- An opportunity for South and East Asia?
Figures 1 and 2 clearly show how, even before signing the RCEP, its members were doing well in terms of trade and made up nearly one-third of the world’s population (2.1 billion people) and accounted for 29% of global domestic production.
| Composition of RCEP | ||
| Category | Chapter | Topic |
| Initial provisions | 1 | Initial provisions and general definitions |
| Trade in goods | 2 | Trade in goods |
| 3 | Rules of origin | |
| 4 | Customs procedure and trade facilitation | |
| 5 | Sanitary and phytosanitary measures | |
| 6 | Standards, technical regulations, and conformity assessment procedures | |
| 7 | Trade remedies | |
| Trade in services | 8 | Trade in services |
| Movement of persons | 9 | Temporary movement of natural persons |
| Investment | 10 | Investment |
| Business environment | 11 | Intellectual property |
| 12 | Electronic commerce | |
| 13 | Competition | |
| 14 | Small and medium enterprises (SMEs) | |
| 15 | Economic and technical co-operation | |
| 16 | Government procurement | |
| General provisions and dispute settlement | 17 | General provisions and exceptions |
| 18 | Institutional provisions | |
| 19 | Dispute settlement | |
| 20 | Final provisions |
- Consolidated rule book for trade in all 15 member states
- Unique certificate of origin: As of today, each regional FTA has its own rules of origin. However, under the RCEP, an introduction of a unique certificate of origin among the signatories will allow originating goods from one member state, used as material in the production of a new product in another member state, to be considered as originating in the second member state. Generally, the cost of rules of origin ranges between 1.4% and 5.9% of the export transaction amounts. The common rule of origin could reduce export costs, thereby boosting merchandise exports among signatories by around $ 90 billion on average annually (4% of 2019 intra-zone merchandise trade and 0.5% of global merchandise trade), as shown in Figure 3.
Winners and losers in the global trade war
Trade is meant to create a win-win situation, but a global trade war produces winners, losers, and naturally, there are no exceptions for trade agreements. So who will be the best loser when the RCEP works fully? The answer might be India and the US. India was also part of the initial negotiations, but it pulled out later over concerns that lower tariffs could hurt local producers.
The question is, has India detected the early warning signals? It is only time that will prove it. However, a section of Indian industries expressed their reservations about not joining the pact and felt that being part of the RCEP would have allowed the country to enter a huge market. Some industries like pharmaceuticals, cotton yarn, and services were confident of making substantial gains through the RCEP.
The Association of Southeast Asian Nations (ASEAN) has been the fifth largest trade bloc for India. According to The Economic Times of India, the Central Government has set a very ambitious target of $ 300 billion by 2025 for trade with ASEAN economies. One of the main challenges posed for India is, when ASEAN countries join the RCEP with the inclusion of China, which is known as the “World Factory”, will their buyers continue to purchase from India?
Conversely, can China grab sizeable market share from India? It all now depends on the level of activation of the RCEP and India’s product offering which includes the measures taken to reduce the cost of the transaction to ASEAN countries through already signed trade agreements.
Certainly, India’s dream of reaching its $ 1 trillion export target for 2025 will be a formidable challenge. India is eying for early-harvest agreements with a number of countries such as the UK, Australia, Israel, and Canada. Their recent overture to the EU to resume once-stalled trade negotiations with the EU in 2016 could also be best explained in light of the new challenges. Despite these options, India can still consider joining the RCEP later as a signatory of the deal, so the door remains open for India to join in the future.
Distribution of total US exports in 2019
The RCEP marks another unusual happening in the history of trade. That is the absence of the US from two major trade blocs of the world such as the RCEP and the TPP. However, distribution of total U exports show that the US exported a sizeable amount of goods (22%) to RCEP countries before signing the RCEP. Can the US continue this volume once the RCEP was made operational?
If India and the US are serious about posing a challenge to CChina, which is now on a clear-cut course of action to further consolidate the winning path, a review of their decision to withdraw from major trade deals may be a necessity.
It’s good to remember the famous quote of Indian teacher, philosopher, and economist Chanakya (350-275 BCE): “Learn from the mistakes of others. You can’t live long enough to make them all yourselves.”
How does the B&R initiative help China’s economic and political goals?
The Belt and Road Initiative (B&R initiative) works in many ways to help China’s economic and political aspirations. Some of the notable features are switching development from the eastern coast to western parts of the country, which contributed only 7.8% of China’s total foreign trade by value in 2015; protecting China’s growing energy demand through the smooth supply of crude oil mostly flowing from the Middle East through maritime connectivity; addressing the issue of over capacity of production; internationalisation of the renminbi (RMB); protecting geo-strategic interest in the Indian and Pacific Oceans, etc.
China often says the B&R initiative has its roots in five principles of peaceful co-existence signed by India and China in 1954, positions of which, however, can be debated due to the alleged military action of China in the border conflict in 1962.
Under the B&R initiative, China managed to expand bilateral swap programmes with 21 countries, RMB banks in eight countries, extended institutional investor quotas in seven countries, and RMB trade settlements exceeded 25% in 2016.
To be continued.
(The writer holds an MBA – UK, EDBA – Sri Lanka, PGDA – UK, and Diploma in Credit Management – Sri Lanka, and is a scholar, writer, and speaker on trade agreements. He presently serves at the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) in the capacity of Secretary General and Chief Executive Officer. He can be contacted on ajithspeak@gmail.com)