The new RCEP agreement between Asia-Pacific countries seen as a wake-up call in Europe

In this analysis, Maximiliaan van Lange discusses the recent Regional Comprehensive Economic Partnership (RCEP) free trade agreement, and Europe’s reaction.

The European Union and the United States should see the new Asia-Pacific trade pact - The Regional Comprehensive Economic Partnership (RCEP) as a “wake-up call” for joint action against the growing influence of China, according to the leader of Europe’s largest political force, the European People’s Party (EPP). The EPP leader in the European Parliament, Manfred Weber, warned Beijing can expect further restrictive measures if a comprehensive investment treaty was not agreed with the EU by the end of this year.

“If we look at the new China Pacific trade agreement, the RCEP, Europe and the US should see this as a wake-up call to join forces,” he told the South China Morning Post. “We need a reunification of the so-called Western world, now with Joe Biden as a constructive partner, to face this challenge of China. It’s the key question for the upcoming decade,” he said.

The Regional Comprehensive Economic Partnership (RCEP) was signed by China and 14 countries in the Asia-Pacific region, including Japan and Australia, just days after Biden won the US presidential election. The pact creates the world’s biggest free-trade area and weakens US influence in the region.

The EU hopes that the victory of Joe Biden in the recent presidential election in the United States, will open a new chapter in transatlantic relations. This will also offer the prospect of the EU and the US jointly standing up to China on a number of issues including in challenging Beijing’s lack of commitment to market access for foreign businesses, an issue that has confounded EU-China relations for a long time.

In his comments to the South China Morning Post Weber highlighted the combined economic might of the EU and the US.

“Together, the EU and the US account for 50 per cent of the world’s GDP,” Weber said. “I wouldn’t give a green light to all concrete steps taken by Donald Trump, but the general approach – to be tough; to use the economic power of the US; and to make clear to the Communist Party in China that things are changing and that we cannot do it like in the last three decades – that was absolutely right. “I speculate Joe Biden will not change the general approach on content towards China,” he added.

Apart from working with the US, Weber said it would also be necessary for Europe to build better trade defence mechanisms as it confronts China’s trade practices. He said the EU’s multi-billion-euro budget for member states should not go into the hands of Chinese state-owned enterprises in areas such as construction or critical infrastructure.

“The EU-China trade relationship is full of conflict – 65 per cent of all trade defence measures from the EU are currently linked to China,” Weber said. This gives you an idea that China is our biggest problem in the EU’s goal to have fair and normal trade relationships.” The EU has continued to report a lack of progress from Chinese negotiators as the deadline looms to reach an investment agreement by the end of December. Should China fail to deliver concrete promises, Weber said the EU should consider barring Chinese companies from bidding for the EU’s lucrative public procurement sector, which accounts for 14 per cent of the bloc’s GDP.

“China must understand that these ongoing talks are crucial as they give us an idea whether China is ready to follow this partnership approach or not,” Weber said.

“It is, in a way, a symbol of whether China is ready to go a step in our direction or whether they continue their aggressive diplomacy in Europe on issues like Taiwan or the situation in Xinjiang. If we don’t see progress, things will get worse.”


RCEP is the biggest trade bloc in history

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam. The 15 member countries account for about 30% of the world's population (2.2 billion people) and 30% of global GDP ($26.2 trillion) as of 2020, making it the biggest trade bloc in history. It was signed at the Vietnam–hosted virtual ASEAN Summit on 15 November 2020, and will take effect within two years, after it has been ratified by the member countries.

It is expected to eliminate about 90% of the tariffs on imports between its signatories within 20 years of coming into force, and establish common rules for e-commerce, trade, and intellectual property. The RCEP is the first free trade agreement between China, Japan, and South Korea, three of the four largest economies in Asia.

The agreement has been under negotiation since 2011and at some point, it was expected that India would also join. However, India pulled out of the deal in November 2019, primarily due to concerns of dumping of manufactured goods from China and agricultural and dairy products from Australia and New Zealand, potentially affecting its own domestic industrial and farming sectors.

The agreement is intended to reduce tariffs and red tape. It includes unified rules of origin throughout the bloc, which may facilitate international supply chains and trade within the region. It also prohibits certain tariffs.

The RCEP is not as comprehensive as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, another free trade agreement in the region that includes some of the same countries. The RCEP does not establish unified standards on labour and the environment, or commit countries to open services and other vulnerable areas of their economies.

A number of experts expressed the view that the deal is more symbolic than substantive. However, given the current circumstances, it highlights both China’s power and the waning American influence in the Asia-Pacific region, noting that even US treaty allies like Japan, South Korea and Australia were happy to strike a bargain with China in the absence of an alternative.

For the European Union the RCEP is a reminder of the difficulty Europe faced in the last years in its dealings with the United States, and the urgency of strengthening the transatlantic relationship once Joe Biden is installed in the Whitehouse. China has simply become too big to be tackled by either the EU and the US on their own. A broader front is now necessary.

Source: Maximiliaan van Lange is Research Associate at commonspace.eu