In light of Brexit and U.S. President Trump’s withdrawal from the Trans-Pacific Partnership (TPP) trade agreement in 2017, it is encouraging to know that economic integration still exists in other parts of the world, like Asia.

Led by the Association of Southeast Asian Nations (ASEAN), the Regional Comprehensive Economic Partnership (RCEP) seeks to create economic linkages between Northeast Asia, Oceania, South Asia, and ASEAN–a total of 16-member countries and 48% of the world’s population. The RCEP member countries would effectively form the world’s largest trading bloc when implemented in 2023, containing a total of one-third of the world’s Gross Domestic Product (GDP).

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The rise of Asian trade leadership

In the aftermath of the TPP fallout, the 11 remaining TPP members–including 10 Asia-Pacific countries–signed a new agreement that kept most of the TPP contents and renamed the coalition, the Comprehensive Progressive Trans-Pacific Partnership (CTPP) on March 2018. The RCEP will be the second major Asia-led trade agreement for the region.

Two Person Doing Hand Shake

In fact, due to the collapse of the TPP, a ‘poison pill clause,’ introduced by the United States, may also prevent members of the US-Mexico-Canada Agreement (USMCA) and potentially other U.S. coalitions from signing other trade pacts with ‘non-market countries’ like China. This has helped cement RCEP’s case.

When concluded, the RCEP will be one of the most ambitious multilateral trade agreements negotiated by developing countries. It will comprise of first-time agreements between China, India, Japan and South Korea, ushering in a new era of Asian trade leadership.

As of early 2019, Singaporean Trade Minister, Chan Chun Sing, was optimistic that the trade pact would be signed by the end of the year. He mentioned that two sets of outstanding issues remain: rules-based chapters and the topic of market access, but he further noted that most countries are very close to or have concluded their negotiations.

Reaping benefits from the RCEP

The implementation of the RCEP in 2023 will lead to strong economic and geostrategic benefits. For instance, the RCEP agreement will boost global real incomes by $286 billion USD per year, and increase global trade by 1.9%. Even non-members may benefit from spillover effects from the trade pact as member nations shift towards more open and efficient markets.

The agreement will also strengthen Asia’s position as a pro-business, investor-friendly area. In an era where global economic partnerships are being dismantled, the RCEP’s unified stance encourages trade and business within the bloc, with ASEAN at the forefront of this participation.

Furthermore, the RCEP will boost better connectivity and standardised trade regulations for the ASEAN region. The RCEP plugs the gaps of existing bilateral agreements between ASEAN and its regional partners to have a positive impact on 61% of ASEAN’s trade volume.

By streamlining trade regulations into one agreement, the RCEP aims to implement the same rules for all 16-member countries. Previously, with bilateral Free Trade Agreements, commodities were subject to different tariffs cuts and timelines across the board, driving up trade costs.

With the RCEP in place, it will, instead, incentivise both large and small businesses to use the trade preferences for lower cross-border transaction costs and foster relationships between member countries. The agreement also allows for greater cross-border networks for nations who are attracted to take advantage of ASEAN as a hub for manufacturing in their supply-chain system.

To trade or not to trade

However, according to the public policy research nonprofit Brookings Institution, the effects of RCEP may not be as far-reaching as we think. In the RCEP, some countries may only reduce 80% of their tariff lines versus the CTPP where close to 100% were reduced. The RCEP may also have a “limited effect on non-tariff and non-border measures,” and also for intellectual property and service rules.

The services sector is another area where there is contention–liberalisation between member countries is highly dependent on domestic regulations and politics in the respective countries. Meanwhile, some nations are also wary of opening up their market to China’s economic powerhouse and the influx of Chinese imports and have taken a more protectionist stance.

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The elections in countries like Thailand, India, and Indonesia may also complicate RCEP progress. However, Minister Chan noted that these nations would likely continue with negotiations as they would recognise the long term benefits of the trade pact.

Indeed, as trade talks continue through its sixth year, the more negotiations are delayed, the more it puts the RCEP at risk of losing credibility and support from its member countries. Business confidence in the Asia Pacific region has already been weakened due to the US-China trade war and anti-globalisation sentiments across the world.

With the latest updates that the RCEP agreement is on track to being concluded and signed, it is still contingent on whether all 16-member countries actually succeed in doing so by the end of 2019. However, with the continued bickering in the trade war between the US and China, the progress of the RCEP will be closely watched by the rest of the world as an indication of Asia’s sentiment in this area–for more or less globalisation.