Can China Finally Seal the Deal on RCEP?

Four years ago, two landmark free trade deals were supposedly nearing completion. The 16-country Regional Comprehensive Economic Partnership (RCEP), often described as led by China, was envisioned as a direct competitor to the U.S.-led 12-country Trans-Pacific Partnership (never mind that seven countries were participants in both processes, or that ASEAN, not China, is at the center of RCEP). With both groupings setting 2015 as their goal for concluding agreements, RCEP and the TPP were seen as neck-and-neck in a race to the finish line, with the future of regional trade belonging to the victor.

The TPP was successfully concluded in 2015 – only to have the United States withdraw in January 2017 under a new president. The remaining 11 members were forced to refashion the pact as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was inked in 2018.

In the time it took TPP to come into being, die, and be reborn, RCEP remained under negotiation. In 2019, the deal is still very much a work-in-progress. Now, however, it may gain new momentum amid alarm over rising protectionism and the drag on regional growth from U.S.-China trade frictions. China in particular is keen to see RCEP over the finish line at last – but that’s easier said than done.

The latest RCEP ministerial meeting was held in Beijing from August 2 to 3. It was the first time RCEP ministerial talks had been held in China, a sign of Beijing’s renewed emphasis on the trade deal. Afterward, Chinese Assistant Minister of Commerce Li Chenggang told reporters, “This round of talks has made positive progress in various fields.” He added that “China will work together with the RCEP countries to proactively push forward the negotiation, strive to resolve the remaining issues as soon as possible, and to end the negotiations as soon as possible.”

The joint statement issued at the end of the meeting noted the new impetus for concluding a deal. As the world’s “growth outlook remains overcast by rising uncertainties,” the statement said, “it is in the region’s collective interest and highest priority to conclude a modern, comprehensive, high quality, and mutually beneficial RCEP in 2019.”

That target should be taken with a grain of salt. Since 2015, every single year has been raised as a target date for completion. Every year, there is optimism after ministerial meetings tout progress; every year there are reports that this year will be the one RCEP talks finish. So far, the world is still waiting.

As a sign of both the progress and the remaining hurdles, the August 2019 joint statement noted that “over two thirds of market access negotiations have reached mutually satisfactory outcomes.” That sounds impressive, but keep in mind that talks have been underway since November 2012. After nearly seven years of meetings, RCEP is still only two-thirds complete – and presumably all the low-hanging fruit is long since picked, leaving only the thorniest issues to settle.

The holdup stems from the fact that the RCEP members can’t agree among themselves on what they want the eventual trade pact to be. Japan, Australia, and New Zealand, for instance, want an agreement reflecting the higher standards of the CPTPP. On the other extreme, India is unwilling to even agree to full tariff reductions. New Delhi is worried about an influx of cheap Chinese goods flooding its market with tariff-free access, and that has made India one of the major roadblocks in RCEP negotiations. Commerce Minister Piyush Goyal didn’t even attend the Beijing talks (India sent a vice minister instead), which some saw as a sign India might back out of the negotiations altogether.

So what does China want from RCEP?

On the question of whether RCEP will be “high standard” or just a standard free trade agreement (FTA), China would prefer a more traditional FTA framework. The CPTPP, touted as a “21st century” agreement, includes standards on labor, environmental, and transparency issues. While Beijing is receptive to addressing some modern concerns – such as cross-border e-commerce, where Chinese companies are a force to be reckoned with – the Chinese government has little interest in letting domestic conditions be dictated by an external agreement. As a sign of China’s distaste, Beijing’s 13th Five Year Plan (2016-2020) called “regional high-standard free trade regimes” like the TPP a “challenge” for the “multilateral trading system.”

Accordingly, China is seeking to steer RCEP talks toward a focus on tariff reductions, its preferred emphasis for free trade negotiations across the board. Compared to the CPTPP, then, RCEP as China envisions it would be a “low-quality” deal, at least in the eyes of Japan, Australia, and New Zealand.

But China also wants the deal done. RCEP would be China’s first mega multilateral trading pact. That, in turn, would provide evidence to back up Beijing’s projected image as a defender of what the August 2019 ministerial statement called “an open, inclusive, and rules-based trading system.” Amid a wealth of free trade agreements in various stages of negotiation, RCEP is one of China’s top priorities.

To that end, China is reportedly pushing for the other RCEP members to forge ahead without India. That would have the benefit of both speeding up negotiations while also cutting out one of China’s on-again, off-again rivals. However, other countries are equally aware of the geopolitical ramifications and seem reluctant to give India the boot, lest they be seen as taking sides. Another idea is to remove not just India but also Australia and New Zealand, reframing RCEP as the “ASEAN+3.” That, however, would limit the economic benefits of the agreement, in addition to kicking to the curb two of RCEP’s most vocal proponents in Canberra and Wellington.

The end result is that RCEP remains stuck, despite China’s efforts to grease the wheels. The next round of talks, September’s ministerial meeting in Bangkok, Thailand, will make or break the possibility of meeting the 2019 target date. Given RCEP’s tortured history, however, Beijing shouldn’t hold its breath.