AS the fate of the Trans-Pacific Partnership (TPP) agreement has become more uncertain, the other gigantic multilateral free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), has come into the limelight. Both TPP and RCEP are catalysts for a more deepening of the process of integration and open regionalism in the bigger context of a Free Trade Area in Asia-Pacific (FTAAP).
Like TPP, the market potential of RCEP — comprising 10 members of the Association of Southeast Asian Nations (Asean) plus six (China, India, South Korea, Japan, Australia, and New Zealand) — is enormous.
With a combination of a more than three billion population, which accounts for almost half the world’s population, an accumulative gross domestic product of US$21 trillion (RM92 trillion), and a total of 40 per cent contribution to global trade, RCEP will become a major force in shaping the process of globalisation in both trade and investment once we know for certain that TPP has ceased to exist.
Unless and until the United States, under the new leadership of Donald Trump, submits the letter of intent to withdraw from the pact, which is in line with Chapter 30 of the TPP agreement, it is premature to proclaim the demise of TPP now.
Since the Nov 8 US presidential election, Trump has made many U-turns on major issues during the election campaign, such as on climate change, Hillary Clinton’s scandal, deportation of immigrants, Obamacare and the North American Free Trade Agreement (Nafta). Who knows, come Jan 20, he will flip-flop on his stance on TPP as well after being briefed by his new economic team in the Oval Office.
Perhaps Trump or his new economic team has yet to crunch the details and specifics, especially on the benefits of TPP to the US and also the rest of the world? Regardless, what is clear is that the other 11 TPP signatory countries, Malaysia included, are committed to the deal.
For the sake of argument, even though TPP, in its present form, might be finished as a result of the US pulling out from the pact, it can still evolve and transpose into a different form which will give a new impetus for greater economic integration in the framework of FTAAP.
While we have to wait and see what transpires on TPP, RCEP, on the other hand, has filled the vacuum in the public discourse on free trade arrangement. It has gained a fresh momentum to be finalised sooner rather than later.
At the recent Asia-Pacific Economic Cooperation CEO Summit in Lima, Peru, Chinese President Xi Jinping, in his keynote speech, gave a strong signal that China will play a greater role in ensuring an open economy in the region through RCEP.
RCEP began in 2012, with basically an expansion of Australia’s FTAs with the 10 Asean member countries together with New Zealand, or AANZFTA. Today, China, India, South Korea and Japan have joined the pact, which is seen as one of the largest FTAs the world has ever seen since the Uruguay round.
The ongoing discussion on RCEP is based on its guiding principles and objectives (Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership), which had been agreed on the margins of the East Asia Summit in Phnom Penh, Cambodia, in November 2012.
RCEP covers aspects of trade both in goods and services, investment, technical cooperation, intellectual property, competition and dispute settlement. But unlike TPP, it does not go beyond issues that are deemed to be non-trade issues, such as in the aspect of labour, the environment and state-owned enterprises.
TPP is geared towards rewriting “the rules of the game” in the global economic system, especially in these three aspects that RCEP does not cover. Hence, TPP appears to be more ambitious, controversial, and more political than trade, relatively and comparatively.
RCEP is also seen to be more systematic and flexible. It is systematic in the sense that it is developed from Asean FTAs with the other six countries, that is, from Asean + 1 to Asean + 6 to broaden and deepen the economic integration.
For instance, it is hoped that all the regulations, especially the Rules of Origin, can be harmonised and strengthened under RCEP which would eventually lead to a cost reduction in doing business and strengthen the regional production and supply network, which will ultimately improve integration and access to the global economy at large. Currently, Malaysia’s trade with RCEP countries accounts for more than 50 per cent of Malaysia’s overall international trade. Hence, greater prospects for Malaysia to improve both trade and investment linkages are seen under RCEP.
Essentially, I feel that the issue of TPP as US-led and RCEP as China-dominant, and that they are not mutually reinforcing, appear to be overly fantasised. The fact is pursuing RCEP is merely doing the status quo, with or without TPP. And, claiming that RCEP is dominated by China seems to be an exaggeration. No doubt China will play an important role under RCEP, but RCEP is also an Asean-centric pact. This is clearly manifested in the context of the Asean Economic Community (AEC), which was realised last year under Malaysia’s chairmanship.
RCEP, without a doubt, will reinforce the AEC agenda, such as making Asean fully integrated into a global economy and a single market base moving forward.
TPP may be dead. But that is not the end of the world. And, RCEP is not the beginning of China’s domination of the world either. Fundamentally, this is not a zero-sum game, but, as CNN’s political commentator, Fareed Zakaria, had once said, it is about the rise of the rest.
DR IRWAN SHAH ZAINAL ABIDIN,>/b> is a director of Asian Research Institute of Banking and Finance, Universiti Utara Malaysia