The Free Trade Deal of a Lifetime
The biggest ever global free trade deal—the Regional Comprehensive Economic Partnership (RCEP)— came into force on January 1 after 11 signatory states had completed the ratification procedures. They included six of the 10 member states of the Association of Southeast Asian Nations (ASEAN) and all five nonASEAN participants. The RCEP will take effect 60 days after ratification by at least six ASEAN countries and at least three nonASEAN nations, according to the agreement.
Meanwhile, ASEAN member states that have yet to do so, namely Malaysia, Indonesia, Myanmar and the Philippines, are set to seek respective amendments to their relevant domestic legislations to make them RCEP-consistent prior to their formal parliamentary ratification.
Driven by ASEAN
This ASEAN-driven mega pact manifests the bloc’s strong resolve in pursuing an inclusive regional economic integration that encompasses its member states of varying levels of development. Through the augmentation of its respective free trade agreements (FTA) with the five dialogue partners in East Asia and Oceania, namely China, Japan, the Republic of Korea (ROK), Australia and New Zealand, the 15-member RCEP accounts for an estimated GDP of $25.8 trillion, equivalent to about 30 percent of the global total. In key areas, such as global trade in goods and services, and foreign direct investment inflows, it contributes over 25 percent to the former ($12.7 trillion), and 31 percent to the latter.
The centrality of ASEAN in the RCEP lies not in its role as the initiator, but more in its success in brokering the first ever FTA for China, Japan and the ROK— the three leading economies in East Asia—through the RCEP. Geopolitically, ASEAN is treading the delicate balance between China and U.S. allies within the RCEP, such as Japan, the ROK, Australia and New Zealand. This is particularly challenging amid the escalating China-U.S. power rivalry in the Indo-Pacific region.
To the 10 ASEAN member states, the oneness accrued from the ASEAN community prior to the inception of the RCEP has proven a boon for the least developed countries (LDC) within the bloc, namely Cambodia, Laos and Myanmar. In reality, the inclusion of individual LDCs in any economic groupings has always been a tall order. But with the inclusive oneness of ASEAN, the admission of said LDCs alongside other developing ASEAN member states will turn out to be a useful tool to bridge the gap of economic development among the 15 RCEP countries.
The least developed members, aided by massive tariff reductions or exemptions on a gamut of goods and services, as well as the harmonization of the rules of origin, are henceforth granted a golden opportunity to enhance their respective competitiveness in wooing potential investors. So long as they remain amenable to needs for domestic economic reforms so as to make them RCEP-consistent, the transformation of these economic backwaters into new destinations for investors is not at all a distant dream.
A case in point, Laos is scheduled to graduate from the LDC category, alongside Bangladesh and Nepal, in 2026. Though destined to lose its exclusive access to certain international support measures, in particular in the areas of development assistance and trade, the benefits it accrued as a member of the RCEP are believed to be sufficient to outweigh what it is likely to lose upon “graduation.” On the other hand, the “postgraduation” Nepal and Bangladesh are anticipated to face a much more challenging economic situation bereft of the RCEP benefits, as compared to Laos.
Furthermore, the inauguration of a crossborder railway with China in December 2021 has transformed Laos from a landlocked to a land-linked country. The economic dividends to be accrued from Laos’ market access to neighboring countries via rail link will serve as an impetus to both Cambodia and Myanmar, which have yet to complete their respective rail links in the Pan-Asian Railway Network, spanning between China’s Kunming and Singapore.
China’s part
China, the biggest economy in the 15-member economic partnership remains the bright spot of the unified market. In 2020, while the world was bearing the full brunt of the ravaging COVID-19, the other 14 RCEP nations accounted for 31.7 percent of China’s foreign trade volume. In the first half of 2021, China’s imports and exports to those countries combined made a remarkable leap of
22.7 percent year on year, paving the way for a good start of the RCEP.
However, this is portrayed as a manifestation of Chinese dominance by some. Centrality of ASEAN in the RCEP has time and again been called in question. Having been obsessed with the paranoia against China’s growing geopolitical influence, the sceptics and naysayers were quick to vilify the deal as an outgrowth of ASEAN and a hegemonic tool for ushering in the so-called Pax Sinica era, binding the region into a China led global order. The coming into fruition of the RCEP was greeted cynically with such taglines as Might-Is-Right Global Trading Era, visibly revealing how perturbed the Western pundits could be in the face of a significant Chinese role in the ASEANdriven initiative.
Bearing in mind such prejudice in mind, the relentless critics went further to raise the bar in scrutinizing the multilateral rulesbased free trade pact that is consistent with the international benchmark. This compliance is discounted as mere adherence to traditional rules, but is deemed lacking in depth and breadth of free trade required to meet the criteria of establishing a highlevel free trade area. From this perspective, comparative benchmarking against the 11-member Comprehensive and Progressive Trans-Pacific Partnership agreement is deliberately made to belittle the RCEP. The exclusion of such new concerns as stateowned enterprises, labor standards, government procurement and environmental protection in the RCEP was made the convenient rationale to justify the sceptics’ criticisms against the mega trade deal in the Asia-Pacific region.
Little had they been cognizant of the necessity of being inclusive to accommodate the varying levels of economic development among the RCEP countries. The insistence on including the new criteria as the entry qualifications to any FTA, the RCEP included, would only perpetually alienate the less developed economies from the bloc in the name of pursuing high-level rules reform for free trade.
By so doing, economic groupings are virtually nothing more than exclusive clubs for the developed economies. Obviously, this has not been the choice of the RCEP since the ideal was first mooted by ASEAN.
In the collective pursuit of a shared future in the region, ASEAN, the cornerstone of the RCEP, will continue to steadfastly embrace inclusiveness in their common interests. This would shape the trajectory of the unified market in years to come. Developing member economies have no reason whatsoever to placate the West by forsaking what is deemed crucial to them and the region.
The author is chairman of the Center for New Inclusive Asia in Malaysia Copyedited by G.P. Wilson Comments to liuyunyun@cicgamericas.com