While the world is focused on the ups and downs of the China-US trade war, China is working hard on finalizing a regional trade deal by the end of 2019 which includes 16 countries and excludes the US.
The Regional Comprehensive Economic Partnership (RCEP) involves the 10 APAC nations, Indonesia, Thailand, Malaysia, Singapore, the Philippines, Vietnam, Myanmar, Cambodia, Brunei and Laos. Other partners include China, Japan, South Korea, Australia, New Zealand and India. Negotiations formally began in November 2012 at the ASEAN Summit in Cambodia.
China as Regional Leader
China is pushing for the RECEP as a response to the Trans-Pacific Partnership (TPP) which President Trump rejected on taking office in January 2017. The plan focused on cutting tariffs and improving market access for services and investment across member countries.
The most recent talks were held in Beijing in July at the same time US-China negotiations were taking place in Shanghai. The deal is obviously more important to China in mitigating the impact of US tariffs and opening markets across Asia with less opposition to Chinese trade.
RCEP Potential Impact
Beyond China, the RECP agreement is important for several reasons. The 16 potential member countries make up 45% of the world’s population (3.4 billion people), contribute close to 40% of global GDP and comprise 30% of inter-country trade. According to estimates by PWC, the GDP of RCEP member states should reach $250 trillion by 2050, which would be more than half of global GDP.
In the first half of 2019, China’s trade with Asean countries was $292 billion, second only to their supply chain management software with the European Union. Trade volumes are also growing as China extends their reach into consumer markets in the region.
Unlike the US, which has the power to push back, many of the Asean countries are heavily dependent on China as a trading partner. China also has political leverage in many of these countries through investments, loans and agreements.
Like the RCEP, China’s Belt and Road Initiative (BRI), an ambitious plan to build infrastructure and trade through Eurasia and elsewhere, is also facing increasing concerns over the amount of influence China will have in the region and globally.
No question, the RCEP agreement faces challenges – for one India is opposed to opening its domestic markets to tariff free goods and services. Criticism of the RCEP is also around the impact on land ownership, environmental and human rights issues. Human rights and environmental groups are concerned that the RCEP will give multinational companies and lobbying interests wider legal rights which pose a threat to the less developed countries covered in the RCEP agreement. There are also concerns over potential monopolies on medicines that would make cheaper medicines unavailable in developing countries.
Given the ongoing ups and downs of the trade war, we can expect China to keep pushing for an agreement. All these issues and more are covered in the most recent Q3 2019 Sourcing Report. To learn more about how to address some of these issues with the CBX platform, feel free to contact us directly.