The Regional Comprehensive Economic Partnership (RCEP) – thought to be the world’s largest trade agreement – will come into force in January 2022 now that New Zealand and Australia have ratified it.
RCEP was signed last year by 15 Asia-Pacific countries and the “milestone” ratifications will make it the largest trade deal to include China.
The bloc covers a market of 2.2 billion people and $26.2 trillion of global output, representing about 30% of the world’s population, reports CNBC.
RCEP is made up of the 10 members of the Association of Southeast Asian Nations (ASEAN) – Indonesia, Malaysia, the Philippines, Brunei, Singapore, Vietnam, Cambodia, Laos, Thailand and Myanmar – and five of their largest trading partners China, Japan, South Korea, Australia and New Zealand.
Reuters reports that RCEP will progressively lower tariffs and aims to counter protectionism, boost investment and allow freer movement of goods within the region. It brings Asia a step closer to becoming a coherent trading zone like the EU or North America.
According to the SCMP RCEP is designed to remove tariffs on 91% of goods, and standardise rules on investment, intellectual property and e-commerce.
It also aims to promote optimisation of supply chains within RCEP, which accounts for about 30% of the world’s output, trade and population.
RCEP v CPTPP
RCEP was conceived as a way for China to counter growing US influence in Asia-Pacific, reports Reuters. It focuses heavily on cutting tariffs and increasing market access but is seen as less comprehensive than the region’s other big trade arrangement, the CPTPP (the Comprehensive and Progressive Trans-Pacific Partnership).
It also requires fewer political or economic concessions and has less emphasis on labour rights, environmental and intellectual property protections and dispute resolution mechanisms.
RCEP coming into force from January will give it the edge on CPTPP, according to Nikkei Asia.
The inclusion of the second largest global economy, China, could be an incentive to invest in the member states, due to the ability to export tariff-free to markets like China, South Korea, and Japan while manufacturing in member countries with relatively cheaper labour.
China has also submitted a formal request for membership to the CPTPP, and if this is granted, the two pacts might begin to look similar. However, this is not a given as Taiwan, which China sees as part of its territory, has also applied to join CPTPP.
The Policy Exchange reports that RCEP will raise annual global incomes by $186bn in 2030 (compared to $147bn from the CPTPP), and that RCEP will add 0.2% to the aggregate GDP of members.
New members can join RCEP 18 months after it is established. However, Policy Exchange says that UK membership of CPTPP remains a bigger prize for UK trade policy.
RCEP is bigger, but less economically comprehensive, and some of the countries are members of both blocs – such as Australia, New Zealand, Japan and Singapore.
The UK can gain “back door” access to RCEP members through existing agreements with Vietnam and Singapore, reports China Briefing.