Pacific Mega Trade Deals: RCEP, CPTPP, and China
Updated: Jan 15, 2021
After close to a decade of negotiations, a breakthrough for regional cooperation took place on November 15, 2020, in the shape of 15 countries from the Asia-Pacific region signing what could possibly be the biggest free-trade deal in history. As such, the Regional Comprehensive Economic Partnership’s (RCEP) economic effects will likely be accompanied by major long term strategic and geopolitical implications, both for its members and beyond. In this sense, it has become the second major multilateral free trade agreement signed in the Trump era, after the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). For China, however, the significance of each of these deals differs, as does their potential.
The CPTPP evolved from the original Trans-Pacific Partnership (TPP), which never entered into force due to the withdrawal of the US in 2017. The remaining states negotiated a new deal that incorporated a large percentage of the original TPP provisions and entered into force in 2018, with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam as signatories (Rana and Ji, 2019). The negotiations for the CPTPP’s predecessor began in 2015, making them about three times as quick as those of the RCEP. However, the RCEP, with the 10 ASEAN States as well as Australia, China, Japan, New Zealand, and South Korea as members, accounts for 30% of global GDP, over double that of the CPTPP (Cali, 2020). The RCEP may be broader, but it does not go as deep as the CPTPP in areas such as tariff elimination or environmental protection, or when it comes to providing a thoroughly comprehensive coverage of trade in goods and services (Wong, 2018).
The two agreements are not mutually exclusive. In fact, seven CPTPP members have also undertaken membership in the RCEP. However, China is not among those who are benefitting from both trade deals. Chinese participation in the original US-led TPP was always a long shot, especially since part of the vision behind the original proposal was to gain enough clout to balance out China’s trade network in the Pacific (Hufbauer et al., 2020). The Asian giant would have had to transform its economy to meet a series of conditions at a speed much swifter than its preferred gradual economic reform style in order to be able to join. However, when the US stepped away from the TPP, it opened the possibility of a Chinese membership under renegotiated terms, and it seems that this has emboldened China who, through the conditions included in the RCEP, is closer to meeting the terms for joining the CPTPP than ever before. In fact, President Xi Jinping mentioned at a recent APEC summit that China would “consider favorably” the possibility of joining the CPTPP (Global Times, 2020).
The significance of the RCEP for China goes further than expediting their potential membership of the CPTPP. China’s remarkable economic growth during the last decades has yet to be matched by a proportionate increase in the Asian giant’s ability to set the regional rules when it comes to areas such as trade. Despite geographical distance, the US has enjoyed for many years the privileges resulting from its position as “top dog” in terms of both economic weight and institutional power (Rowley, 2020). However, the entry into force of the RCEP could mark the start of a significant change in this sense. Moreover, the RCEP aligns with various core principles of China’s dual circulation model which, in the wake of the trade war with the US, aims to reduce Chinese dependency on overseas markets by boosting internal circulation and diversifying its participation in global markets. By lowering the cost and the complexity of cross-border trade, the RCEP will enable Chinese companies to optimize the distribution of their resources between the domestic market and the rest of the region, as well as boosting China’s position as a destination for regional exports, which will foster further increases in domestic consumption as well as balancing trade dynamics within the pact by offsetting the sheer amount of exports leaving the People’s Republic (Huiyao, 2020). Furthermore, China has chosen to implement the agreed-upon tariff repeals by mixing immediate tariff removals with longer phase-out periods that last over a decade, which allows it to shield growing sectors from international competition (Gakuto, 2020).
The meaning of membership in both the CPTPP and the RCEP for China is also influenced by the states with whom it shares the status of member, as well as by those who have opted to remain outside of the deal. The RCEP also provides the first precedent