030, it will contribute 0.2% to regional economic growth. At present, due to the impact of COVID-19, Europe and America are grappling with sluggish economies and slow market recovery. Thanks to the free trade agreement, the RCEP region has become a new source of market demand and economic growth. It will shield and stabilize Chinese and ASEAN enterprises throughout this crisis. In particular, China, as the largest market among RCEP members, will take the RCEP Agreement as an opportunity to further promote high-level opening up, actively break the constraints in the integration of domestic and international markets, better connect domestic and international markets as well as resources, and realize the circular and mutual development of international and domestic market economies. This in turn will also help Chinese and ASEAN enterprises share a more open market.
The RCEP will help China and ASEAN forge mutually beneficial industrial chain and supply chain partnerships. Thanks to the China-ASEAN FTA, China and ASEAN have formed close trade and investment relations. At the same time, China, ASEAN, Japan, ROK and other RCEP members are part of the East Asian production network. Without free trade agreements between China and Japan, and between Japan and the ROK, the free trade arrangements between other members are “fragmented”. On the basis of integrating bilateral free trade agreements, the RCEP Agreement sets unified, open and transparent trade and investment rules across the region, allowing for the value build-up of origins of products in the region, and providing a new option for Chinese and ASEAN enterprises to optimize the layout of industrial chain and supply chain in the RCEP region. Chinese and ASEAN enterprises can make full use of the preferential policies of the RCEP Agreement and flexibly purchase, produce and sell raw materials in the 15 members according to the principle of optimal allocation of resources. This will not only help to reduce the overall costs of enterprises and enhance their international competitiveness, but also forge closer regional industrial chain and supply chain partnerships.
The RCEP will help build a closer and more inclusive China-ASEAN community with a shared future.The trade and investment liberalization and facilitation arrangement under the RCEP Agreement will not only further improve the level of connectivity between China and ASEAN, and deepen their economic and industrial integration, but also provide a new cooperation platform for building a closer and more inclusive China-ASEAN community with a shared future. After the signing of the RCEP Agreement, the growth of regional trade and investment will further promote the flow of people between China and ASEAN. Meanwhile, the facilitation measures for cross-border movement of natural persons and further opening-up of service investment markets also provide new space for deepening people-to-people cooperation and enhancing communication and understanding between China and ASEAN. In particular, the RCEP Agreement aims at promoting common development by providing special preferential treatment to less-developed ASEAN members such as Cambodia, the Laos and Myanmar, helping them to improve their ability to adapt to the higher opening-up requirements of the FTA and supporting them in benefiting from the FTA. The Agreement also sets a wide range of cooperation areas for small and medium-sized enterprises to gain benefits. Going forward, China will fully fulfill its commitments and obligations to the underdeveloped ASEAN members and small and medium-sized enterprises under the RCEP Agreement, and actively carry out capacity building and economic and technical cooperation, which will lay a more solid foundation for cooperation between China and ASEAN in building a community with a shared future.
At present, in the face of formidable challenges of COVID-19 and global economic downturn, the RCEP is well-placed to be a powerful tool for Asian countries including China and ASEAN to fight against the epidemic and achieve economic recovery. By ensuring the opening of regional markets and the interconnection of supply chains, it can mitigate the impact of uncertainties and trade protectionism on regional economy, and boost confidence in trade and investment across the region, thus facilitating economic recovery and development. ASEAN and China need to make concerted efforts, communicate closely with other members, ratify the RCEP Agreement as soon as possible, and ensure it comes into effect as early as possible, so that enterprises in the region can enjoy the development dividends brought by the RCEP at a faster pace. This will make greater contributions to a better future between China and ASEAN, and open a new chapter of cooperation for the prosperity and development of the Asian economy.
Yuan Bo is Deputy Director and Research Fellow of Institute of AsianStudies,Chinese Academy of International Trade and Economic Cooperation, Ministry of Commerce.
Zhao Jing is Research Intern of Institute of Asian Studies, Chinese Academy of International Trade and Economic Cooperation, Ministry of Commerce.