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On November 15, 2020, fifteen Asia-Pacific countries signed the Regional Comprehensive Economic Partnership (RCEP) agreement on the sidelines of the virtually held 37th Association of South East Asian Nations (ASEAN) summit. RCEP is the first mega-regional trade agreement (MRTA) to be concluded since the Trans-Pacific Partnership (TPP) was signed in 2016. As readers would recall, the TPP was replaced by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after the United States (US) under the Trump Administration withdrew, leaving the remaining parties scrambling to salvage the agreement. Negotiations on the other long awaited MRTA, the Trans-Atlantic Trade and Investment Partnership (TTIP) between the US and EU, ended abruptly in 2016 without a deal.
As the centre of global economic gravity shifts eastward (and not for the first time in history), countries around the world are considering what implications and opportunities this new agreement might pose for their political, strategic and economic relations with China and the other countries in the fast-growing Asia-Pacific region.
This article offers some preliminary thoughts on the RCEP Agreement and the small but growing Caribbean-Asian economic relationship. It argues, inter alia, that the RCEP agreement presents another reason why Caribbean Community (CARICOM) Member States should not discount Asia-Pacific countries as partners for trade, foreign direct investment (FDI) and other economic cooperation as we diversify our economies as part of COVID-19 economic recovery efforts.
What is RCEP?
RCEP negotiations were launched in Phnom Penh, Cambodia eight years ago on November 20, 2012, with the stated objectives, inter alia, of broadening and deepening integration to create employment, raise living standards and improve the welfare of the peoples in the region. Though not particularly ambitious in the depth of its obligations, the 20-chapter RCEP text covers trade in goods, services and investment with an up to twenty year window for liberalization.
RCEP at a glance
|Population (market size)||2.2 billion|
|% of world population||Almost 30%|
|Combined GDP (US$)||26.2 trillion|
|% of world GDP||About 30%|
|% of global trade||28%|
RCEP creates the world’s largest trading bloc. It comprises the 10 ASEAN Member States which are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, plus five other key Asia-Pacific powerhouses: Australia, China, Japan, South Korea and New Zealand. It will enter into force once at least six ASEAN Member States and three signatory States other than ASEAN Member States have ratified the agreement.
RCEP is, however, missing one big player, India, which withdrew from the RCEP negotiations in November 2019 over fears of its market being flooded with cheaper Chinese goods. Cognizant of the strategic importance India’s accession would bring both politically and economically to the agreement, RCEP parties released a Ministers’ Declaration on India’s Participation in the RCEP, leaving the door open for that country to accede at a later date if it so chooses.
Much ink has been spilt on the geopolitical implications of RCEP which is widely seen in the west as a China-backed rival to the Trans-Pacific Partnership (TPP) which had been spearheaded by the US under the Obama administration, but from which President Trump withdrew upon assuming office. China was not part of the TPP negotiations and analysts opine that RCEP will help to further cement China’s influence as an economic power in the Asia-Pacific region.
Taiwan (Republic of China), which is still recognized by five Caribbean States (Belize, Haiti, St. Kitts & Nevis, St. Lucia and St. Vincent & the Grenadines), is also not a part of the agreement. Taipei, has to some extent, vocalized concerns about what its exclusion could mean for its exports to those countries in the agreement.
CARICOM countries’ overall trade with the Asia-Pacific remains small and is mainly with China, and less so Japan and South Korea. The region lacks free trade agreements (FTAs) with any Asian or Pacific countries. Guyana’s trade agreement with China signed September 2001 is more aptly described as an economic cooperation agreement due to its predominantly best endeavour nature and lack of binding market access commitments. As such, trade between CARICOM and Asian countries is on World Trade Organization (WTO) most favoured nation (MFN) terms. This means Caribbean firms do not have preferential access to any Asian or Pacific market nor do Asian and Pacific firms have in ours.
