What RCEP Means for the Indo-Pacific

With the world beset by trade and economic conflict, falling gross domestic product (GDP) and trade growth rates, as well as rising protectionism and populism, the conclusion of the Regional Comprehensive Economic Partnership (RCEP) negotiations is all the more a landmark achievement for the Association of Southeast Asian Nations (ASEAN). 

RCEP should not be viewed simply as a trade agreement, but as an economic cooperation agreement that strengthens regional political security and stability and reinforces ASEAN centrality in Southeast Asia and the Indo-Pacific. While India’s momentary withdrawal from the agreement has clouded the discussion of the negotiation’s success, RCEP will be the world’s largest trade bloc, covering an estimated 45 percent of the world’s population and encompassing roughly a third of global GDP. The economic benefits of the agreement are significant with or without India. With India in the agreement, RCEP is expected to generate a real GDP increase of approximately $171 billion for the bloc, and without India, an increase of roughly $137 billion. In the context of the U.S.-China trade dispute and turmoil within the European Union (EU), RCEP bucks the prevailing tides by sending a strong signal to the world that Asia is not only committed to a cooperative, multilateral, and rules-based order, but that it is also open to business. 

RCEP is the latest example of ASEAN’s long-term, staunch commitment to open regionalism and regional integration. Since the 1980s, and even more so following the 1997 Asian Financial Crisis, ASEAN’s response to both regional and global political and economic turmoil has been to double down and strengthen its integration efforts. Unlike the EU, with its focus on Europe and exclusivity, ASEAN has embraced open regionalism in seeking to promote economic integration without discriminating against external economies and through advocating inclusivity. The goal of “Global ASEAN” isn’t to create an EU-style bloc, but to further integrate the region into the global economy. As a key element of both the ASEAN Outlook for the Indo-Pacific (AOIP) and the ASEAN Economic Community (AEC), RCEP’s signing represents a significant step in reaffirming ASEAN centrality in regional architecture and affairs, bolstering inclusivity, and realizing the ASEAN Community Vision 2025.

While the conclusion of RCEP’s negotiations is a substantial achievement on several fronts, ASEAN cannot be apathetic to wider trends and rest on its laurels. All too often, ASEAN has been the “businessman who over sells and under delivers.” It is critical that ASEAN members muster the political will to ensure implementation and proper follow-through, while continuing to work toward bringing India back into the agreement. Despite criticism surrounding the ASEAN Way and its flexible and consensus decision-making processes, it is precisely these qualities that have made ASEAN and RCEP resilient and poised to succeed. 

First proposed in 2011 during the ASEAN Summit in Indonesia, with the negotiations beginning in 2012, the finalization of the negotiations in November 2019 was by no means a foregone conclusion. The agreement’s original 16 members represent a diverse array of political systems and stages of economic development, ranging from democracies to authoritarian states and from developed states to emerging economies. Despite every negotiating member having trade links with ASEAN, through the ASEAN+1 free trade agreements (FTA), they did not necessarily have trade connections to one another. RCEP members that do not have bilateral FTAs with one another include China-India, Japan-South Korea, Australia-India, India-Indonesia, and China-Japan. 

Asia’s trade architecture has been further complicated by the proliferation of bilateral FTAs within the Asia-Pacific over the past decades, which expanded from four to 52 since 2000. Within the RCEP grouping, there are currently 28 bilateral FTAs in addition to the six ASEAN+1 agreements. The overlapping and inconsistent FTAs prompted the emergence of the “noodle bowl” problem, in which each agreement contains varying rules and standards over tariff reduction, rules of origin, customs procedures, and services and investment regulations. This resulted in a patchwork of trade agreements and a fragmented trade architecture across the Asia-Pacific that imposed significant costs on businesses, complicated supply chain networks, and made it difficult for companies to use the agreements, leading to low FTA utilization rates. 

