The Savills Blog

The Regional Comprehensive Economic Partnership

Suppressing the argument that Brexit is leading to decentralisation of trading blocs, Asia is set to form the largest trade bloc ever.

Amid a global economic slowdown, world leaders are calling to reduce trade barriers to limit reductions in world economies. The most recent IMF World Economic Outlook report described pessimistic conditions for some of the world’s major economies, particularly China, the US and the Eurozone. In response, leaders such as Xi Jinping have called for a reduction in tariffs and trade barriers in order to avoid a global recession.

The RCEP is set to become the world’s largest trading bloc, accounting for nearly one-third of the world’s population, and up to one-quarter of global GDP. Talks about the RCEP began in 2011, and a decision has yet to be reached. This is not unexpected though, based upon the size and the complexity in ensuring the needs of 16 different members are met fairly. The delay was mainly due to apprehension from India that the deal will lead to Chinese products being dumped in the Indian market, which is already struggling to keep up with the exports from large neighbours.

An ASEAN summit held in Thailand during October 2019 was therefore timely, as decision-makers from all ASEAN countries plus six major trade partners (India, Japan, China, Korea, and Australia & New Zealand) convened to further negotiate the RCEP. The signing of the agreement stalled after Indian leader Narendra Modi discussed how the deal may lead to cheap Chinese imports flooding the Indian market – the country withdrew from the agreement the following day. Despite this, other leaders including Indonesia’s President Widodo expressed optimism that the deal will continue without India – though they are encouraged to rejoin - and will hopefully be finalized in February 2020.

The RCEP is China’s answer to the failed TPP, which was announced by former US President Barack Obama. The TPP was to involve the US, Australia & New Zealand, Canada, Mexico, Peru and other critical Asian partners including Vietnam but notably excluded China. It was an effort to improve trade between the participating countries, and to extend the US’s intellectual property laws across borders. However, the US pulled out of the agreement three days after President Trump was elected. The trade deal continued under a new name - Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

In response to the snub, China has been working hard to develop a new deal to strengthen the trade relationships in the region. Ratification of the RCEP, even without India’s involvement, would be a huge blow the US-side of the Sino-US trade war.

Moving forward, the Vietnamese government needs to address the issues raised by India to ensure it is maximizing the value it will receive from the trade agreement. Reducing the trade barriers between these markets increases the risk of cheap products flooding the market, but as Vietnamese manufacturers enter higher-value industries, the risk becomes less relevant. Additionally, Vietnam is negotiating from a place of strength, as it has numerous FTA’s already in place with other major trading partners including the Eurozone and has rapidly developed into a manufacturing powerhouse. The combination of these factors indicates that Vietnam should be able to secure a fair and beneficial agreement.

The next stage of major negotiations is set to take place in February 2020.


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