What might the RCEP tell us about the future of trade deals and Britain’s place in the world?
18 December 2020
As of the 16th November 2020, 2.3 billion people live within a new free trade zone (the Regional Comprehensive Economic Partnership or RCEP) linking ten South East Asian nations, China, South Korea, Japan, Australia and New Zealand, making this a bigger and potentially considerably more powerful trading block than the European Union, and viewed in some quarters as an economic and diplomatic coup for China. It was signed via an online ceremony after eight years of negotiations.
The agreement incorporates nations that do not currently have the strongest of diplomatic relationships, to understate the case, in particular China and Japan. It aims to eliminate a wide range of tariffs on imports within a twenty year period, facilitating trade and the expansion of markets across this huge region. It will almost certainly incentivise business operating within a RCEP signatory state to source all of their required supplies from other signatory states to minimise tariff liability. The RCEP “rules of origin” provisions mean that parts and components across the region will be treated equally i.e. finished goods originating in Australia not exceeding the maximum permitted level of components sourced from non RCEP signatory states will be able move to Japan with the benefit of a lower tariff. These rules of origin provisions will reduce the bureaucratic process surrounding the movement of goods across the region and thus may improve the resilience of supply chains in signatory states. It may well improve access to goods and services across the region through lower prices. The mirror image of this however is that the deal very pointedly does not provide for any constraints on state corporate ownership, state subsidies to industry, labour and environmental standards. Very interestingly it seemingly has very limited provision on intellectual property. Is this then the future of trade deals?
The geopolitics are absolutely fascinating. Japan and Australia, powerful democracies with complex relationships with China, have to an extent played down the significance of the deal, yet the former in particular stands to benefit enormously from it. Furthermore, Japan and Australia are at the centre of the parallel trade deal known as CPTPP (Comprehensive and Progressive Trans-Pacific Partnership), which connects them to Singapore and Canada in particular and could be an opportunity for increased co-operation and democratic pressure or conversely a site of potential tension and conflict as the Biden administration considers its approach to CPTPP following Trump’s withdrawal of the US from talks early in 2017. India has bowed out due to fears about the impact on its agricultural sector in particular; how both Europe and the US approach this strategically critical, diverse, massive democracy could have a profound effect on the region; the military tensions between China and India are well known, and China’s infrastructure development in Pakistan adds an additional dimension to this tension. Taiwanese observers meanwhile have suggested that the nation (not recognised as such by China) was effectively excluded from the negotiations, and is fostering closer ties with the US, focusing on weapons sales, while Hong Kong seems poised to be included in due course. This latter point is particularly interesting given that the provision in relation to services in the deal is sparse, possibly with a view to Hong Kong’s later inclusion.
This deal, when viewed alongside China’s Belt and Road initiative, does appear to speak to China’s vision of its future, which has open co-operation between state actors at its heart, but very much on terms directed by China. While a twenty year road map may appear to suggest long term and strategic planning, China is a country that in recent decades has arguably gone through a period of transformation more rapid than any in human history, it is thus not possible to truly predict how rapidly the economic ties pulled together by the deal will develop. The deal may well be an element in what can be construed as an increasing move toward large trading blocs with less rather than more emphasis on values and common broader objectives based trading relationships, which is of particular concern in the context of the EU struggling to maintain its unity in the face of challenges to its collective values posed by right wing governments and different perspectives on fiscal and monetary approaches to crisis, and even different ideas about national sovereignty as a concept. This has obvious implications for international stability, and makes it quite easy to envisage the geographical splintering of the Internet system, and ever more rapid development of “slicing” of the Internet (involving the ability to distinguish different types of online activity and adjust accordingly how different types of content is delivered) with all of the implications of this for how we are governed and how we live, especially when it comes to concepts of personal freedom and privacy. Britain meanwhile, isolated from the EU and potentially isolated from the US partly as a consequence, with seemingly limited significance in the eyes of China (so clearly demonstrated in Hong Kong), could become a stranded ship seeking land.
Image credit: DFAT photo library, licensed with CC BY 2.0.