In this context, RCEP was launched to specifically address these major issues and is the first truly Asian regional trade agreement since the ASEAN FTA was launched in 1992. The principal goals of the agreement were to consolidate and harmonize the five existing ASEAN+1 FTAs, address the perennial issues of the “noodle-bowl” of regional FTAs, serve as a regional trade standard-setter through the creation of a single and integrated set of rules, and drive deeper regional integration across the Indo-Pacific. While RCEP doesn’t mirror the high standards contained in the Trans-Pacific-Partnership, it should still be considered a comprehensive agreement with chapters on goods, services, investments, e-commerce, intellectual property rights, trade facilitation and customs procedures, competition, government procurement, and small-to-medium enterprises.   

While RCEP has been described as a “China-led” agreement, this is not an accurate description. From its outset, RCEP has been founded and guided by ASEAN and the organization’s modus operandi. In economic terms, ASEAN is comparatively smaller than other RCEP members – accounting for only 11 percent of RCEP’s combined GDP, while China and Japan account for 47 percent and 21 percent, respectively. Despite not being the economic heavyweight in the grouping, ASEAN’s leadership has bolstered its status as the fulcrum of regional economic architecture. 

From a negotiating standpoint, since RCEP members did not necessarily have trade deals with one another, but all had agreements with ASEAN, the ASEAN+1 FTAs served as a common platform to launch the negotiations. Since its inception, the entire negotiation process was structured around ASEAN centrality and the ASEAN Way, placing the organization “in the driver’s seat,” as described by Elms Deborah Kay and Minh Hue Nguyen in The Evolution of the Regional Comprehensive Economic Partnership. Not only was ASEAN centrality explicitly written into RCEP’s Guiding Principles and Objectives, but the negotiations abided by the ASEAN Way of flexibility and consensus decision-making. It is precisely ASEAN’s flexibility that allowed for diverse partners to maintain the negotiations, despite the difficulties in bridging the gap between the varied stances, agreements, and levels of economic development. As underscored by Singapore’s Prime Minister Lee Hsien Loong at the 2019 ASEAN Summit in Bangkok, “ASEAN’s involvement as a trusted, neutral group, has enabled many countries to come together and cooperate under the umbrella of RCEP… And this is the value of ASEAN centrality that we put so much store on.”

Initially, RCEP negotiators had ambitiously set 2015 as the deadline for negotiations, and once that was missed, they pushed it to 2016 and hoped for a swift conclusion. At the second RCEP summit in November 2018, the deadline once again was shifted to 2019. Following 27 rounds of negotiations and a number of intersessional meetings and summits, the agreement finally came to fruition. With states and commentators alike questioning whether or not the negotiations would ever conclude, ASEAN centrality played a critical role in pushing the agreement across the finish line. An illustrative example of ASEAN’s ability to wield its influence is the fact that in 2018 less than half of RCEP’s 20 chapters were agreed upon and several negotiating states were preoccupied by domestic elections. Finishing the negotiations of the remaining the chapters in such a short timeframe was undoubtedly a significant undertaking, but ASEAN was able to bring the parties to the negotiating table and persuaded them to work together to finalize the agreement.

While India’s withdrawal has dampened enthusiasm surrounding the agreement, RCEP should be seen as a significant boon for inclusivity and open regionalism. From RCEP’s inception, ASEAN officials pushed for the inclusion of India, Australia, and New Zealand, despite concerns from East Asian states that it would dilute the quality of the agreement. In the face of numerous delays and missed deadlines over the years, ASEAN worked with its negotiating partners to ensure that the agreement remained inclusive and kept states at the negotiating table. A prime example of this dynamic can be seen in how negotiators continually worked to address India’s apprehensions. As India worried about the possibility of Chinese goods flooding its market and a host of other issues, negotiators sought to ameliorate these concerns by providing India with extended timelines for market access and carving out extremely sensitive items from tariff reductions. Furthermore, India was granted smaller total coverage than other negotiating partners. Without ASEAN’s leadership, the agreement could have fallen apart, especially in May 2019 with China beginning to push for the East Asian FTA, or ASEAN+3 FTA, which would have excluded India, Australia, and New Zealand. 

