RCEP: Between geopolitics and geo-economics
With RCEP coming into play on January 1, the divergences that started way back in 2013 will reach a tipping point
The Regional Comprehensive Economic Partnership, negotiations for which began in 2013, will come into force this Saturday, January 1, 2022.
The RCEP ratification process mandated that at least six countries in the Association of Southeast Asian Nations and three ASEAN dialogue partners needed to ratify it. Despite being signed in November 2020, only Thailand, Singapore, Cambodia, Brunei, China and Japan had ratified the RCEP by November 2021. Subsequently, Australia and New Zealand ratified it on November 2 and 3 respectively, paving the way for the deal to enter force from January onward.
The deal comes into force in a specific historical context. While there is consolidation of Chinese economic engagement across the East Asian region, there are also growing gray-zone violations by Beijing around the Senkaku Islands and Taiwan and in the South China Sea. RCEP therefore showcases the divergences among regional economic frameworks and geopolitical trends.
The RCEP negotiations started at a time when there were numerous shifts in the international order. In the economic realm, China overtook Japan as a second-largest economy in 2011, while in the geopolitical domain, there were significant concerns regarding China’s territorial assertions and its activities in the South China Sea.
In July 2016, the arbitral tribunal at the Permanent Court of Arbitration on the South China Sea affirmed that China’s rights to the resources in that body of water were “superseded by the limits of the maritime zones provided for” by the United Nations Convention on the Law of the Sea.
The Trans-Pacific Partnership (TPP) was signed in February 2016, and it was anticipated that the pact might result in constrained economic space for China. However, there was a dramatic turnaround in US foreign policy under then-president Donald Trump as Washington formally withdrew from the TPP soon after he assumed office.
Trump’s decision to quit the TPP was disconcerting for many, including in the US itself. Six US ambassadors in the region wrote an open letter to Congress in 2017 asking it to support the TPP.
China, on the other hand, sensed an opportunity to scale up its economic engagement in East Asia after the US withdrew from the TPP and amid growing friction in Beijing’s relations with Washington. The other economies in the region were also troubled by the erratic US policies under Trump.
Against this backdrop, the first RCEP summit was held in Manila in November 2017. India was part of the negotiations until November 2019 but opted out of signing the agreement over concerns about non-tariff barriers, absence of strict rules of origin, and lack of access for India’s services sector.
Since the advent of Covid-19, there has been a fundamental shift in Beijing’s economic and security outlook. Wolf Warrior diplomacy has come to the fore, and there are also concerns regarding excessive reliance on China-based supply chains.
China’s relations with countries in the region have also witnessed increased friction. Moreover, China has sought to use coercive economic diplomacy for political gains, which has altered perceptions for countries participating in multilateral frameworks with Beijing as a dominant partner.
Despite RCEP, concerns about deeper economic engagement with China persist. Even though Tokyo ratified RCEP in June this year, it strove to provide incentives for Japanese companies to shift production out of China. In South Korea, there is a growing anti-China sentiment and public unease around Chinese activities.
Australia’s relationship with China has also been rocky at best in recent years. In the midst of hostile rhetoric from Beijing, Canberra signed a trilateral security pact with the United States and the United Kingdom (AUKUS) in September.
Given the growing security concerns, there was a possibility that RCEP might have been delayed if the member countries held off on ratification. Washington’s role on the issue – whether it tried to persuade allies not to ratify the RCEP – is unclear.
It appears many RCEP member countries assumed that it is possible to carry forward economic relations with China and also create geopolitical frameworks to contain China. However, geopolitics and economic architectures cannot be decoupled, and nation-states must look squarely at geopolitical challenges, and the likelihood that economic architectures can be used for political benefits.
More recently, China has also applied for membership to the remodeled Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). There is speculation as to whether China will be able to meet the stringent standards pertaining to state-owned enterprises and industrial subsidies.
However, China’s candidature may receive favorable consideration if a set of countries are willing to repeat the familiar argument that China should be allowed inside the tent. As the experience with the World Trade Organization demonstrates, once allowed in, China may not always adhere to the rules of the game, in letter or in spirit.
There are arguments being made in favor of the US also joining the CPTPP. Last month when quizzed about possible US participation in the CPTPP, US Trade Representative Katherine Tai said “neither yes or no.” Given the domestic political dynamics, signing up for the CPTPP and getting it ratified in the Congress would be a challenge.
More recently, US officials have referred to an “Indo-Pacific economic framework” without providing details. Given the recent dissonance in US politics, translating intent into policy will take a considerable amount of time.
With RCEP coming into play in the new year, the process of divergence among emerging economic architectures and geopolitics that started way back in 2013 will reach a tipping point.
Beijing will attempt to consolidate its economic inroads in the larger East Asian region under the rubric of the RCEP. However, the Chinese economy has been facing numerous challenges, including concerns about lower growth rates. The Evergrande debt crisis has exposed deep and structural challenges that plague the Chinese economy.
RCEP will provide China with greater space to address its domestic economic issues. On the other hand, the dependencies created by RCEP will ensure that domestic economic crises in China will also be felt in RCEP member countries, with greater intensity in the long term.
The views expressed here are personal.