Wang Huiyao: RCEP injects new impetus for global trade

September 04 , 2019

By Wang Huiyao |

President of the Center for China and Globalization(CCG)

It is time for world to seize the opportunity

The current proliferation of trade disputes is a serious challenge to globalization and the international trade order.

The Sino-US trade war apart, trade tensions between Japan and the Republic of Korea are also escalating. Japan’s recent move to remove the ROK from its fast-track trade “white list” has sparked further tit-for-tat responses, disrupting supply chains and adding to the clouds hanging over the global economy.

Previously, the World Trade Organization Appellate Body was an effective mechanism for resolving trade disputes. Since its creation in 1995, it has settled over 400 disputes, preventing them from turning into political conflicts of the type we see today.

However, the Appellate Body is now paralyzed because of the failure to appoint replacement judges.

WTO reform is urgently needed but it cannot be achieved overnight. Fortunately, fresh impetus for global trade comes from the Regional Comprehensive Economic Partnership Agreement, the regional free trade agreement between 16 Asian countries that is under negotiation.

The 2019 RCEP ministerial conference in Beijing from August 2 to 3 saw important progress toward this landmark FTA between the 10 members of the Association of Southeast Asian Nations, China, Japan, the ROK, Australia, India and New Zealand.

With a combined GDP of $21 trillion, the countries account for around 30 percent of the global economy. Once completed, the RCEP will cover a population of 3.5 billion and become the world’s largest regional FTA.

Some have raised fears that different regional FTAs may lead to a complex “noodle bowl effect” of different standards in Asia.

In fact, the RCEP is complementary to the Comprehensive Progressive Trans-Pacific Partnership. The CPTPP shares many similarities with the RCEP, and seven of the 16 RCEP members, namely Japan, Australia, New Zealand, Singapore, Brunei, Malaysia and Vietnam, are also CPTPP members.

But the CPTPP has a lower entry criteria, while RCEP is more accessible to developing countries. Also, the RCEP framework has covered gaps in WTO rules, such as for the service trade, intellectual property rights, e-commerce and telecommunications services.

These areas have great significance for the promotion of free trade in the modern economy. In the new era of globalization, the RCEP can be a way for developing countries to reach a higher degree of free trade and decrease the gap with developed countries.

As a key player in the process of economic integration in the Asia-Pacific region, China should play an active role in realizing the RCEP’s potential.

First, China should promote proactive and pragmatic negotiating strategies with prospective members to help seal the agreement. After seven years of hard work, the recent ministerial meeting in Beijing has brought great hope.

In his speech, China’s Commerce Minister Zhong Shan called for all parties to achieve the goal of ending negotiations within this year.

More than two-thirds of market access negotiations have been completed. Parties have agreed on more than 80 percent of the pact. However, concluding the deal is often the most difficult part. Frictions between Japan and the ROK may also complicate matters. Given this scenario, while respecting the leading position of ASEAN countries in the RCEP, China should continue to use its influence to push forward RCEP negotiations.

Second, China should continue to deepen its reform and opening-up to ease some countries’ fears that exports from China will harm their domestic markets under the RCEP. China should continue steps to demonstrate the huge potential its market holds for enterprises and investors from RCEP countries and encourage them to invest in China.

China may overtake the United States as the world’s largest consumer retail market as early as this year, presenting great opportunities for RCEP exporters. China’s Foreign Investment Law, due to come into effect on Jan 1, will help provide a yet more attractive and convenient environment for foreign investors and entrepreneurs to do business in China.

Third, China should carry out more exchanges with RCEP countries to build support for free trade. Industrial development and technological innovation cannot be achieved without market competition. During the WTO negotiation process, some voices in China feared that once the country lowered tariffs and opened its domestic market, State-owned enterprises and other domestic enterprises would be devastated.

In reality, market competition forced Chinese enterprises to reform and raise their game, spurring the development of world-class enterprises such as Huawei, Alibaba and Xiaomi.

In the new era of globalization, deeper regional integration can help deal with the multiple challenges stemming from anti-globalization sentiment and international trade disputes.

As the largest regional FTA, finalizing the RCEP would be a key step in the process of economic integration in the Asia-Pacific region. No effort should be spared to complete the deal and seize the chance to create new growth opportunities and positive momentum for global trade.

Keyword Wang Huiyao