Covid-19 and the Regional Comprehensive Economic Partnership (RCEP): make or break?
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At the start of 2020, the Regional Comprehensive Economic Partnership (RCEP) – potentially the world’s largest free trade deal – seemed on track to be signed by the end of the year. However, the coronavirus pandemic has slowed that process, raising some questions about when the agreement will be formalised.
In what would constitute a significant win for multilateralism, the RCEP would bring together the Association of South-east Asian Nations (ASEAN), China, Japan, South Korea, Australia and New Zealand in a wide-ranging trade pact, with India having withdrawn last year.
At the third RCEP Summit, held in Bangkok in November, potential signatories announced that an agreement had been reached on all areas of the free trade deal, with commitments made to complete market access for goods, services and investments.
Since then, however, the Covid-19 pandemic has shaken up the global trade environment. According to the World Trade Organisation, worldwide trade will contract by between 13% and 32% this year, with travel restrictions and lockdowns disrupting global supply chains and spurring an uptick in nearshoring.
Nevertheless, RCEP countries remain committed to the agreement. During the 36th ASEAN Summit held online at the end of June, Prayut Chan-o-cha, Thailand’s Prime Minister, urged ASEAN member states to expedite the signing of the RCEP by the end of 2020.
The flagship for regional free trade
The RCEP was initiated by ASEAN, and negotiations officially began in November 2012 at the ASEAN Summit.
Vietnam has long been recognised for pro-market reforms and openness to international trade and investment. When the country assumed its role as chair of ASEAN this year, it announced that it would work to counter threats to free trade, and many anticipated that this would guarantee that the RCEP would finally be signed.
“ASEAN needs to be a cohesive and integrated community,” Nguyen Quoc Dung, Vietnam’s vice-minister of foreign affairs and the country’s ASEAN Senior Officials’ Meetings leader, told OBG in February this year. “We will encourage ASEAN to support multilateralism and open and free trade, as every member stands to benefit from agreements such as the RCEP,” he added.
Vietnam assumed its chairmanship at a time when the US-China trade dispute remained unresolved and the Chinese economy was decelerating as policymakers were attempting to rebalance it towards a consumption-led growth model.
The coronavirus pandemic has accentuated fears that multilateralism might give way to self-sufficiency. In this context, the signing of the RCEP would constitute a major vote of confidence in globalisation and the integration of national economies into an international system.
Some business leaders believe that greater trade openness should be at the core of post-pandemic planning. “Diversifying Myanmar’s connections in regional markets as part of promoting trade and investment will definitely help to speed up economic recovery,” Khin Maung Win, chairman of Myan Shwe Pyi Tractors and President of AmCham Myanmar, told OBG.
The 29th round of RCEP negotiations was held in April this year, via videoconferencing.
The negotiating nations reiterated their commitment to regional integration on trade, investment and economic cooperation, as well as urging India to return to the table. In a joint statement, it was announced that “RCEP will provide a more stable and predictable economic environment to support the much-needed recovery of trade and investment in the region”.
The 30th round was held in May. Following this, ministers from participating nations met on June 23 – also via videoconferencing – for the 10th inter-sessional meeting, chaired by Tran Tuan Anh, Vietnam’s minister of industry and trade.
At the meeting, officials noted the challenges associated with Covid-19 and increasing levels of protectionism but reiterated their commitment to signing the deal at the fourth RCEP summit in Hanoi in November this year.
They argued that greater economic integration would help to establish the “new normal” across the region, announcing in a joint statement that: “as the importance of the RCEP continues to grow in light of the ongoing Covid-19 pandemic, we shared the view that the signing of the agreement will serve as a clear signal of our unwavering support for the multilateral trading system, regional integration as well as economic development across the region.”
This unequivocal show of support was partly prompted by an upswell of uncertainty regarding the project.
In its Global Trade Monitor published in May, Moody’s noted that the negotiators of RCEP are walking a tightrope: “a shift in focus to domestic coronavirus issues is distracting RCEP’s negotiations. It aims to create the world’s largest free-trade bloc, but the coronavirus shock, in addition to diverging interests, highlights the difficulties in completing the agreement by the end of 2020,” the report said.
Further to this, some critics are concerned that a multilateral free trade deal could harm the most vulnerable workers and industries of some countries, and restrain the freedom of national governments to introduce responsive fiscal and industrial policies to mitigate the challenges of the pandemic.
Concerns about the ability of domestic companies to compete with imports are what led India – which already has a trade deficit with a majority of RCEP countries – to withdraw.
Similarly, not all ASEAN members have shown a historic enthusiasm for free trade, with some maintaining non-tariff barriers to protect national industries from foreign competition. Nevertheless, with Vietnam chairing the bloc this year there remains a strong appetite for concluding the deal.
“It’s an accepted fact that RCEP is a key milestone for ASEAN that would unleash huge access to markets and opportunities for participating countries and greatly enhance ASEAN’s competitiveness,” Doan Duy Khuong, Chairman of the ASEAN Business Advisory Council (BAC) 2020, told OBG.
“Finalising RCEP has become even more urgent to compensate for the economic slowdown and losses brought by the pandemic, so any further delay will not be good for ASEAN. As such, ASEAN BAC strongly urges the launch of RCEP now, with or without India. But we need to provide India, which admittedly is a key player and market, with every opportunity to join RCEP up to the end of 2020.”
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