Name: What is the RCEP? | CNBC Explains
Uploaded: 2020-12-15T19:11:52.000Z
Duration: 6 min 17 s
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A group of 15 countries generating nearly a  third of global economic output have signed  

the world's largest ever free trade deal. It's  a historic agreement that will have economic  

implications far beyond the region's borders  and signals a seismic geopolitical shift,  

not only for countries that are part of  the deal, but also the ones that aren't.     

The RCEP stands for the Regional Comprehensive  Economic Partnership and, when ratified,  

will create a trading bloc rivaling the European  Union and the U.S.-Mexico-Canada Agreement.  

10 of its members make up the Association  of Southeast Asian Nations or ASEAN, which  

include Malaysia and Singapore. The remaining  five countries are Australia, New Zealand,  

Japan, South Korea and most notably, China.   The world's largest free trade deal covers a  

market of 2.2 billion people, or around a third  of the world's population. Its members are  

responsible for $26.2 trillion of economic output,  accounting for roughly 30% of global GDP.

While the RCEP is the latest in a long line  of trade agreements coming out of Asia,  

it wasn't supposed to be the biggest.  Negotiations for the RCEP trade deal  

started back in 2013, but it attracted  renewed interest in 2017 when President  

Donald Trump pulled the U.S. out of a rival  Asia-Pacific grouping that excluded China.

Great thing for the American worker, we just did. The Trans-Pacific Partnership, or TPP,  

would have involved 12 countries, covering  40 percent of the world economy.

While both the RCEP and the TPP were  intended to create free and open markets,  

the TPP had more ambitious goals, covering  stricter common standards on labor issues,  

human rights and environmental protection.  The scuttled TPP pact was revived under a new  

guise involving the 11 remaining countries —  the Comprehensive and Progressive Agreement  

for Trans-Pacific Partnership or CPTPP, in 2018.  Because China was excluded from the U.S.- led TPP,  

observers have described the RCEP as a way for  China to counter American influence in the region,  

while writing the rules that  govern trade in the 21st century.    

However, some analysts feel that the economic  benefits of the RCEP are limited and could  

take decades to fully materialize. That's  because many members of RCEP have already  

signed bilateral trade deals and benefit from  reduced tariffs. Critics include Australia's  

former Prime Minister Malcolm Turnbull. There'll be some hoopla about the signing  

and the entry into force of RCEP. I mean  RCEP is a really low ambition trade deal.  

We shouldn't kid ourselves.  The biggest impact could be the new 

'rules of origin,' which officially determine  where a product was made. These essentially  

eliminate tariffs on goods traded between member  states, providing greater simplicity than a series  

of bilateral free trade agreements, especially  for companies with global supply chains.

Take, for example, a company in Thailand building  tractors for a client in Indonesia. The two  

countries are part of the ASEAN free trade  zone, but because some parts of the tractor  

are made in Australia, Indonesia might charge  a tariff on the finished machine. The RCEP will  

remove barriers like this, adding an incentive for  members to look within the bloc for suppliers.    

The trade deal could also lay the foundations  for stronger economic partnerships in the future,  

particularly between members that don't  already have free trade deals, as is the  

case with China, Japan and South Korea. The three East Asian nations have been  

in negotiations over a free trade deal  since 2002 without reaching an agreement.  

Both Japan and South Korea have close economic  and security ties with the U.S., unlike their  

contentious diplomatic relationship with China. And despite rocky political relations between the  

communist state and Australia, the  two have signed up to the deal.

The RCEP is China's first multilateral free-trade  agreement, which analysts say is a political  

victory as much as an economic one. The deal comes at a time when the U.S.  

and China have locked horns over  a number of issues, including the  

South China Sea, supply chains and 5G networks. Without U.S. involvement in the agreement, China  

could sidestep pressure for major economic  reforms or reform of intellectual property rights.

Companies which were already shifting supply  chains away from China due to the country's  

trade war with the U.S., may still be able to  source products from the country under the new  

agreement. The RCEP could also strengthen  China's global infrastructure strategy,  

known as the Belt and Road Initiative, while  reducing U.S. commercial activity in the region.

While the deal was originally conceived by ASEAN,  China is set to gain the most financially from  

RCEP, followed by Japan and South Korea. The direct economic benefits for the 10  

Southeast Asian nations may be limited  due to their existing free trade accords,  

with more than 70% of trade inside the  bloc already conducted with zero tariffs.    

Not only is the deal likely to diminish the United  States' influence in the region, but it could also  

cause it to miss out on over a hundred billion  dollars' worth of trade. Another country expected  

to forego a large amount of income is India. The South Asian nation was initially involved  

in the RCEP negotiations but dropped out in  2019 over concerns that the deal would result  

in a flood of cheap imports that would hurt  Indian businesses across many industries.

There are concerns among members that without  India, the smaller Asian countries will be more  

reliant on China, and in turn, Beijing  will have more leverage in the region.    

How Chinese president Xi Jinping steers the  world's second largest economy in the trade  

bloc will be watched closely. The adverse effects  of the South China Sea dispute and the Covid-19  

pandemic may lead to a more amicable approach to  diplomacy that reassures its neighbors. However,  

a 'China first' strategy cannot be ruled out. For the U.S., its trade policies are affected  

by the shifting tides of domestic politics.  Trump's 'America First' policies have seen the  

omission of the U.S. from two of the world's  largest trade deals, leaving a political and  

economic vacuum in the Asia-Pacific region. It may take many years for the benefits of

RCEP to be fully realized but the  announcement of the deal signals

that although several leading western  countries have adopted isolationist policies,  

many Asian nations, and China in particular, are  increasingly committed to better trade links,  

which could shape the economic and  political landscape for years to come.

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What is the RCEP? | CNBC Explains

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