Beyond the sheer economic benefits of the trade deal, RCEP will play a critical role in furthering ASEAN’s regional integration plans and bolstering connectivity. With the AEC’s chief goals of integrating ASEAN further into the global economy and creating a bloc that is cohesive, resilient, and innovative, RCEP will help facilitate the transition from the old export-oriented “Factory Asia” model to a more integrated and consumer-driven “Market Asia.” While external markets in the United States and Europe are still key for Southeast Asia, Asia is beginning to fulfill its own demand. Intra-regional trade and capital flows have grown significantly and Asia itself now accounts for roughly 60 percent of Asian good trades and 59 percent of foreign direct investment. By driving deeper integration and facilitating trade and investment, RCEP will incentivize supply chains to develop their networks across the agreement’s members and help businesses meet the needs of the growing Asian markets. 

With the expectation that RCEP will be signed in February 2020, and potentially enter into force in January 2021, ASEAN needs to marshal the political will to ensure that the agreement and the AEC are both properly and thoroughly implemented. Despite numerous ASEAN trade agreements committing member states to reduce tariffs, trade facilitation has been hampered by the rise of non-tariff barriers (NTBs). While ASEAN has eliminated between 99.3 and 97.7 percent of intra-regional tariffs as of May 2019, the region has witnessed a tremendous growth of NTBs. Since 2015, NTBs within ASEAN have exploded from just under 2,000 to roughly 9,000 in just four years. The chairman of the ASEAN Business Advisory Council Malaysia, Dr. Munir Majid described the situation perfectly, “ASEAN requires greater commitment to achieving its goals… ASEAN has a very bad habit of stating an objective and target, leaving it behind, and then stating another objective and target.”

Despite having a number of mechanisms to address this issue, implementation has been sorely lacking. Failure to adequately address this will undermine both RCEP and the AEC. Another salient example of this has been the painfully slow implementation of the ASEAN Single Window (ASW). Although it has been on ASEAN’s agenda since 2003, the ASW has yet to be fully implemented across the region. 

India’s announcement that it would withdraw from RCEP unquestionably reduces the size and impact of the agreement and it stifles ASEAN’s goal of integrating India into the regional economic architecture. However, ASEAN’s own history of negotiating FTAs has demonstrated that there are pathways to keeping India in RCEP. One way to keep India engaged is to potentially utilize the ASEAN minus X approach, which highlights the benefits of the ASEAN Way and its flexibility. As detailed in the ASEAN Charter, not only is decision-making grounded in consultation and consensus, but it allows for flexible participation in economic commitments. For example, if two or more ASEAN states are ready to move ahead with economic liberalization, the approach would enable them to implement the agreement on the basis that other member states would follow at a later date. Precedent has already been set for its use as the approach was employed during the ASEAN-South Korea FTA negotiations in 2006, which allowed for Thailand to join in at a later date, and in the implementation of the ASEAN Trade in Goods Agreement in 2018 where five ASEAN states proceeded with implementation with the rest slated to join when they were ready. 

In the days following the announcement, Japan and Australia spearheaded efforts to get India back into the agreement. ASEAN needs to follow suit and assert leadership in bringing India back into the fold. With or without India, the conclusion of RCEP’s negotiations is a significant achievement. However without India, the ASEAN Outlook for the Indo-Pacific (AOIP) will remain incomplete. It’s a strategic imperative for ASEAN to work to keep India in because without it ASEAN’s Indo-Pacific concept loses the “Indo” and an important counterweight to China’s economic and political influence. ASEAN needs to live up to its own words, and as explicitly described in the AOIP, “ASEAN…needs to consistently come up with its collective leadership in forging and shaping the vision for closer cooperation in the Indo-Pacific and to continue to maintain its central role in the evolving regional architecture in Southeast Asia and its surrounding regions.” While RCEP countries have signaled that India is welcome to join the agreement when it’s ready, ASEAN has remained woefully silent and needs to step up and chart a path forward.

Vietnam has taken over the ASEAN Chairmanship from Thailand for 2020 with its chosen theme of “Cohesive and Responsive.” It is critical that the organization live up to those words and implement a strategy that focuses on ensuring adaptability and regional coherence to meet the challenges that confront the region both politically and economically. The conclusion of RCEP’s negotiations represents a substantial step in reassuring global confidence amid the turbulence facing the region and reinforcing ASEAN centrality in regional architecture. However, this is just the beginning of the next phase of the agreement’s evolution, which requires even greater political will to ensure that it is properly implemented.