Asia’s economies just got a lot more connected.  

Fifteen countries signed the world’s largest multilateral trade agreement earlier in November, called the Regional Comprehensive Economic Partnership (RCEP). The agreement consists of the 10 ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) as well as China, Japan, South Korea, New Zealand, and Australia. Together, these nations comprise nearly one-third of the world’s population.

Economic impacts

The RCEP will encourage international trade by increasing the inter-dependence of supply chains, improving technological developments, and strengthening the manufacturing and natural resources sectors. Economists predict that the agreement will generate about $12.4 trillion USD in trade among member states and will add more than $186 billion USD to the global economy. 

The unification of leading Asian markets, in addition to their successful control of the COVID-19 pandemic, positions the Asia-Pacific region for short and long-term economic growth. This comes as many Western democracies, including the United States, continue to suffer from severe economic impacts due to their poor handling of the pandemic. 

Political implications

The RCEP overtakes the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as the world’s largest multilateral trade agreement. The CPTPP, ratified in December 2018, was intended to create a group of allies to counter-balance China’s rising global influence. Signed under the Obama administration, the agreement outlined a strategy to strengthen trans-Pacific relationships with countries such as Canada, Mexico, Australia, Japan, Malaysia, Singapore, and others. However, President Trump withdrew from the agreement, preferring that the United States only enter bilateral agreements. This decision heightened regional doubt as to the United States’ commitment to building sustainable relationships with Asian markets. 

There are now seven countries that are members of both the CPTPP and the RCEP. While the CPTPP was intended to counter China’s influence, the RCEP now reinforces China’s deep influence in the region as a key economic partner for neighbouring countries such as Japan and South Korea. 

Who’s missing? 

India is notably missing from the trade agreement. After years of negotiations, India expressed concerns that the agreement would harm its domestic industries due to increased tariffs and would lead to larger trade deficits with other member countries. India’s Prime Minister Narendra Modi expressed his disdain for the agreement, stating “when I measure the RCEP agreement with respect to the interests of all Indians, I do not get a positive answer.”

Like the Trump administration, Modi’s government prefers bilateral trade deals—especially with China, where they have more power at the negotiation table, rather than a multilateral agreement which China will dominate. 

Although India has thus far decided not to join the RCEP, the possibility to join the agreement in the future remains open. Many of the ASEAN nations are concerned that without India, China will continue to unilaterally benefit at the expense of the economic growth of other member states. 

Criticisms 

Critics of the agreement allege that it prioritizes corporate profit at the expense of the public and gives more power to large businesses. This raises concerns for the living standards, health, wages, and well-being of the member states’ populations. 

Equally alarming is the impact of the trade agreement on the environment and climate change. Some worry that the RCEP will increase trade in fossil fuels and multiply emissions from shipping and aviation. Members of the agreement will also be able to challenge other countries’ climate-friendly policies and energy-conserving regulations as “barriers to trade.” 

The RCEP is another reminder that countries must work closer together to better align their trade objectives with their duty to reduce emissions to meet the targets set in the Paris Accord. Economic growth cannot continue to be prioritized at the expense of the health of the planet. 

Looking ahead 

There is much to watch for as the agreement must still be ratified in order to formally come into effect. Ratification may be delayed as countries attempt to pass the agreement in their respective national parliaments. 

Meanwhile, the incoming Biden administration will be challenged with undoing and repairing the damage caused by four years of Trumpian policies which alienated the United States from many Asian partners. Time will tell whether the signing of the RCEP will encourage the next American President to rejoin the CPTPP and demonstrate its commitment to the Asia-Pacific region.