The long-awaited Regional Comprehensive Economic Partnership (RCEP) was finally signed on Nov 15 during a virtual meeting between leaders of the 10 Asean member states and five dialogue partners — China, Japan, South Korea, Australia and New Zealand.
The culmination of eight years of negotiations, the RCEP is the world’s largest free trade agreement and the first that includes Japan, South Korea and China.
The agreement will affect almost half of the world’s population, with the population of the 15 countries topping 3.6 billion people last year, with a combined GDP of more than US$28.5 trillion, 32.7% of the global economy.
The Thai Commerce Ministry will now propose the deal to the cabinet and request parliamentary ratification within next year. It is expected to come into force next year — nearly five years after the original schedule — once at least six Asean members and three partners agree to the terms.
As the world reels from the coronavirus pandemic and the prolonged uncertainty of recent trade conflicts, the RCEP is seen as critical to support economic recovery through regional cooperation and open trade and investment.
The RCEP will lower trade barriers on industrial and agricultural goods, develop regulations on data, intellectual property and e-commerce, and strengthen supply chain connectivity — all of which will benefit Thailand and the rest of Asean in the post-Covid world.
In particular, members of the agreement have agreed to champion the needs of small and medium enterprises (SMEs) by providing fairer market access and enhanced transparency in trade. This is important given that more than 90% of businesses across RCEP participating countries are SMEs.
However, challenges remain. For one, the agreement is expected to exclude India, which pulled out of discussions last year and has shown no sign of returning to the negotiating table. India withdrew over worries of cheap imports flooding their market and the inability of local producers and farmers to compete on a worldwide scale.
Without India, observers have raised the potential issue of China’s oversized economic clout. Asean as a region is intricately linked to China but members have been wary of being economically dependent, especially in the wake of the pandemic which resulted in supply chains being disrupted by lockdowns and travel restrictions.
The deal is also seen as reducing the ability of the United States to counterbalance China’s powerful position with its neighbours, after President Donald Trump withdrew from the Trans-Pacific Partnership in 2017. American companies would be at a disadvantage without similar access to the same free trade rules and codified conduct.
However, this situation might shift starting next year under an administration led by President-elect Joe Biden.
In recent years the world has witnessed an inward turn toward protectionism, which the coronavirus crisis accelerated. Perhaps the RCEP will signal a new era of regionalism where regional blocs can serve as an effective buttress against an increasingly tenuous global political economic landscape.
Suwatchai Songwanich is an executive vice-president with Bangkok Bank. For more columns in this series please visit www.bangkokbank.com