Chennai, 10 Nov 2021:
The world’s largest trade deal — which includes China and excludes the U.S. — will come into force in January 2022. It comes as Australia and New Zealand announced they have ratified the agreement.
The Regional Comprehensive Economic Partnership or RCEP was signed last year by 15 Asia-Pacific countries. The countries are the 10 members of the Association of Southeast Asian Nations and five of their largest trading partners China, Japan, South Korea, Australia and New Zealand. Australia said in a statement on Tuesday that its ratification — together with New Zealand’s — paved the way for the deal to enter into force on January 1, 2022, and allowed RCEP to reach a “milestone.”
New Zealand confirmed its ratification in a separate statement on Wednesday. RCEP will be in force 60 days after a minimum of six ASEAN members and three non-ASEAN signatories ratify the agreement.
ASEAN countries that have ratified the deal so far are Brunei, Cambodia, Laos, Singapore, Thailand and Vietnam, according to the website of Australia’s Department of Foreign Affairs and Trade.
In addition to Australia and New Zealand, other countries outside ASEAN that have also ratified RCEP are China and Japan.
RCEP covers a market of 2.2 billion people and $26.2 trillion of global output. The partnership will create a trade grouping that covers about 30% of the world’s population, as well as the global economy. It is also larger than other regional trading blocs such as the United States-Mexico-Canada Agreement (USMCA) and the European Union.
Experts said that economic benefits of RCEP are modest and would take years to materialize. Still, the deal was widely seen as a geopolitical victory for China at a time when U.S. economic influence in Asia-Pacific has waned.
It has not been easy for the 15 member nations to finally arrive at the RCEP agreement, in a marathon of 31 rounds of negotiations in eight years. One major matter of contention was the threshold for market access, to which some nations suggested a gradual opening up with conditions and specific scope.
The RCEP member nations have diverse systems and are in greatly varying states of economic development. They include developed nations such as Japan and Australia, emerging economies such as China, Thailand and Vietnam, and low-income nations such as Myanmar, Lao PDR and Cambodia. Consequently, the negotiations were arduous and protracted.
Overall, through joining the RCEP, the ASEAN nations will benefit from an increase in exports, investment growth and more opportunities to engage in regional supply chains due to greater market access.
The agreement can help more ASEAN SMEs to integrate with regional and global value chains and expand their businesses in the RCEP member nations and the global market. Nevertheless, due to the different states of economic development and industrial structures of the ASEAN nations, they enjoy different degrees of benefits from the RCEP.
The implementation of the RCEP agreement will help ASEAN nations to better participate in regional industrial supply chains and strengthen the economic integration of ASEAN with the world and especially in Asia-Pacific.
The biggest regret of the RCEP is India’s eventual withdrawal from the negotiations, which will dampen the influence of the RCEP. India, after all, is a regional power and a rapidly emerging economy. Its significant economic potential, young and abundant labour force and expanding middle class are reasons why MNCs covet the Indian market.
On the surface, there are two main reasons for India’s withdrawal from the RCEP negotiations. First, India wants to protect its weak, domestic industries such as dairy and textiles from direct competition from the products of the RCEP member nations. Second, India is concerned that its trade deficit will further increase after joining the RCEP. Currently, India has trade deficits with 11 of the 15 RCEP member nations, among which the trade deficits with China and South Korea are the largest.
However, the fundamental reason for India not joining the RCEP is that it believes that the RCEP is not a mere economic and trade agreement but also of strategic geopolitical significance.
India does not want China to take advantage of the RCEP implementation to gain greater access to the Indian market, thereby securing geopolitical and economic advantages in Asia, especially in South Asia.