The Regional Comprehensive Economic Partnership (RCEP): Another Step Towards a Chinese Regional Order?
November 2020 saw leaders and diplomats from fifteen states across the Asia-Pacific region take part in one of the most geopolitically-significant video conference calls of the Covid-19 era so far.
Ten member-states from the Association of Southeast Asian Nations (ASEAN), alongside China, Japan, South Korea, Australia and New Zealand, officially signed the Regional Comprehensive Economic Partnership (RCEP) trade agreement after eight years of negotiations fraught with complexity and division. RCEP is substantial in both scale and significance; its signatories cover almost a third of global GDP, and it is the first multilateral agreement of this kind to include the People’s Republic of China.
The long-term consequences of RCEP for the region remain unclear and ratification is still required by the signatories. Yet, the signing must be regarded as a landmark moment in the region’s ever-changing political economy, and a geopolitical success for a rising China.
Solving East Asia’s ‘noodle-bowl’ Problem
The history of trade relations in the Asia-Pacific region, although inherently complex, can be broadly categorised into three periods; regionalisation, bilateralisation, and multilateralisation.
Little more needs to be said about the miraculous emergence of the region’s economy from the ruins of the Second World War. In the shadow of violent conflict, political turmoil, and the Cold War, many of the region’s economies transitioned from impoverishment into major economic powers and global manufacturing hubs. This ‘East Asian Miracle’ drove an unprecedented expansion in regional trade from the 1960s onwards (Stiglitz, 1996). Academics widely use the concept of ‘regionalization’ to explain post-War Asian trade dynamics. Regionalization refers to an increasing complexity of trade, deeply concentrated in one geographical region. It is driven largely by private actors seeking new markets and more efficient supply chains, which leads to rapid increases in the flow of goods, services and capital between the region’s economies (Kim, 2015). A key characteristic of East Asian regionalization has been the ‘unbundling’ of trade, in which the manufacturing process is dispersed across economies at different levels in the value chain. (Kim, 2015, p. 137). This process has enabled substantial growth, while simultaneously creating a highly complex network of trade links and production systems.
The turn of the century saw the region not only having to deal with this complexity, but also with the fallout from the Asian Financial Crisis. In response, a decade of ‘bilateralisation’ ensued. This period saw a host of states agree new trade agreements to manage their trade relations; between 2000 and 2014, at least twenty bilateral agreements were signed between southeast Asian governments (Wilson, 2015). Meanwhile, ASEAN became increasingly active as a unified actor, signing numerous agreements with external nations during this period.
While these agreements all sought to simplify trade networks between two economies, or between the ASEAN member-states and external economies, each had differences in their legal construction and tariff structures. The result has been named the ‘noodle-bowl problem’ by scholars; a combination of complex production networks and a range of bilateral agreements has created a tangled web of trade – the noodle-bowl – that in many cases increases bureaucracy (Wilson, 2015).
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It is in this context that Asia’s era of multilateralization has begun, in which all of the region’s major economic players have engaged in negotiations to create vast trading agreements that encapsulate these complexities. RCEP is one significant example of this. Research suggests that with successful implementation, RCEP will simplify regional trade and contribute significantly to decoupling China and other major regional economies from US markets in the midst of ongoing trade tension. This is the economic basis on which RCEP has been pursued.
The Geopolitics of Multilateral Trade Agreements
While at face value these mega-agreements appear to be driven by economic incentives, a proper understanding of RCEP and its implications must also be geopolitical.
Recent years have seen two multilateral attempts to detangle the ‘noodle-bowl’. The Trans-Pacific Partnership (TPP) had been a US-led attempt to create a massive free-trade bloc that would reach deeply into the economies of every signatory. Negotiations were concluded, the deal was signed: and then the US left. This unilateral shift in trade policy by the very state that had helped to construct Asia’s complex trade networks sent shockwaves through the region. An alternative without the US has been reborn, but undoubtedly lacks weight with the removal of a key member.
Whether the TPP was fair in the eyes of the Trump administration or not, it must be noted that China played no part in the agreement. China’s exclusion from the negotiations had been a key pillar of President Obama’s geopolitical strategy, labelled the ‘Asia Pivot’, which sought to further align key Asian economies with American economic values, institutions and standards. Many regarded this pivot as a bid to limit the growing extent to which China could leverage its economic might as a geopolitical tool.
Beijing’s response displayed a clear and opportunistic desire to act as a regional leader. Chinese officials pioneered negotiations for RCEP, presenting the agreement as a direct alternative to the TPP. Critics note RCEP’s lack of deep and binding clauses, minimal regulatory alignment and weak provisions on labour standards, presenting it as merely a watered-down and ineffective version of TPP. Certainly, there is little consensus on the true economic benefits that RCEP will bring. These criticisms, therefore, are legitimate on a purely economistic basis, and yet completely miss the driving force of RCEP: to present an alternative to the American regional order. Chinese trade policy does not follow the principles of ‘Western’ agreements; it actively avoids interventionism or alignment on regulations or standards that could be used to target its own competitive advantage, relying instead on physical and material incentives (Wilson, 2015). RCEP fits closely into this structure, and is only one project of many being led by Beijing that construct a non-American economic framework through which to operate. The Belt and Road Initiative, Asian Infrastructure Investment Bank or Chiang Mai agreements are just a few notable examples.
This presents an unprecedented situation in post-War Asian history. While major economies like Japan and South Korea have emerged rapidly, they did so as integral members of the US liberal order. China is an outlier, and US policymakers increasingly admit that attempts to encourage China’s integration have largely failed. This new paradigm in Asia can be best described, according to famed scholar G. John Ikenberry, as a ‘dual hierarchy’: the region’s economy is increasingly ordered and driven by China, while the US continues to provide for the region’s security through defence agreements with Japan, South Korea and Taiwan (Ikenberry, 2016). This has been driven by China’s staggering economic rise, which has seen it quickly overtake the US as the region’s major trading partner.
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The signing of RCEP represents a clear indication of China’s ascent to the top of the economic hierarchy. Geopolitical tension will continue under this ‘dual hierarchy’ structure, particularly if China becomes a more active regional leader and the US decides to further its retrenchment and retreat. The signing of RCEP represents a key moment in regional geopolitics, even if its economic impact proves limited. It displays an increased proclivity for key Asian states to tolerate closer economic and institutional ties with China, while continuing to accept the American regional security order. Whether this paradigm is sustainable or secure will depend on how both superpowers react. What is clear, however, is that Beijing’s ability to shape its region is growing.
Sources and Further Reading:
https://asean.org/asean-hits-historic-milestone-signing-rcep/
https://www.brookings.edu/blog/order-from-chaos/2020/11/16/rcep-a-new-trade-agreement-that-will-shape-global-economics-and-politics/
Ikenberry, G.J., 2016. Between the eagle and the dragon: America, China, and middle state strategies in East Asia. Political Science Quarterly, 131(1), pp.9-43.
Kim, S.Y., 2015. Regionalisation in search of regionalism: production networks and deep integration commitments in Asia’s PTAs. Trade cooperation: the purpose, design and effects of preferential trade agreements, pp.134-164.
Stiglitz, J.E., 1996. Some lessons from the East Asian miracle. The world Bank research observer, 11(2), pp.151-177.
Wilson, J.D., 2015. Mega-regional trade deals in the Asia-Pacific: Choosing between the TPP and RCEP?. Journal of Contemporary Asia, 45(2), pp.345-353.
