RCEP: Strategic Overtones of an Economic Pact

Obja Borah Hazarika
November 17th, 2020


Image Courtesy: ASEAN.org

On 15 November 2020, 15 Asia-Pacific countries signed the largest trade agreement in the world– the Regional Comprehensive Economic Partnership (RCEP) surpassing the existing trade blocs. It spans across a market consisting of 2.2 billion people and a global output of $26.2 trillion. The members of the RCEP include the ten member countries of the Association of Southeast Asian Nations (ASEAN) and China, Japan, South Korea, Australia and New Zealand. 

Economic benefits aside, the deal has been touted as a significant geopolitical triumph for China given the retreat which the US under the Trump administration has largely undertaken on international affairs. The significance of the deal has to be understood in terms of escalating tensions in US-China relations as well. 

The intensification of ties among the countries of the Asia-Pacific under the rubric of the RCEP, which was largely spearheaded by China, can be seen as one of the steps taken by it to solidify its role as a leader in the Indo-Pacific region. It also helps China balance its emphasis on its domestic market by showcasing its commitment to fulfill external obligations. The inclusion of the US’s security partners, such as Japan and South Korea in the RCEP portray the way in which countries in the Indo-Pacific will hone ties with both the US and China given possible transition related challenges in the world order.

Talks on the RCEP began in 2012 when a US-led trade agreement –the Trans-Pacific Partnership (TPP)  under the Obama administration was undergoing negotiations. The TPP significantly did not include China. This led many to regard the RCEP as China’s attempt to counteract the US’s TPP. The RCEP negotiations interestingly excluded the United States. However, under the Trump administration, the US pulled out of the TPP, but the rest of the 11 countries of the TPP continued negotiations which culminated in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018. 

The US absence in the CPTPP and RCEP account for the claim by observers that the US has embarked on a retreat from a leadership role in international affairs leaving a vacuum which China with its recently concluded RCEP can be considered to be assuming. One of the most significant outcomes of the deal is that it provides a platform for the cultivation of strong ties between those nations which do not currently have intense economic ties among themselves. The RCEP provides a framework for the member countries to strengthen their ties in those cases which hitherto were inadequate or lacking.

India has been involved in the initial negotiations under the RCEP, but it pulled out of it last year. One of the main Indian concerns was that RCEP would not bring much benefit, whereas the country could be flooded with imports of goods with cheaper quality from China.

The provisions in the just concluded RCEP, however, continues to have a provision for a return by India in the future. Given the deterioration of ties between India and China with the fatal Galwan River Valley clashes and border skirmishes, a return by India into the RCEP is far from likely in the foreseeable future. 

Citing a report from the Peterson Institute for International Economics, Citi Research has noted that if India would remain in the pact, by 2030 its GDP would have gained by 1.1 percentage points. It was also pointed out that exclusion from the pact would make India a less attractive production base compared to the ASEAN member countries. The chance that the member countries of the RCEP by 2030 will cover 50% of global output would also mean that India’s economic prospects would have suffered substantially. Overall, the RCEP signifies a firm belief in trade liberalization at a time when several countries have imposed measures to counter it, thereby leading the global epicentre of the world’s economy eastwards. 

India maintained that its exit from the negotiations on the RCEP was due to its concern over outstanding issues which India felt were not adequately addressed by the negotiating partners. Such issues included e-commerce and unfair trade imbalances. While staying away from RCEP, Indian officials reiterated importance India attached to trade ties with the member countries of the RCEP, especially with the ASEAN. In the post-Covid era, Indian officials noted the importance of diversification and resilience of supply chains. India also highlighted its contribution of  $1 million to the ASEAN recovery fund set up to deal with COVID-19 situations. India’ inclusion could undoubtedly have benefited the economies of the member countries, but India’s decision to opt-out of the pact can be seen as a response to the strategic aspects of the pact which perhaps outweigh its potential economic prospects.

Amidst the pandemic, which has led to enhanced protectionism among many nations, the RCEP is touted as a much needed boost to the recovery of the global economy through multilateralism and free trade- which were 21st century mantra of the western countries. While the RCEP would probably not be able to repair the damage done by the US-China trade war for Beijing, its strategic benefits in terms of boosting China’s influence across the  Indo-Pacific adds a new dimension to the current ties between the US and China and thereby also on the entire global world order. 

** The author is currently teaching as an Assistant Professor in Dibrugarh University, Assam since 2013. She is also a Research fellow at KIIPS. **