The Regional Comprehensive Economic Partnership, the world's largest free trade agreement (FTA) in terms of economic size and population, came into effect on Jan 1. Comprising 15 Asia-Pacific economies, including some of the world's largest ones such as China and Japan, as well as populous ones like China and Indonesia, the RCEP will bring down tariffs to zero on more than 90 percent of the goods traded among the 15 members－and thereby create a prominent free-trade bloc covering Southeast Asia, Northeast Asia and the Asia-Pacific.
The RCEP is distinct from other existing FTAs in many respects. To begin with, it is an apt example of an inclusive free trade agreement. It includes high-income countries such as Japan, the Republic of Korea, Australia, New Zealand and Singapore, along with large emerging market economies like China, Indonesia, Malaysia and the Philippines, and low-income economies such as Myanmar, Laos and Cambodia.
There is hardly any other rules-based trade framework in the world, apart from the World Trade Organization, which has low-income economies co-existing with their much richer counterparts under the same rules for goods and service trade, and investment. As such, the "inclusive" character of the RCEP is a feature that future large free trade agreements will want to acquire.
Indeed, it is essential to ensure low-income countries get to be a part of the same market access framework as their high-income counterparts, in order to enable them to benefit from more liberal trade rules.
The RCEP is structured as an ASEAN-style free trade agreement, and negotiations on it first began among the 10 member states of the Association of Southeast Asia Nations. In fact, the formalization of the RCEP indicates the expansion of the ASEAN-centric regional trade architecture across a greater part of the Asia-Pacific region.
ASEAN-style free trade agreements are characterized by the flexibility they offer to members in implementing various market access rules based on their specific economic circumstances and conditions. The RCEP is structured accordingly. It offers greater maneuverability space and flexibility to less-developed members in the grouping for implementing tariff cuts.
It also builds a process of constructive consultations among the members for addressing various trade issues.
Compared with existing free trade agreements between ASEAN and its trade partners (China, Japan, the ROK,Australia and New Zealand), the RCEP is a more ambitious trade pact so that it proposes new rules in areas such as cross-border investment, intellectual property, e-commerce, and service trade. In this respect, it lays down the future framework for engagement between ASEAN and its partners on new-generation 21st century trade issues.
At its heart, however, the RCEP remains a free trade agreement that focuses on expanding trade in manufacturing in the Asia-Pacific region and strengthening regional supply chains. This objective will be achieved through the very large reduction in tariffs proposed by the FTA. It will also be facilitated by the supportive and liberal rules of origin in the FTA that enables producers to source inputs and raw materials from a very large geography for getting preferential market access benefits.
The RCEP is also the first FTA that includes the three large economies of Northeast Asia－China, Japan and the ROK. The three economies have been working for a long time to form a free trade bloc. They have got close to the objective through the RCEP, which will give preferential access to each other's markets and thus help them to expand investments, share technologies and promote new-generation industrial supply chains.
The RCEP has many firsts to its credit. Most importantly, it signals the commitment of all the member countries in the trading bloc to the cause of expanding free and rules-based trade at a time when the COVID-19 pandemic has dealt a serious blow to global and regional economies. In this regard, the RCEP reflects the confidence the region has in trade.
The author is a senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies in the National University of Singapore.
The views don't necessarily reflect those of China Daily.