Although the Asia-Pacific region has become a major source of outward FDI globally, FDI inflows to the Caribbean remains mainly from the US, Europe and Canada. Among CARICOM countries, Barbados, Guyana, Jamaica, The Bahamas and Trinidad & Tobago have bilateral investment treaties with China, although not all are in force. Guyana, Jamaica and Trinidad & Tobago also have BITs with South Korea which are in force. Suriname’s BIT with Indonesia was signed in 1995 but never entered into force.
Though Chinese FDI to the Caribbean remains small, Beijing has become a major provider of development finance in the region. Many Caribbean countries have signed memoranda of understanding (MOUs) with China under its Belt and Road Initiative (BRI). There are also various other initiatives such as the China/Caribbean Economic and Trade Forum and the CARICOM/Korea Consultation and Cooperation Mechanism, as examples.
Similar to the Caribbean, notable heterogeneity exists among the RCEP parties in terms of culture, language, geography, religion, political systems, income levels , poverty rates, and population size. These are nuances, of course, to which Caribbean firms looking to tap into the Asian market must be sensitive.
Five ways RCEP is of interest to the Caribbean
Here are five ways that RCEP might be of interest to the Caribbean.
First, RCEP marks another way in which the Asia-Pacific region is showing strategic global leadership in promoting multilateralism and a rules-based approach to trade. Both are important issues for CARICOM, especially at a time when unilateralism and protectionism appear ascendant. Admittedly, the commitments in the agreement are shallower than in the CPTPP and other similar agreements. For example, the provisions on e-commerce and on SMEs are predominantly best endeavour efforts at cooperation. In some cases, the rules just reinforce Members’ existing multilateral commitments or what exists in the existing trade agreements the Members have with each other. Nonetheless, a June 2020 study by the US-based Peterson Institute found that “RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030”. Moreover, the Agreement’s general review clause (Article 20.8) mandates the parties to undertake a general review of this Agreement with a view to updating and enhancing it five years after the date of entry into force of the Agreement, and every five years thereafter.
Second, China, Japan and South Korea – the major Asian countries with which CARICOM trades – are all party to the RCEP Agreement. The benefits of RCEP to the parties extend beyond merely lowering tariffs. Although, some parties to the RCEP agreement already have FTAs with each other, RCEP will streamline customs procedures, converge rules of origin requirements and promote regulatory harmony across the fifteen parties. This will potentially reduce transaction costs for firms (including CARICOM firms) operating in the Asia-Pacific market, allowing them to only have to obtain one certificate of origin and to build more efficient supply chains within the Asia-Pacific region.
Third, Asia is playing a growing role in the global economy and RCEP could cement this even further by accelerating that region’s COVID-19 economic recovery. With the notable exception of India, Asia-Pacific economies have generally seen a less pronounced COVID-19-induced economic contraction and have been recovering from the COVID-19 pandemic faster than the US, UK and the EU-27 – CARICOM countries’ traditional tourism source markets and trade partners. The IMF’s October 2020 Outlook forecasts ‘emerging and developing Asia’ economies to grow 6% in 2021, while ‘advanced economies’ (in which Japan is included) to grow a little more than half as fast at 3.9% in 2021. According to an IMF blog written by Ostry (2020), the Fund forecasts the Asia-Pacific region to grow by 6.9 percent in 2021, although headwinds remain ahead.
While China alone accounts for a population over 1 billion and is now the world’s second largest economy by GDP, other Asia-Pacific countries have been rising in their economic importance. Their growing middle class present a possible tourism source market and potential consumers for Caribbean goods and services. Japan has become, for example, the major export market for Jamaican Blue Mountain coffee. Soca music and steel pan, both originating in Trinidad & Tobago, have also attracted a growing following in Japan. Reggae, a world-renowned musical genre born in Jamaica, is popular in South Korea and there are several reggae bands there. This shows that there are elements of Caribbean culture which appeal to Asian tastes, which present opportunities for creating demand for other quintessential Caribbean goods like our rums, for example.
