RCEP Provides A Path To Regional Trade Cooperation – Analysis

By Iman Pambagyo and Donna Gultom

As global trade began to be affected by the COVID-19 pandemic, the 10 ASEAN member states and their five FTA partners sealed the Regional Comprehensive Economic Partnership (RCEP) Agreement on 15 November 2020 during a summit of participating country leaders.

Requiring eight years of negotiation to complete, the RCEP initiative was first introduced when Indonesia was chair of ASEAN in 2011 with a view to consolidating the existing ASEAN Plus One FTAs to deepen and expand regional value chains. The basic concept of RCEP was endorsed by leaders of 16 countries in November 2012 in Phnom Penh, and the first round of negotiations took place in March 2013 in Brunei Darussalam where negotiators had more questions than answers on how to translate the RCEP concept into an effective trade agreement.

Initially, RCEP was negotiated among 16 countries — ten ASEAN countries and Australia, China, India, Japan, New Zealand and South Korea. At the RCEP Summit in late 2019, India decided to leave the negotiations due to difficulties at home. India’s exit raised doubts among some non-ASEAN negotiating parties that the targeted total market size of RCEP would shrink from 3.7 billion to 2.3 billion people. ASEAN’s leadership in getting negotiations across the finish line proved critical.

The key message conveyed to the non-ASEAN participating countries was that RCEP was not merely about market access. RCEP would also serve as a platform for countries in proximity to ASEAN to enhance regional cooperation and to deepen and expand the regional value chains that already existed under ASEAN Plus One FTAs — contributing to the economic advancement of individual partners as well as the region.

After going through the ratification process with individual participating countries, RCEP eventually entered into force on 1 January 2022. Representing around 30 per cent of the world’s GDP, 28 per cent of global trade and 32 per cent of global foreign direct investment flows, the RCEP Agreement was championed to significantly benefit all its parties through the intensification of trade in goods and services, investment, trade facilitation and cooperation among members.

RCEP has been in place for over two years, but available data suggests that utilisation of the preferential treatment under the Agreement — especially on trade in goods — is still far below what had been expected, with China, Japan and Korea currently the main beneficiaries.

But this should not come as a surprise. RCEP was concluded against the backdrop of a trade war between the United States and China, which has had adverse impacts on other countries, including most RCEP members.

RCEP also entered into force when global trade had to deal with the spread of COVID-19, continued geopolitical rivalries among major powers, war in Ukraine and climate change issues affecting logistics in the Panama Canal. The war between Israel and Hamas and the security threats to shipping lines through the Red Sea and the Suez Canal have added to concerns that world trade is disintegrating. Eight years of RCEP negotiations have shown that focusing on shared economic interests can lead to mutual benefits instead of an escalation of disagreements toward open conflicts. ASEAN played an important role in keeping all parties engaged constructively when its negotiation encountered non-economic hurdles between Japan and South Korea and between India and China.

Statements by leaders at various RCEP summits suggest that the spirit of cooperation incentivised them to create a region of strong collaboration towards shared prosperity, regardless of differences in political, economic and social systems. While RCEP does not the disciplines of  the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Peter A Petri and Michael Plummer — writing for the Brookings Institution in 2020 — note that ‘the effects of RCEP are impressive’ and that ‘it incentivises supply chains across the region but also caters to political sensitivities’.

RCEP was made possible because negotiations were advanced in an ‘ASEAN way’ — consensual, flexible and sometimes very slow. This negotiation style needs to be applied as a trade diplomacy strategy by its members when trying to build cooperation and collaboration between RCEP and other economic groupings such as the EU, Southern Common Market and the United States–Mexico–Canada Agreement. The ‘ASEAN way’ able to seal the deal when there is consensus and flexibility but progresses slowly and carefully when dealing with contentious issues, which otherwise bring negotiations to an impasse.

All the RCEP countries now have experience negotiating unusually complex issues. This experience can be applied when they embark on global trade diplomacy with non-RCEP countries and regions.

About the authors:

• Iman Pambagyo is former Director General of International Trade Negotiation at the Ministry of Trade of Indonesia
• Donna Gultom is Member of Board of Director of the Center for Indonesian Policy Studies (CIPS), and former Director of ASEAN Trade Negotiation at the Ministry of Trade of Indonesia

Source: This article was published by East Asia Forum