RCEP signing signals Asian nations taking rightful place in new world trading order
The signing of the landmark Regional Comprehensive Economic Partnership (RCEP) signals the beginning of a new era in global trade. It is an era when Asian countries start to play a major role in setting the standards that will enable the next round of global growth.
It took eight years and 31 rounds of negotiation before the 15 nations reached agreement on RCEP. Undoubtedly, some of the measures were softened to accommodate the concerns of such a diverse group, but that should not detract from what is by any standard a remarkable achievement in aligning a diverse group of countries which represents about 30 per cent of global GDP.
RCEP is a symbol of Asian nations coming together to take their rightful place among the architects of the global trading system of the future, a system they are doing so much to sustain and which their growing economic power will continue to define. The fact the agreement brought competitors including China, Japan and South Korea to the same table confirms that when it comes to free trade, the issues dividing Asia are less important than those that unite it. India dropped out of negotiations, but it is encouraging that the RCEP partners left the door open for New Delhi to join at a later date.
Although RCEP has limitations, it is an important step in the right direction. A 2018 International Monetary Fund paper estimated that getting rid of barriers to trade and foreign direct investment within Asia could boost regional GDP by as much as 15 per cent. Research by HSBC and Boston Consulting Group indicates that if the world embraced the principles of open and free trade, it could boost global GDP by US$10 trillion by 2025. Even if RCEP generates only a few percentage points of that, it will help put Asia back on its pre-pandemic growth trajectory.
Trade in services is likely to play a key role in the recovery. Services trade grew 27 per cent faster than merchandise trade between 2005 and 2018. Covid-19 likely has amplified the shift as international services vendors take advantage of the global shift to digital working.
The partnership will accelerate regional integration. Asia is emerging from the pandemic faster and less damaged than Europe and North America, the traditional markets for much of its trade output. Asian manufacturers are already looking to develop new markets within the region, and consumers seem to be responding. The new standardisation of rules of origin will make intraregional trade easier and strengthen Asia’s position in global supply chains.
As local investors search for yields, they are increasingly looking to benefit from the early economic recovery within the region. This means the three requirements for self-sustaining Asian growth – consumption, manufacturing and investment – are starting to fall into place.
Despite the achievement of the deal, though, we need to see RCEP as a beginning rather than an end. If intra-Asian trade is to fulfil its long-term potential to improve lives and drive growth within the region and beyond, we need to keep building on the foundations it has laid.
There are two areas in particular that merit further attention. There needs to be more work on curbing the proliferation of non-tariff barriers. The Association of Southeast Asian Nations and other regional groups have made progress in cutting import duties, but in many cases they were replaced by non-tariff barriers such as import quotas, customs inspections or quality controls. The EU-Asean Business Council estimates there are now some 6,000 separate non-tariff barriers to trade with the 10 Asean members alone.
The second is extending the harmonisation of technical standards and regulations to create a cohesive, borderless digital ecosystem that spans the region. RCEP addresses some of these issues, but if digital technology is to achieve its full potential to play a key role in driving the development of new industries and new growth, national standards need to converge on a regional standard.
Like non-tariff barriers, the different digital regulatory regimes across Asia limit the ability of local and multinational firms to reap the full benefits of economies of scale, weakening its attraction as an investment destination.
RCEP’s signing has accelerated regional integration and established a benchmark that will pay lasting dividends globally and regionally. We need to build on that momentum, using the habits of cooperation built during the past nine years to continue the work of trade liberalisation.