Besides trade and economic cooperation, possible opportunities for deepening Asia-Pacific cooperation and technical assistance exist in areas of mutual interest such as education, biomedical research, Artificial Intelligence and other spheres of technology, renewable energy, and sustainable agriculture, as examples.
Fourth, although RCEP is just a trade agreement and not a political arrangement per se, it further strengthens the economic prowess and geopolitical significance of those participating countries on the multilateral stage, which could be to CARICOM’s benefit. RCEP might shape future trade and trading rules within Asia and could serve as a clue of what any future agreement between CARICOM and ASEAN agreement could possibly look like. It does not cover environmental and labor provisions, however.
There is also the commitment in the Agreement to not only create an RCEP Joint Committee which is standard for FTAs, but an RCEP Secretariat (Article 18) which shows some desire by the parties for RCEP to be more than a standard FTA, but a forum for discussing rules of trade amongst themselves. In the future, RCEP as a negotiating bloc could have an influential role in the WTO, for example, in setting rules in new and emerging areas of trade. In the WTO, CARICOM has a long history of cooperating with similarly minded countries. CARICOM has also cooperated with Asian countries, inter alia, in intergovernmental and other multilateral fora, such as in the Organisation of Africa, Caribbean and Pacific States (OACPS), the Commonwealth, and the United Nations through the Alliance of Small Island States (AOSIS), on climate change. CARICOM also requested Indonesia’s assistance with combatting arbitrary blacklisting practices.
Fifth, as CARICOM’s own regional integration movement remains stuck in neutral, RCEP, though not as ambitious as Africa’s continental free trade agreement aims to be, shows that there is still a desire for economic cooperation among larger, often more economically endowed countries than ours.
Stepping stones across the pond
Similar to Caribbean-China economic relations, Caribbean relations with the wider Asia-Pacific region hold promise. However, in addition to the physical distance separating the two regions, the ‘psychic distance’ between the Caribbean and the Asia-Pacific region may seem at first intimidating to some CARICOM firms, especially those with limited exporting experience or limited knowledge of the Asia market.
On this front, the region has some underutilized resources from which it could draw to use as stepping stones to get across the pond to the Asia-Pacific market. As I have argued in a previous article, Caribbean returning scholars from China and other Asian countries are an undertapped resource whose knowledge of the language, culture and their networks could be deployed for the benefit of deepening general understanding and knowledge of the business culture of that market. The Caribbean-ASEAN Council can also be a valuable resource for Caribbean firms interested in the ASEAN and wider Asia-Pacific region.
Another resource at Caribbean countries’ fingertips is the region’s small Asia diaspora pocket, such as Chinese and Indians, who in some cases still retain ties with their ancestral homelands. Suriname’s Javanese diaspora are descendents of persons who came from the Indonesian island of Java (then also a Dutch colony) to work on plantations in Suriname. Suriname has leveraged this shared history to its advantage and is a member of the Islamic Development Bank, has an embassy in Jakarta (capital of Indonesia) and together has the Suriname-Indonesia Joint Commission.
Additionally, there are English-speaking countries, such as Australia and New Zealand, and to a lesser extent Singapore and Malaysia where English is an important second language, which not only share a common language with the anglophone Caribbean but also to some extent similar laws and institutions. They could be markets in themselves for Caribbean goods and services, but could also be seen as ‘jump off’ markets to more ‘psychic distant’ markets in the wider Asia-Pacific region.
In closing, this article sought to offer some preliminary thoughts on the RCEP agreement and what possible implications it might have for Caribbean-Asian economic relations. As Caribbean countries redouble their trade and tourism diversification efforts to pull their economies out of the COVID-19 doldrums, the region’s governments and private sector should embrace the possible economic opportunities RCEP might present for the region in terms of trade, FDI, and wider cooperation with the Asia-Pacific region.
The full text of the RCEP agreement may be accessed here.
Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. All views herein expressed are her personal views and should not be attributed to any institution with which she may from time to time be affiliated. You can read more of her commentaries and follow her on Twitter @LicyLaw.