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Revival Of The Regional Comprehensive Economic Partnership – Analysis

Countries Involved in the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership. Source: FPRI

By Felix K. Chang*

(FPRI) — The Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) are both free-trade agreements in Asia that have been under negotiation for a number of years. Often seen as competitors, however, the former is led by China and the latter by the United States. By February 2016, the RCEP had fallen behind the TPP, whose negotiators had already signed an agreement and returned it to their twelve member countries for ratification. Their RCEP counterparts were still mired in talks.

Even so, the TPP’s negotiations were by no means a cake walk. Concerns in Japan over agricultural issues and in Southeast Asia over the TPP’s “deep” standards repeatedly delayed an agreement. Indeed, there had been too many delays. By the time a deal was reached, the United States, the pact’s biggest member, had begun what turned out to be a particularly bitter presidential election and one in which the TPP became a lightning-rod issue. Even the pact’s early advocates, like former Secretary of State Hillary Clinton, who was one of the presidential candidates, strongly disavowed it. In such a political climate there was little chance the U.S. Senate would ratify it.

The election of Donald Trump as the next American president sealed the fate of the TPP in the United States. Soon after, President Barack Obama abandoned his efforts to ratify the pact. Trump himself declared that the United States would withdraw from it after he is sworn in as president. That threw the future of the TPP into turmoil. It also breathed new life into the RCEP. Capitalizing on the TPP’s disarray, Chinese President Xi Jinping reassured participants at the Asia Pacific Economic Cooperation summit in late November that China would renew its efforts to conclude the RCEP.

RCEP vs. TPP

Why does that matter? What, apart from some of their member countries, is the difference between the two free-trade agreements? Traditionally, countries conclude free-trade agreements to lower or eliminate tariffs, and thus encourage trade. While that has generally spurred economic growth in developing countries, it has also tended to hollow out legacy industries in developed countries.

Consequently, developed countries, like the United States, have sought a new approach to free trade. Embodied in the TPP (and its sister free-trade agreement, the Transatlantic Trade and Investment Partnership), that approach requires member countries to adopt domestic policies that would “raise labor and environmental standards, impose disciplines on government-owned corporations, strengthen intellectual property rights enforcement, [and] maintain a free and open internet.”[1] In that way, developed countries argue, trade would be not only freer, but fairer too. Indeed, some in the Obama administration even saw the TPP as part of a grander vision for a “rules-based international order.”

Naturally, developing countries feared what impact such policies would have on their protected companies and industries. For example, the TPP would require them to end their preferential treatment of state-owned enterprises in government procurement, something they were reluctant to do. Nevertheless, developing countries were ultimately persuaded to join the pact because of the added benefits they could gain from greater access to the markets of developed countries.

On the other hand, the RCEP is a far more traditional free-trade agreement. It does not share the lofty ambitions of the TPP. It does not concern itself with “behind the border issues,” like the preferential treatment in government procurement. Rather, it simply focuses on reducing and eliminating tariffs. Countries can limit competition wherever they see fit. On the surface, that sort of pact would appear easier to negotiate. But developing countries must carefully consider the terms of such a pact, because they can lock countries into being part of regional supply chains whose ultimate benefits accrue elsewhere. Given that there are thousands of categories and subcategories of goods to consider (not mentioning the fact that many of those are shuttled between countries before they are assembled into a final product), negotiations are bound to be complex.

Impact of RCEP

Still, the RCEP is back on center stage. If successfully concluded, it could change the structure of Asian trade in ways that would put China firmly at the center of commerce in the region. That, some worry, would accrue even more political as well as economic power to China. But given the prevailing sluggish global economy, what matters to most developing countries is reaping the immediate benefits from freer trade. Unsurprisingly, a couple of countries at the APEC summit quickly seconded China’s interest in reviving the RCEP’s negotiations. It is now up to China to make it happen.

About the author:
*Felix K. Chang
is a senior fellow at the Foreign Policy Research Institute. He is also the Chief Strategy Officer of DecisionQ, a predictive analytics company in the national security and healthcare industries. He has worked with a number of digital, consumer services, and renewable energy entrepreneurs for years.

Source:
This article was published by FPRI

Notes:
[1] John Lyons, Mark Magnier, and William Mauldin, “China Steps In As U.S. Retreats on Trade,” Wall Street Journal, Nov. 23, 2016, pp. A1, A6.


About the Author

Published by the Foreign Policy Research Institute
Published by the Foreign Policy Research Institute
Founded in 1955, FPRI (http://www.fpri.org/) is a 501(c)(3) non-profit organization devoted to bringing the insights of scholarship to bear on the development of policies that advance U.S. national interests and seeks to add perspective to events by fitting them into the larger historical and cultural context of international politics.

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