RCEP shows the Indo-Pacific leads the world on economic openness

Yet this "mega-regional" free trade agreement is of massive significance for Australia, the Indo-Pacific and the world.

When RCEP is signed on November 14, it will send a message the Indo-Pacific remains committed to economic openness and integration.

RCEP is a multilateral trade agreement comprising 15 Indo-Pacific countries: Australia, China, Japan, Korea, New Zealand and the 10 ASEAN members.

Its objective is to harmonise the existing network of "ASEAN Plus One" FTAs into a unified agreement, creating a single and cohesive set of trade rules for the region.

RCEP is the one of the most significant trade agreements ever signed.

By population and economic size, it is the largest trade bloc in existence, accounting for almost one-third of world GDP. Measured by share of world trade it is only a fraction behind the EU, which it will soon overtake as the Indo-Pacific continues its high-speed growth.

Negotiating such a large agreement was a Herculean effort. Since 2013, the governments completed 31 rounds of formal negotiations and dozens of side meetings. The COVID-19 crisis forced negotiations to shift to a virtual modality in April, a world first in trade diplomacy.

RCEP has also overcome massive political headwinds. A global turn towards protectionism has recently seen many governments abandon trade liberalisation.

The worst outbreak of trade warfare in nearly a century has lowered appetites for economic cooperation further.

That the world's largest-ever regional trade agreement is being delivered in such hostile circumstances is a remarkable achievement.

To be sure, RCEP is far from perfect.

India, an original party, departed in 2019 due to differences over ambition for tariff reductions. Genuine efforts by other members to entice the country back to the table have failed, due to rising protectionist sentiments in India.

As the Indo-Pacific's next emerging economic giant, India's absence leaves a large gap. Once the COVID crisis passes, creative diplomacy will be needed to help bring India back into the fold.

But even without India, RCEP will be instrumental in launching the region's post-COVID-19 economic recovery.

First, it is an inclusive agreement. RCEP includes almost all of the region's major economies, and is calibrated to their unique developmental needs. This is a major advantage over the region's other large trade agreement - the Trans-Pacific Partnership - which does not include China, Korea, or most ASEAN economies.

While some claim RCEP is a "China-led" trade agreement, the reality is it reflects the interests of all economies in the region.

Indeed, it binds China into a multilateral and rules-based model for economic relationships, thus hedging against Chinese dominance.

READ MORE:

Second, RCEP is a "value chain-friendly" trade agreement. It provides a standard and transparent set of rules for the region, across areas as diverse as trade practices, investment and intellectual property. All its provisions advanced on current World Trade Organisation minimums.

This makes it much easier for companies to grow regional value chains. By providing a single set of trade rules applying to the whole region, goods, services and investment will more far more seamlessly across the Indo-Pacific.

Third, RCEP will make the region far more attractive for investment. All members have agreed to open investment on a 'negative list' basis (i.e. all sectors are open unless specified), and many have greatly reduced their investment barriers.

With the global economy in meltdown, this will make the Indo-Pacific the most attractive destination in the world for investment. More generally, it sends a strong signal the region remains 'open for business' despite the ravages of protectionism and COVID-19.

For Australia, RCEP also offers significant benefits. Our previous trade diplomacy has focused on bilateral market openings with key partners, such as China, Japan and Indonesia. But Australian businesses have lacked the multilateral platform needed to participate in regional value chains.

By integrating Australia into a multilateral architecture, RCEP more firmly embeds us in the world's most economically-dynamic region.

In these difficult times, RCEP cannot come soon enough.

The task now for Indo-Pacific governments is to leverage this world-leading trade agreement for post-COVID-19 recovery.