The signing last Sunday of the RCEP, the Regional Comprehensive Economic Partnership, is a significant achievement. Eight years of negotiation yielded an agreement whose members account for 2.2 billion people and about 30% of the global economy. By those measures, it is the largest trade deal in history.
More significantly, the RCEP lays a foundation for future economic and political integration in Asia and it is doing so without the United States. Decisions by U.S. administrations to maintain distance from this trade pact and the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) were a mistake — although they can be remedied. In the meantime, the U.S. absence obliges Japan to show leadership to direct both agreements toward integration, openness, good governance and the rule of law.
RCEP negotiations begin in 2012 and proceeded fitfully. Conclusion of the CPTPP, first as the Trans-Pacific Partnership and then in a revised form in 2018, spurred RCEP governments to wrap up their talks. Agreement might have been possible a year ago but India then decided to withdraw from the pact fearing it would unleash a flood of Chinese imports. After recognizing that this was not a negotiating tactic and Delhi would not return, the remaining 15 governments — 10 members of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and Japan, China, South Korea, Australia and New Zealand — finalized the deal.
While the headline numbers are large, actual economic benefits are less substantial. CPTPP reduces tariffs more than the RCEP, and most signatories have bilateral agreements with low tariff rates; members of ASEAN already trade freely among themselves. One reason the deal is attractive is that it simplifies the “noodle bowl” of existing trade agreements. According to one estimate, RCEP will by 2030 add $186 billion to the global economy — less than a drop in the bucket of a global economy that already exceeds $80 trillion — and 0.2% to the GDP of its members.
It is the symbolism of the deal that matters most. RCEP is reaffirmation of the signatories’ commitment to trade liberalization and deeper integration at a time when governments are putting up barriers and reverting to protectionism. It is the first trade agreement that brings together China, Japan and South Korea, the world’s second, third and twelfth largest economies, respectively. That will pay real dividends for Japan. Currently, 8% of Japanese goods exported to China are not subject to tariffs; under RCEP, that number will climb to 86%, transforming the terms of trade. China’s Ministry of Finance called the change “a historic breakthrough.”
The inclusion of those three countries within a single regional economic framework in combination with the simplification of the current trade patchwork gives RCEP its real significance and its greatest potential. It could provide the foundation of a coherent economic unit like North America or, with greater ambition and integration, like the European Union.
The deal creates single rules of origin for the 15 member states, which will greatly facilitate internal trade: One piece of paper will allow a good to be exchanged among all members. While most of the region’s products are consumed elsewhere in the world, RCEP is expected to accelerate development of the internal market so that Asians are producing for themselves. That would constitute a historical shift in the working of the global economy.
RCEP is widely viewed as a victory for China. That is true but only insofar as it is a win for Japan or any other signatory. The agreement was proposed and driven by ASEAN. China is large and will shape RCEP’s future, but so too will Japan. The real measure of a country’s influence will be evident as members meet as stipulated by the pact to develop and refine standards, or add new members. Especially important will be rules and regulations regarding new technologies and their uses, such as e-commerce and control of data. Japan must be especially attentive to and aggressive in this process.
Tokyo’s role will be facilitated by its membership in the CPTPP; six other countries are also members of the two agreements. Tokyo should work closely with them to ensure that RCEP evolves toward greater openness and liberalization, in the direction of the larger, more comprehensive agreement; ideally, there would eventually be a merger with CPTPP.
Equally important for Japan is convincing the United States to return and recommit to Asia’s economic institutions. The U.S. decision to withdraw from the CPTPP, then known as the TPP, was a strategic blunder, greatly diminishing Washington’s influence in the region. (President Trump’s rejection of regional summitry contributed to this decline.) President-elect Joe Biden understands the need to engage. He recognizes that influence derives from rule making and the U.S. must join institutions to shape their future and that of the region as a whole.
He also knows that he must first tackle COVID and rebuild his country’s competitiveness. Americans value free trade and globalization, but they also want their leaders to reconnect with the middle class and help secure their future. Japan should help the United States better understand that the more deeply it is integrated with the region, the more prosperous and secure it will be. That has been Japan’s course in the postwar era, one that has been encouraged by successive U.S. administrations. Now it is time to offer the same wise counsel.
The Japan Times Editorial Board
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