RCEP- An Analysis
The Regional
Comprehensive Economic Partnership Agreement
China has taken an important step toward regional economic integration with RCEP, which will fill in for US withdrawal from CPTPP earlier this year.
As global value chains (GVCs) become an ever more prevalent means of global production and trade, trade links become ever more significant. GVCs rely heavily on backward and forward linkages.
Trade
As globalization and protectionism intensify, Regional Comprehensive Economic Partnership is an integral step toward regional economic integration. The new trade pact will progressively lower tariffs on many goods while eliminating paperwork for each destination - making it easier for Asian producers to sell across their bloc. But its benefits will not stop at that - Deborah Elms of Asia Trade Centre says RCEP also creates incentives to align supply chains within Asia Trade Centre's region.
This type of trade is driven by global value chains (GVCs), in which goods are assembled or transformed from components imported from various countries. Unfortunately, standard trade statistics fail to account for these links between input and output and foreign trade; as a result, overestimates its scale. Therefore RCEP's aim of eliminating trade barriers will have positive effects on GVCs located within Factory Asia regions such as Southeast Asia.
Harmonisation of rules of origin has been the crowning achievement of RCEP. This refers to the rules that dictate preferential tariff treatment of goods entering member countries' markets; previously each trade agreement had different conditions for meeting them; with these new ones the business world will find life simpler and less bureaucratic.
Domestic production accounts for an estimated 80% of value creation in RCEP economies, due to both high costs associated with imported inputs as well as their preference by local markets for domestic goods.
GVCs mean that more than half of value added created in RCEP countries comes from exports, leading to an increase in intra-RCEP trade that may reduce demand for imports from third countries; India and the US in particular will feel this impact; other non-members will feel its impact as more resilient supply chains, harmonized standards and cheaper production create opportunities for firms from third countries that export into these regions.
Investment
The Regional Comprehensive Economic Partnership Agreement is one of the world's most significant trade agreements. Comprising over 25 percent of global GDP and 30 percent of world population, its significance extends far beyond trade - having far-reaching ramifications for investment flows and geopolitics as well.
The agreement reduces tariffs across a broad spectrum of products and establishes common regulations across competition, services, technical standards, e-commerce and intellectual property issues. Its goal is to eliminate 90% of product group duties within 20 years. The Pact makes setting up business easier in Asia while increasing regional investment flows; companies will benefit from expanding into new Southeast Asian markets while taking advantage of lower labor costs; regional value chains will expand and global competitiveness will increase as a result of it all.
It will strengthen economic connections among ASEAN economies and Japan and South Korea through harmonizing rules of origin to reduce intra-regional trade barriers, and by permitting companies to source intermediate inputs from RCEP member states without incurring tariff reductions; particularly useful in complex GVCs that involve multiple cross-border steps.
Multinational companies operating in Asia will find having one standard rule of origin beneficial to supply chain management, as it will allow them to use one certificate of origin and streamline customs procedures - helping reduce costs while increasing efficiency by eliminating re-documentation of goods.
In addition to reducing tariffs, the Regional Comprehensive Economic Partnership Agreement will promote investment and intellectual property protection. Furthermore, Hong Kong will benefit as an international financial center: already serving as a base for many foreign investments in ASEAN markets, this RCEP agreement will create more opportunities for them to tap into those markets and take advantage of their rapid economic development.
The RCEP will also have significant ramifications for China, reinforcing Beijing's position as leader of Asia and sending a strong signal regarding US' prospects of remaining at the table for future global trade negotiations.
Environment
RCEP negotiations have been long and difficult, due to its complex nature. Participants differ greatly in population size and wealth; landlocked countries differ significantly from archipelago nations; services versus trade goods trade agreements differ drastically; it can be challenging to agree upon a comprehensive trade deal when there are so many differing interests present; this may explain why RCEP has less ambitious goals than its precursor, the TPP; however it will still provide substantial benefits for its member states and third countries alike.
RCEP will reduce trade barriers within its bloc by lowering tariffs and harmonizing rules of origin, but these changes will likely be modest as most member pairs already have bilateral trade agreements in place and most imports and exports take place between non-members. Still, it is expected to strengthen regional value chains with lower production costs and more resilient supply networks created through RCEP having positive spillover effects for firms operating global value chains and increasing the likelihood that they set up operations in Asia.
As the US withdraws from international organisations, China has increasingly taken on the role of champion of multilateralism. While Chinese leaders do not openly cite RCEP as proof of Beijing's leadership over regional trade flows at a time when many regional states focus on economic integration through multilateralism.
Japan and other like-minded countries view RCEP as an essential opportunity to counter China's influence in Asia-Pacific region, but its momentum could falter if India withdraws - given current political tensions between New Delhi and Beijing, this possibility remains real - which would reduce attraction of RCEP for other members to invest. If 16 members manage to bring the agreement together this year and have enough countries sign by 2020 completing legal review before signing, this could have major ramifications on future trade in the Asia-Pacific.
Human Rights
As one of the world's most liberalized economies, RCEP stands to have significant ramifications on labour and environment standards in Asia-Pacific region. Additionally, as it will create new market access commitments as well as modern rules and disciplines which facilitate trade, investment and supply chains; furthermore it could have important repercussions for small and medium enterprises and labour rights issues.
The new trade pact will have dramatic ramifications on Asian economies. It will strengthen China's regional economic leadership while further shifting global value chain partnerships towards East Asian production hubs. Furthermore, its liberal rules of origin and investment chapters could undermine domestic industrial policy leading to further de-industrialization of countries across Asia.
However, many factors make it challenging for RCEP member states to come to an agreement on non-trade sensitive issues like environmental and human rights protection. These include an inadequate democratic negotiation process as well as negotiations taking place when most members are still developing countries with diverging levels of development and perspectives preventing a common position on sensitive matters from emerging.
Many nongovernmental organizations (NGOs) are critical of how RCEP negotiations have been handled. According to them, text negotiated between governments have been kept under wraps while not enough consultation with civil society groups or stakeholders occurred during negotiations; this has caused people to remain unaware of what is being negotiated and has resulted in resistance towards this agreement.
This has become particularly evident when discussing access to medicines and intellectual property (IP) rights. In 2015, RCEP member states were embroiled in a controversy regarding IP provisions which required LMIC countries to amend their domestic IP laws - possibly jeopardising timely access to affordable generic drugs if these proposals had gone through without being met by active campaigning by activists. These proposals were eventually defeated thanks to successful action taken against them by activists.
This study conducted semi-structured interviews with 20 civil society and health actors from nine RCEP countries who are engaged in negotiations over public health concerns. Interview data were then coded thematically using NVivo 11 software, and its analysis has revealed a matrix of ten conditions related to actor power, ideas, political context and health concerns that appeared to support prioritisation during these negotiations.
