China signs regional Comprehensive Economic Partnership (RCEP)

中国等十五国正式签署区域全面经济伙伴关系协定

November 15, 2020, 15 countries — members of the Association of Southeast Asian Nations (ASEAN) and five regional partners — signed the Regional Comprehensive Economic Partnership (RCEP), arguably the largest free trade agreement in history. RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which concluded in 2018 and is also dominated by East Asian members, are the only major multilateral free trade agreements signed in the Trump era.

RCEP will connect about 30% of the world’s people and output and, in the right political context, will generate significant gains. According to computer simulations we recently published, RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030.

We also estimate that RCEP and CPTPP together will offset global losses from the U.S.-China trade war, although not for China and the United States. The new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources.

The effects of RCEP are impressive even though the agreement is not as rigorous as the CPTPP. It incentivizes supply chains across the region but also caters to political sensitivities. Its intellectual property rules add little to what many members have in place, and the agreement says nothing at all about labor, the environment, or state-owned enterprises — all key chapters in the CPTPP. However, ASEAN-centered trade agreements tend to improve over time.

Southeast Asia will benefit significantly from RCEP ($19 billion annually by 2030) but less so than Northeast Asia because it already has free trade agreements with RCEP partners. But RCEP could improve access to Chinese Belt and Road Initiative (BRI) funds, enhancing gains from market access by strengthening transport, energy, and communications links. RCEP’s favorable rules of origin will also attract foreign investment.

RCEP, often labelled inaccurately as “China-led,” is a triumph of ASEAN’s middle-power diplomacy. The value of a large, East Asian trade agreement has long been recognized, but neither China nor Japan, the region’s largest economies, were politically acceptable as architects for the project. The stalemate was resolved in 2012 by an ASEAN-brokered deal that included India, Australia, and New Zealand as members, and put ASEAN in charge of negotiating the agreement.

To be sure, RCEP will help China strengthen its relations with neighbors, rewarding eight years of patient negotiations in the “ASEAN way,” which participants typically describe, with varying degrees of affection, as unusually slow, consensual, and flexible.

RCEP will also accelerate Northeast Asian economic integration. A spokesman for Japan’s Ministry of Foreign Affairs noted last year that negotiations on the trilateral China-South Korea-Japan free trade agreement, which has been stuck for many years, will become active “as soon as they are able to conclude the negotiation on RCEP.” As if on cue, in a high-profile speech in early November President Xi Jinping promised to “speed up negotiations on a China-EU investment treaty and a China-Japan-ROK [South Korea] free trade agreement.”

Finally, RCEP and the CPTPP are powerful counterexamples to the global decline in rules-based trade. If RCEP spurs mutually beneficial growth, its members, including China, will gain influence across the world.