RCEP: The Next Dominant Economic Agreement

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The last decade has seen lot of developments and changes in the geo-political scenario of the world which has led to the formation & signing of numerous inter-governmental fora and treaties. These have addressed major issues related to the global economy, such as international financial stability, climate change mitigation, and sustainable development.

Newest of these inter-governmental treaties being, the Regional Comprehensive Economic Partnership (RCEP), which is a free trade agreement among the Asia-Pacific nations comprising Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam, and came into effect on 1st January 2022.

RCEP is in fact quite a big deal, both literally and metaphorically. Once it is signed & ratified by all parties involved, RCEP will create a free trade zone covering approximately 30% of the world’s GDP, trade and population.

The world has already witnessed the growth of China from being termed as “The sleeping dragon” to China actually coming head to head with USA in economic trade wars. RCEP being backed majorly by China is all set to dominate the world and increase its ever growing dominance for a variety of reasons, which have been elaborated below.

A major reason that explains the advantage that RCEP has over such economic fora is the fact that most of the world population is centred here. Not just population, but a majority of the worlds ‘young population’ is situated around these 15 nations (with exceptions of course) giving the fora a natural boost in increasing its workforce and moulding it in a desired way to increase the overall human resource efficiency.

Another important reason that makes RCEP a formidable force is the fact that most of the world’s manufacturing industries are situated in this region. From industries of specialised products such as processor chip manufacturing in Japan, South Korea and Taiwan to  garments and fabrics in countries like China, Bangladesh, Vietnam Cambodia, etc. RCEP has it all as and with an increasing human-power capacity, it allows the region of increasing their production capacity as well.

Being a manufacturer allows RCEP to control the direction of the trade flow and regulate it according to its own preference while saving costs. Member nations have a lot of raw materials, parts and components that move back and forth. And they’re often given final assembly, but they’re typically then shipped to the US or Europe. However, a lot of these high quality finished products are not consumed by other developing regions such as the Middle-East and the Subcontinent.

One of the reasons this doesn’t take place due to tariff and non-tariff based challenges. While they are geographically closer to than West, still the volume of trade, despite mutual interests, is far less trade in the region than it should be. This is where RCEP makes it more likely that firms will create supply chains in Asia, for Asia. As the agreement comes into force and becomes more meaningful for firms, it will accelerate over time utilising the economies of scale and being the end consumers for the goods that they produce.

Whenever we talk about trade, a significant edge that all these member states possess is great connectivity via ports. Interestingly, the out of the top 10 ports in the world, 9 are situated in RCEP member nations. This also solves the problem of transporting finished unfinished goods, as internal transportation of these goods between member states is also made easier as most of these countries have direct access to seas and oceans.

What’s interesting to note is that RCEP has marked implications politically too! How? For starters, it’s the first time that an agreement features Japan, South Korea and China on the same side,  sparking a new era of economic cooperation among these giants in the Asian economy. From having opposing views and publicly speaking against each other in various multilateral organisations, to coming together on a platform and hence mutually agreeing on terms & conditions to carry out trade and other economic activities, RCEP has actually become a bridge that has helped synchronize aims and ideologies of these Asian powerhouses.

In a post-COVID world where economies around the globe start healing, the importance of RCEP increases as the region is situated in a busy trade route, thereby making it necessary for them to be kept open. However, newer sources of economic growth are required as its clear that the path to recovery will be uneven.

In my opinion, having an Asian agreement with Asian powerhouse economies in it is really helpful. It’s helpful, not just for those economies, and not just for big multinationals, but also for smaller businesses, because you need to start that rebound in growth at the ground level. And it’s going to be challenging as Asia is really struggling especially post-COVID as most nations have a high population density and faced intense waves of the pandemic. Pushing for this economic recovery and further growing is going to be the first biggest obstacle and will test the effectiveness of RCEP and determine its future.

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