The International Business Transactions Blog

Quashed TPP Leads to Important Asian Regional Free Trade Agreement

By Yuki Taylor
Law Student Editor

On January 1, 2022, East Asia’s Regional Comprehensive Economic Partnership (RCEP) Agreement entered into force for Australia, Brunei Darussalam, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand, and Vietnam.  With delayed ratification, the Republic of Korea (South Korea) and Malaysia became participants to the comprehensive economic alliance as of February 1 and March 18, respectively.  12 countries out of 15 original signatories thus far have joined the world’s largest free trade agreement (FTA). 

The RCEP, as a modern and comprehensive FTA, consists of 20 chapters, covering all aspects of cross-border economic activities including trade in goods and services, trade remedies, investment, and intellectual property.  The Agreement was concluded in November 2020, following nine years of preparations and negotiations initiated by the ASEAN (Association of Southeast Asian Nations) leadership upon a mutual proposal submitted by China and Japan in November 2011.  The FTA alliance was blueprinted on the so-called ASEAN plus 6, consisting of 10 ASEAN member states, three Far East nations, i.e., China, Japan, and South Korea, and three additional neighboring states, i.e., Australia, New Zealand, and India.

The RCEP negotiations assumed urgency after the failure of the Trans-Pacific Partnership (TPP) among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States, together comprising 40 % of the global economy.  The TPP was signed in February 2016 during the Obama administration.  But, soon after in January 2017, President Trump announced U.S. withdrawal from the pact, essentially paving a way for China to join the negotiations.

India exited the RCEP negotiations at the final stage in November 2019, complaining that the Agreement ultimately deviated from its original principles, particularly regarding safeguard measures.  Additionally, three ASEAN countries—Indonesia, the Philippines, and Myanmar—have not yet ratified the Agreement, although they signed as ASEAN states.  Indonesia initially announced on the eve of the RCEP’s entry into force that it would ratify the Agreement during the first quarter of 2022, but it has so far failed to complete ratification.  In the Philippines, the RCEP bill was deferred by its senate in February 2022, after groups including farmers and fishers opposed the ratification. 

As for Myanmar, ASEAN has excluded its current military cabinet since February 2021 following a coup d’état which deposed the democratically elected members of the nation’s ruling party, including Aung San Suu Kyi, then state counsellor.  Myanmar has been technically blocked from joining RCEP.  However, RCEP signatories have not been acting in concert.  Even though it has not yet ratified, the Philippines announced the country would not accept the junta-led Myanmar as a RCEP partnerNew Zealand openly denounced the Myanmar government and stated that it would not deal with the ASEAN nation under RCEP.

Meanwhile, China and Thailand have been supportive of Myanmar’s military-controlled government.  On March 21, Thai customs announced that it would treat Myanmar as an FTA partner pursuant to RCEP retroactively as of January 1, 2022, when the estranged nation acquired its RCEP qualification.  Prior to Thailand’s preferential tariffs treatment, on March 15, Myanmar agreed to use the Thai baht as its official currency in border trade dealings, aiming to reduce its reliance on the U.S. dollar.  

It is uncertain whether RCEP will build the economic alliance envisioned in the original negotiations, due to prolonged political crises and human rights abuses in Myanmar, and domestic resistance to RCEP in Indonesia and the Philippines.  Nonetheless, RCEP has already created the world’s largest free trade area, surpassing the EU in scale.  With only its current ratifications, RCEP comprises the world’s largest FTA in terms of both population and gross domestic product.