The Regional Comprehensive Economic Partnership (RCEP) agreement was finally signed last week, after eight long years involving 31 negotiating rounds and eight ministerial sessions. After all that effort, the poor negotiators found that the achievement was greeted with less than unbridled enthusiasm. This seems a bit unfair to us — anyone can pick holes in the RCEP agreement but overall, it will produce tangible benefits for its members while also creating a few geopolitical ripples.

But what does RCEP change and where does it fall short? The agreement is actually a big deal. It establishes one of the world’s largest free trade areas encompassing 30% of the world’s population, 30% of global economic output and 27% of world trade. Never before has there been a trade deal that brought so many diverse countries with so many diverging interests into a single trade agreement. The deal embraces the 10 countries of Asean, China, Japan, South Korea, Australia and New Zealand. Just pulling it off is itself a huge achievement. Certainly, in the process of bridging the vast gaps in living standards, economic development and economic models within this large area, it was inevitable that they settled in many cases for the lowest common denominator.

Still, RCEP is a consequential deal. It aligns Asean’s separate free trade agreements (FTAs) with its main partners into one coherent one, overcoming the spaghetti bowl of many FTAs with varying rules and definitions in key areas that led to confusion. Take one critical area — that of rules of origin (which confirms whether a product is indeed mostly manufactured in a given country and therefore qualifying for zero-tariff entry into a market). Companies will find it easier to trade across borders because there is now one single set of rules of origin and one set of tariff schedules to follow. Instead of filling multiple forms in many countries, one form will suffice to enact an export transaction. The deal also cuts tariffs so that 92% of trade in the RCEP region will now be tariff-free. These benefits will improve market access and reduce transactions costs and so boost trade. In addition, RCEP also improves the investment environment by encouraging countries to limit the sectors where foreign investment is not allowed.

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