RCEP: Largest Trading Bloc in the World Formed in Asia
- 82newsbulletin
- Nov 26, 2020
- 3 min read
Written by Victoria Ni Mingyang
15 countries have formed the world’s largest trading bloc under the Regional Comprehensive Economic Partnership (RCEP) agreement. This bloc was initiated by 10 countries in Southeast Asia, followed by China, Japan, Korea, Australia and New Zealand.
The RCEP is the first free trade agreement between China, Japan, and South Korea (three of the four largest economies in Asia), and is the first multilateral free trade agreement to include China.
The RCEP is expected to eliminate a range of tariffs on imports within 20 years. It also includes provisions on intellectual property, telecommunications, financial services, e-commerce and professional services.
Under RCEP, there will be a promised incremental reduction of tariff starting from 65% of the goods. In ten years time, it will be reduced to 80%, and gradually to 90%. Nearly 90% of tariffs will be eliminated after a period of 20 years.
A paper from the Peterson Institute for International Economics by Peter Petri and Michael Plummer cites modelling showing that it will raise global GDP in 2030 by an annual $186bn.
RCEP countries overlap with another trading bloc: “the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP)”. TPP originally included the USA, along with 10 other countries which are all economically powerful. Since Donald Trump came to power, the US pulled itself out of the deal. According to the Economist, American officials view RCEP as inferior since the membership includes poorer countries.
It can be foreseen that Asian economies that are not part of the deal may suffer a loss from the globalisation. Put it simple, with the reduction of tariff, the cost of production will be significantly lowered. This is because the production chains are interconnected cross-country, if there is nearly 0-tariff, every process in the production chain will be much cheaper. When it came from intermediaries to final goods, the ones produced within the RCEP will be much lower than those not part of the deal.
One thing worth noticing is that India withdrew from the treaty, although it is the 3rd-biggest RCEP economy. Taiwan was not invited, but More than 70% of Taiwan’s import comes from these RCEP members. With the recent aggression between Taiwan and Mainland China, it is hard to tell how Taiwan is going to make up for the potential losses from the missed chance.
Although RCEP brings a promising picture, it is far from a final flurry to work out the nuts and bolts. Many members within the bloc has/will experience(d) either domestic uncertainty or international conflicts. For example, South Korea's Yoo Myung-hee twice raised Japan's decision to remove her country from its list of trusted trade partners. Thailand, India and Indonesia all had elections this year that kept their incumbents in power. India and China’s tension has fallen to the lowest point in history, leaving uncertainties.
In the end, I would like to quote Kewen Lu: “There are three powers that control the world: Government, religion and capital. Every dynasty follows the same theme: the Capital starts weak, and then grow strong, too strong that it completely penetrated the Government. But this does not mean Capital is bad. It is simply the economic principle rules that Capital needs to expand incessantly. But it is always the case that capital cannot pull the brake, and it loses control eventually.”
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