This article was first published in the April 2017 China edition of Accounting and Business magazine.

Left in a lurch by the US withdrawal, after years of negotiations, from the soon-to-be ratified Trans-Pacific Partnership (TPP) agreement, Asian countries are refocusing their efforts into realising other potential deals.  

The most likely of these deals to move forward now is the Beijing-backed Regional Comprehensive Economic Partnership (RCEP), which involves the 10 members of the Association of Southeast Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – and their six regional trading partners China, India, Japan, South Korea, Australia and New Zealand. If implemented, RCEP could transform the region into a more integrated market representing a third of global GDP, US$22 trillion in economic activity and half the people of the world. 

‘The RCEP is a strong alternative to the TPP. It would be nice to include North America but if not then we have to look after our regional economic interests,’ says Doug Ferguson, partner in charge for Asia and international markets and a deals advisory partner at KPMG. ‘The RCEP involves a very important bloc, connecting the heartland of manufacturing in the region. It’s a very strong concept.’

Only clear path

The World Bank estimates that the TPP would have raised the GDP in participating countries by 1.1% and boosted trade by 11% by 2030 through lower tariffs and trade barriers. The irony that the TPP may have been brought down by the US, which originally led the push to create it, is not lost on analysts, who now see RCEP as the only clear path to expanding free trade to the extent which the Asia-Pacific Economic Cooperation (APEC) aspires. 

‘The RCEP combines a big chunk of the global economy, so there will definitely be an increase in overall trade for ASEAN countries, but who will benefit more remains to be seen,’ says Richa Gupta, a director at Deloitte, India. 

The timing of Beijing’s RCEP push matches the growth of China’s trade influence with ASEAN. According to data provided by the ASEAN Secretariat, total trade with China amounted to US$345bn in 2015, representing a 15.2% share of total ASEAN trade in that year. China’s One Belt, One Road initiative also aims to further boost trade links with ASEAN. 

While the share of exports going to China has risen sharply, this includes components used to manufacture goods ultimately consumed in the US and Europe, so the figures may not give a true picture of Asia’s continued dependence on the West, says Manu Bhaskaran, director of Centennial Group International, a global strategic and policy advisory firm. 

Like the TPP, RCEP aims to cut tariff and non-tariff barriers, but it has lower regulatory standards. The TPP included the liberalisation of e-commerce and data flows; improved transparency and fairness requirements for state-owned enterprises; standardised intellectual property rules; and improved dispute settlement arrangements for labour and environmental regulations. RCEP lacks such provisions. 

‘Transparency could be a challenge but the RCEP would be a positive step forward for economic cohesiveness and globalisation,’ says Ferguson. 

Although the RCEP is smaller in scope than the TPP, it is still a large agreement that Asian countries now seem generally interested in completing. This renewed interest may be welcome but it faces some hurdles. Governments failed to meet a deadline to conclude negotiations last year, in part because some participating countries such as India are not yet fully convinced of the merits of opening their economies. 

India is concerned about the impact on agriculture and its efforts to promote domestic manufacturing, says Gupta. ‘India would want a partnership that does not lead to unfair advantage for imports at the cost of local manufacturing,’ she says.

Great economic power

‘The negotiations [of the RCEP] are slowing as there are tensions between China and India based on India’s trade deficit with China and India’s higher tariffs. It is the first time that India and China are negotiating a trade deal and both bring great economic power to the table,’ says Eugene Lim, Asia Pacific head of international commercial and trade practice at Baker & McKenzie, an international law firm.

‘While a successful conclusion of the RCEP will be welcome in at least maintaining the momentum of multilateral trade opening, the risk is that securing a consensus among some highly divergent economies means settling for the lowest common denominator in trade opening such that the actual impact on boosting goods, services trade and flows of capital are limited,’ Bhaskaran says.

RCEP is likely to be less complex, more consistent and easier to implement than existing bilateral agreements. The consistency should lead to high usage and more trade. Lim says that if implemented, ‘the RCEP has the potential to be a great boon to businesses in the region’.

‘If we have a regional agreement that is one comprehensive set of rules for all players, then that would be very beneficial for the economic activity in the region, particularly ASEAN economies that need such an agreement to boost development,’ says Ferguson.

Another potential agreement is the ambitious Free Trade Area of the Asia-Pacific (FTAAP), which would link Pacific Rim economies from China to Chile, including the US. The FTAAP was intended to build upon both the TPP and RCEP as well as dozens of existing bilateral agreements. For the time being, however, the FTAAP is purely conceptual. Because it is so large, countries may find it difficult to find common ground on a wide range of issues such as labour and tariffs.

‘Whatever the problems the RCEP faces, the FTAAP will face even more difficulties since even more countries are involved,’ says Bhaskaran. Gupta notes that, in regional trade agreements, ‘generally not all parties benefit on an equal level but at least all participants seek to have certain minimum advantages in the deal’.  

‘Much like the RCEP, the FTAAP has great potential to enhance trade in the region. However, the FTAAP is in its infancy and so it is difficult to predict its likely impact,’ says Lim. ‘These two trade deals will complement the existing free trade agreements. The original intent of both the RCEP and the FTAAP is to build upon and enhance the region’s existing trade deals.’ 

Carmen Ho, journalist