"We need to stay open and inclusive."
As anticipated, the Regional Comprehensive Economic Partnership, upon its signing on November 15, was instantly dubbed as the biggest economic bloc, bigger than the EU and NAFTA. It is seen to boost a hefty 26.2 percent of the world’s global output or 30 percent of the manufactured goods.
According to the Peterson Institute for International Economics, by 2030 it is estimated that the deal could increase global GDP by $186 billion. Although China, South Korea, and Japan are expected to benefit, which is positive for the rest of the countries in the Asia-Pacific region, RCEP surpassed EU which took decades to refine their trade mechanism while the much-ballyhooed NAFTA is now faltering because of the Trump administration’s hoot to “make America great again.”
Countries like the ASEAN all signed with optimism with the economic giants like China, Japan, South Korea, Australia and New Zealand around to saddle and make the concept a workable mechanism as envisioned by China’s “win-win” formula for economic growth.
China now stands as the principal architect of the economic bloc after the US suddenly abandoned the TPP much that Trump’s “America First” was existentially incompatible to multilateralism. RCEP was conceived by ASEAN on November 11, 2011 and gained momentum after China substituted the US plan to organize a counterweight against its increasing economic influence in Asia.
RCEP opted for an open access to regionalism to enable the participation of the ASEAN free trade agreement partners. This meant that membership with RCEP is not confined to a select few. Such a model of integration has the advantage of being more robust by the inclusion of a large number of countries.
All the participants, except India, withdrew. China took the cudgels to serve as RCEP’s dynamo to be complimented by its Belt and Road Initiative. The BRI could serve as a terminal and central hub to provide access to members to trade goods to Central Asia, the Persian Gulf, Mediterranean, Europe, and onward to Africa.
As one economist would put it, the BRI is a solution to prevent the portentous cycle of economic bust to positively turn the result to a world-wide leveling in the supply chain from East to West.
Comparatively speaking, the ASEAN has a population of 654,306 million, a GDP of $3,173,141 trillion and an average per capita income of $12,921. On the other hand, the EU has 27 members with a GDP of $18,292 trillion and a per capita income of $35,623 as of 2019. If China, Japan and South Korea are added, the trade disparity between the ASEAN and EU would be greatly reduced.
In 2018, China already stood as the No. 2 economy in the world exporting $2.49 trillion worth of goods while importing $2.13 trillion. Japan accumulated a total of $713 billion making it the number 4 exporter in the world, and South Korea exported a total of $617 billion, making it number 5.
Free trade among the RCEP members makes multilateralism a reality. The agreement could hasten the integration of the economies in Asia-Pacific which for decades failed to put in place the finer points in their trade differences. The APEC has been reduced to a regular gathering of member-states to make a vague declaration on the agenda vital to the interest of the US with some countries taken in as freeloaders.
The same can be said of NAFTA. Differences among the three biggest trading partners continue to haunt the members until President Trump was elected to say NAFTA is not working to secure American economic interest.
India gave its reason to back out stating the proposed organization “failed to address its core concerns.” Indian industry feared it could reduce customs duty to flood its imports, especially from China which has a massive trade deficit.” In 2019-20, India’s trade deficit fell to US48.66 billion on account of declining imports from the neighboring country. Exports to China in the last financial year stood at $16.6 billion, while imports aggregated at $65.26 billion. The trade deficit between the countries was at $53.56 billion in 2018-19 and $63 billion in 2017-18.
The border dispute with China highlighted the trade deficit. Some suggest India should have accelerated imports from other RCEP members, taking advantage of the privilege of free trade. Prior to the flare up, India’s trade deficit with China was at $13.1 billion. Politics shrunk this to $5.8 billion but at a cost to the consumers.
Moreover, the economies of its neighbors have already been preoccupied by the expanding market of ASEAN, China, South Korea and Japan notwithstanding the declining value of India’s exports which is not sufficient to offset their burgeoning trade deficit.
Maybe keeping India a member of RCEP to enjoy a win-win formula while diversifying exports could have been a better formula than by isolating itself from the rest including the opportunity in store by China for it to participate in the great trade caravan.
In his video speech to the members of APEC last November 20, China’s President Xi Jinping outlined four objectives for RCEP.
First, the need to stay open and inclusive. Pursuing cooperation as equals and resolving differences with mutual respect is what makes economic development and prosperity in the Asia-Pacific possible.
Second, the need to pursue innovation-driven growth. RCEP need to improve economic governance and foster an open, fair, equitable and non-discriminatory environment for businesses.
Third, the need to enhance connectivity. RCEP needs to pursue greater complementarity among the development plans and connectivity initiatives of different parties to forge a bigger synergy.
Fourth, the need to promote mutually beneficial cooperation. Our economic cooperation has never been a zero-sum political game in which one gains at the expense of the other.
As usual, Trump loudly talked of trade deficit but avoided mentioning the root cause that made China and Mexico attractive to labour cost and investment. Instead it opted to slap Mexico and Canada with restrictive tariffs to wrongly deliver a knockout punch to US importers and consumers. The same can be said of the EU; the UK is demanding access to fisheries right in the North Sea which the bloc opposes.
To conclude, the fluid characteristic of the economic bloc is caused by the failure of some members to reconcile the truth about the meaning of national interest, that each are sovereign states seeking to impose inflexible values to its citizens. For instance, the original concept of free trade as far as the major powers are concerned is based on the old English adage of primus inter pares, or “first among equals.” Trump insists in treating its partners as equal but the US gets the first and biggest share, which is totally different from President Xi’s vision of humanity’s shared future or nobody should be left behind.
Even if economists cite some disadvantages of free trade, political scientists have yet to squarely resolve them. Stereotype Marxists as usual point to scarcity of capital as the root cause of underdevelopment viz. poverty among nations. But capital today has taken a different dimension and purpose. Capital cannot only be controlled but can be manipulated to suit our purpose and interest.
Admittedly, economic development is an inexorable event in human history. There is no way we can do without cooperation just as connectivity and integration are essential preconditions to development. Agreement to engage in multilateralism is the best document we can bequeath that finally man has reconciled that peaceful economic intercourse is the best guarantee to our future. Hopefully, RCEP will succeed in elevating to a higher platform the level of cooperation forgetting the antiquated “me first” policy of the past.
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