Politics

Pondering Anew RCEP’s Political Ramifications – The Diplomat


This piece is the third in a four-part series focused on RCEP’s economic and political implications.

The Regional Comprehensive Economic Partnership (RCEP) came into force on January 1, with 11 out of 15 signatories anticipated to finish ratification by February 1. China’s official media have already begun to tout the gains from RCEP, highlighting “a wave of initial deals” as Chinese companies exploit the new regime of lower or no tariffs and vanishing rules of origin (ROOs) barriers. In fact, there is widespread enthusiasm that RCEP, which, among other things reduces tariffs, minimizes ROOs barriers, opens service sectors, reduces paperwork burdens, and entails improved intellectual property rights protections, will have significant, positive outcomes for foreign direct investment (FDI) and trade. Moreover, RCEP may not only lay the ground for further trade and investment reforms, but also may expand with the addition of new members such as Hong Kong or India. As we have shown in two earlier pieces on FDI and trade, however, reality is likely to be far more complicated in terms of RCEP’s actual import for FDI and trade writ large, impact on individual RCEP members, and sectoral effects.

As with the cases of trade and FDI, there exists a conventional wisdom about RCEP’s political implications. Among other things, pundits have deemed RCEP a “geopolitical victory for China, since it helps the regional giant formalize and strengthen links with other countries,” putatively centers East Asian integration around China, and enhances China’s role in setting the rules of the economic game in the Asia-Pacific region. Furthermore, it has bolstered China’s soft power because Beijing acted in a collaborative and flexible fashion throughout the RCEP negotiating process and painted itself as a defender of globalization. RCEP further will buttress China’s attractiveness as an FDI destination and its importance in Asian supply chains, which, many presume, will, in turn, increase its political leverage and salience. To top this off, all of these dynamics are transpiring at a time when there are no signs whatsoever that the United States will put forth its own substantive alternative to RCEP after having withdrawn from the Trans-Pacific Partnership (TPP) in 2017. And, India, one of Asia’s economic heavyweights, backed away from signing RCEP due to concerns about the agreement’s potential adverse implications, thereby ensuring it cannot play a counterweight to China within RCEP.

Is RCEP really a “coup for China” as one large money-center bank portrayed it? Our position is that there are numerous shortcomings with the view that RCEP constitutes an incontrovertible geopolitical victory for China, much less a big win. 

First, as many thoughtful observers previously have pointed out, it was the Association of Southeast Asian Nations (ASEAN) that led the RCEP negotiating process and brought RCEP to fruition. Put differently, China is not likely to accrue leadership points as a result of the birth of RCEP and it seems a stretch to conclude that ASEAN and other Asia-Pacific states will make decisions purely on the basis of China’s supportive words about globalization rather than its deeds.  

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A second point is that, as our earlier pieces have shown, RCEP’s FDI and trade effects are not likely to be dramatic. Given this, it is hard to see what kind of notable “link strengthening” will occur.  Additionally, in light of current circumstances, it is hard to imagine notable link strengthening, assuming it occurs, transforming relations with China for either Japan or South Korea — the two RCEP member countries with which China’s link strengthening is most likely to occur given they and China have never previously had a trade pact. Nor will China significantly improve its political relationship with Vietnam, the Philippines, or Australia because of the ratification of the RCEP.  

A third shortcoming is the presumption that RCEP will empower China as a rule and standard setter. RCEP hardly ensconces new rules and standards and, in multiple respects, represents a validation of dominant neoliberal norms. Some would counter that RCEP solidifies the lower standard agreement terms China favors, but it is hard to argue that other RCEP signatories, generically speaking, heartily embrace high-standard accords and accept lower standards because of China.

There are several other noteworthy limitations to the conventional wisdom about RCEP’s political implications. To start, it overlooks the fact that RCEP will have myriad negative economic ramifications for some RCEP members or certain sectors in RCEP signatories. For example, trade deficits may increase; the commodity composition may shift in an undesirable direction; and there may be deindustrialization and FDI diversion. As we have shown elsewhere in our analyses of China’s economic relations with other countries, these negative effects may eliminate or dilute whatever positive political effects RCEP generates for China.

In addition, conventional wisdom seems to neglect the fact that RCEP exists amidst complicated surroundings. This challenging milieu includes territorial and maritime controversies such as the South China Sea dispute, flashpoints such as North Korea and Taiwan, political frictions relating to human rights, the securitization of supply chains and data flows, concerns about Chinese political influence in governments, universities and the media, and anxieties about the Belt and Road Initiative. RCEP members and countries in the larger Asia-Pacific region will make judgments about China based on these and other matters, not just RCEP. Furthermore, Tokyo, New Delhi, and Washington are not standing still, even if, at this point, they seem unable to advance their own substantive regional economic integration initiatives, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) notwithstanding.

Our analysis has various policy implications. First and foremost, the story is not over — capitals need to assess calmly RCEP’s effects. Turning to those fretting about RCEP’s presumed victory for China, they need to grasp the fact that there are many areas where they can blunt or eliminate the adverse political consequences of RCEP. For instance, they can increase their own economic ties with RCEP signatories or give special emphasis to countervailing political or security issues.

As for China, Beijing needs to avoid overconfidence. If it wants to maximize the political value of RCEP, it will need to ensure RCEP not only delivers economic benefits, but balanced economic benefits. Beijing further will need to be cognizant that its actions in the political and security spheres will influence the political gains that it accrues from RCEP.

Our discussion of RCEP’s political implications is germane for businesspeople, too. The political fluidity that we have highlighted means that companies will need to constantly monitor the situation in and beyond the RCEP region. It also suggests that there indeed may be possibilities for firms, if so inclined, to influence the political environment through their home governments, industry associations, or other mechanisms.

One recent editorial detailed RCEP’s coming into force as “Day One of a new economic and geopolitical reality in East Asia.” As this analysis and our two previous pieces in this series show, we do not see momentous changes in regard to the former and hardly take the latter as a given. We certainly do not believe RCEP is bereft of political implications or that China will gain nothing politically from RCEP.  Indeed, our main point is that the game is still somewhere in the first quarter and not the final minutes.

In the final piece in this series, we intend to examine the implications of RCEP for digital trade.



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