The 10-member Association of Southeast Asian Nations signed the mega deal with the region’s top trading partners China, Japan, South Korea, Australia and New Zealand. ASEAN is made up of Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Brunei, Cambodia, Myanmar — formerly Burma, and Laos.
“The diplomatic messaging of RCEP may be just as important as the economics — a coup for China,” analysts from Citi Research wrote in a Sunday report.
They explained that the mega deal achieves several things against the backdrop of rising U.S.-China tensions and worries about de-globalization:
- Shows that East Asia is very much open for business and recognizes the economic benefits of deeper trade integration.
- Reduces the perception that China is turning more inward with its “dual circulation strategy,” which emphasizes its domestic market.
- Signals that when it comes to economic policy, Asia-Pacific economies don’t want to choose between the U.S. and China. That’s true even for countries with strong security alliances with the U.S., such as Japan and South Korea.
Analysts said RCEP is a weaker trade deal compared to the CPTPP. Tariffs among many RCEP member countries are already low given existing bilateral or smaller multilateral trade deals among them, so the direct economic benefits are limited, they said.
For example, more than 70% of trade among the 10 ASEAN countries are conducted with zero tariffs, noted Gareth Leather, senior Asia economist at consultancy Capital Economics.
Additional tariff reductions under RCEP “will only come into force gradually, and it will be years before the treaty is fully operational,” Leather said in a report on Thursday.
But the mega deal lays the foundation for deeper cooperation among member countries in the future, especially between those that don’t have existing bilateral trade deals, said Simon Baptist, global chief economist at consultancy The Economist Intelligence Unit.
Possible bilateral “pairings” include China and Japan, the world’s second- and third-largest economies, as well as Japan and South Korea, which are entangled in a bilateral trade dispute, Baptist told CNBC’s “Squawk Box Asia” on Monday.
“While at the moment the amount of liberalization that’s going to happen is going to be pretty limited, it does now mean that this framework is in place so that in the future there will be opportunity to build on this should attitude towards trade, or should bilateral relations move in the right direction,” he said.