The Regional Comprehensive Economic Partnership: Status and Recent Developments

The Regional Comprehensive Economic Partnership: Status and Recent Developments

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INSIGHTi

The Regional Comprehensive Economic
Partnership: Status and Recent Developments
Updated November 19, 2020
The Regional Comprehensive Economic Partnership (RCEP) is a regional trade agreement between the
ten members of the Association of Southeast Asian Nations (ASEAN) and five of their individual FTA
partners—Australia, China, Japan, New Zealand, and South Korea. After eight years of challenging talks,
the agreement was signed on November 15, 2020, at the 4th RCEP Summit, hosted by Vietnam. Many
viewed RCEP’s signing as an achievement for the multilateral trading system, which faces myriad
challenges, including a global economic slowdown and rising protectionism and trade disputes. It also
follows the recent entry into force of “mega-regional” trade deals, including the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11), which includes seven RCEP
members (Figure 1). Although RCEP is generally less comprehensive than other agreements, including
TPP-11, its members constitute approximately 30% of global trade and GDP, giving it the potential to
restructure some trade patterns and supply chains in Asia through lower trade costs and streamlined rules.
As RCEP enters into force, Congress might consider how U.S. commercial interests could be affected by
an agreement that allows firms from other developed economies to make supply chains more efficient, as
well as the impact of the perceived diminishing U.S. role in shaping trade rules and economic integration
in the region and globally.
Figure 1. Asian Members of Regional Trade
History and Scope
Initiatives
RCEP negotiations began in 2012 to harmonize
and build on existing “ASEAN+1” FTAs with
regional partners. It is the world’s largest regional
trade agreement, covering about 30% of the
world’s population, trade, and GDP (Figure 2).
The agreement’s economic footprint was even
larger with the participation of India, an original
RCEP member before withdrawing in late 2019,
amid concerns about increased competition with
Chinese imports. It also marks the first trade
agreement among some of the major participating
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economies with China—notably, the first for Japan with both China and South Korea.
RCEP is comprised of 20 chapters covering trade in goods, services, investment, government
procurement, standards and technical regulations, intellectual property rights (IPR), and e-commerce,
among others. Several chapters are new to existing ASEAN FTAs.
RCEP has a complex tariff schedule and
Figure 2. Economic Indicators of Major Trade
summary details have not yet been released.
Deals in Asia
Estimates suggest overall elimination of 90% of
tariffs over 20 years, with broad carve outs for
agriculture in particular (e.g., Japan). For services
commitments, several members use a “positive
list” approach, with only listed sectors opened to
competition—but may transition to a negative list.
Some provisions go beyond existing ASEAN
FTAs, such as investment protections that
prohibit more extensive performance
requirements (e.g., technology transfer as a
condition of market access). Investor-state dispute
settlement (ISDS) provisions are not included, but
are to be reviewed within five years. In e-

commerce, members commit not to impose
Source: CRS based on World Bank, World Development
customs duties on electronic transmissions. There
Indicators.
are broad exceptions to provisions to prevent data
Notes: Seven overlapping members in TPP-11/RCEP.
localization requirements or cross-border data transfers, and this chapter, like some others, is not subject
to enforceable dispute settlement. RCEP also includes flexibilities for less-developed member countries,
such as transitional periods for commitments on trade facilitation, IPR, and e-commerce.
RCEP in Context
After the United States withdrew from TPP in 2017, RCEP attracted renewed interest as some experts and
officials in participating countries characterized the agreement as a potential regional alternative to TPP.
The subsequent conclusion of TPP-11, as well as escalating U.S.-China trade disputes, motivated RCEP
members to accelerate negotiations, in part as a statement in support of the rules-based trading system.
Negotiations progressed relatively slowly, largely owing to the disparate levels of economic development
and priorities among members.
Some initial assessments of the final agreement characterize the scope of commitments and rules, such as
in services, investment, and IPR as relatively shallow and lacking rules on state-owned enterprises, labor
and environment, and other nontariff issues. Others emphasize significant progress compared to previous
ASEAN deals, and important impacts beyond trade concessions. Many experts view RCEP as a
complementary initiative that deepens regional integration and serves as a “stepping-stone” for members
to join higher-standard agreements in the future.
Analysts note that RCEP’s most significant component may be its establishment of common rules of
origin, i.e., one set of criteria among all 15 members that govern how much of a product must be
produced within the region to qualify for tariff benefits. A common regime, many say, will facilitate the
movement of intermediate goods between members and make it easier for firms to establish regional
supply chains. One study estimates that RCEP could add up to $500 billion in world trade by 2030—with
significant economic benefits for China, Japan, and South Korea in particular.

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Implications for U.S. Trade Policy
Some Members of Congress and analysts saw TPP as an opportunity for the United States to shape
regional and global trade rules, and potentially influence China’s economic practices. In this view, RCEP,
like the U.S. withdrawal from TPP, may limit U.S. economic influence in the region by providing an
alternate trade agreement vehicle through which China could benefit economically without having to
reform its industrial policies or adopt more robust IP protections. Chinese firms facing pressure from U.S.
tariffs have reportedly begun shifting manufacturing to ASEAN countries, while maintaining sourcing
networks in China, a trend that could accelerate under RCEP. At the same time, some countries aim to use
RCEP to help diversify supply chains from China. Although RCEP was conceived by ASEAN members
who have long sought to create a common trading and manufacturing base, some analysts note that RCEP
is symbolically important for Beijing—Chinese officials framed the signed agreement as a “victory of
multilateralism and free trade.”
RCEP also could shift regional trade in ways that impact U.S. commercial activity and broader strategic
interests. Early analyses generally conclude that RCEP could reduce U.S. commercial activity in the
region if (1) members shift trade to U.S. competitors, and (2) supply chains reorient to capitalize on
RCEP’s tariff reductions and rules of origin. Further, formation of trade rules in Asia that may not reflect
U.S. negotiating priorities, such as approaches to e-commerce or IPR, could disadvantage U.S.
competitiveness abroad. When asked about RCEP’s conclusion, presumptive President-elect Biden
emphasized the U.S. needs to “set the rules of the road instead of having China and others dictate
outcomes.” Some experts view these developments as reducing U.S. geopolitical influence and
reinforcing a need to re-envision U.S. engagement in the region, potentially through negotiating its re-
entry into the revised TPP-11.

Author Information

Cathleen D. Cimino-Isaacs
Michael D. Sutherland
Analyst in International Trade and Finance
Analyst in International Trade and Finance

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