RCEP: Australia signs world's largest trade deal

Eight years after negotiations were launched, on 16 November 2020, ministers from Australia, China, Japan, Korea, New Zealand and the Association of Southeast Asian Nations (ASEAN), comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, signed the Regional Comprehensive Economic Partnership (RCEP) which at the time of writing is the world's largest free trade agreement, eclipsing NAFTA (soon to be the United States-Mexico-Canada Agreement).

The RCEP according to the Joint Leaders’ Statement covers a market of approximately 2.2 billion people – almost 30% of the world’s population – with a combined GDP of US$26.2 trillion or about 30% of global GDP, and accounts for nearly 28% of total global trade.

The stalled negotiations of the RCEP were in part due to various deliberations surrounding complex dispute resolution mechanisms, particularly the investor-state dispute settlement (ISDS) procedure. Under the ISDS, foreign investors are able to sue a state at international arbitration tribunals. The RCEP as it stands does not include a ISDS mechanism, although this will be reviewed under a built in agenda, allowing states to introduce it at a later stage, if all states agree.

The signing of the RCEP comes at a time when most nations continue to grapple with economic, health, social and geopolitical challenges brought on by the coronavirus pandemic. From an Australian perspective, the RCEP will enhance Australia's economic engagement particularly in the booming Indo-Pacific region. This is particularly evident when considering the volumes of Australia’s total goods and services two-way trade in 2019 with the following key RCEP signatories per the DFAT publication "Composition of Trade, Australia":

Australia's willingness to sign the RCEP demonstrates its continued drive for economic growth and adherence to the Federal Government's 2017 Foreign Policy White Paper. Two main priorities underpinning the White Paper were Australia's commitment to upholding a rules-based international order and ensuring stability in the Indo-Pacific region. The signing of the RCEP clearly highlights the value placed on sticking to such priorities even during unprecedented times brought upon by the coronavirus pandemic.

What does the RCEP mean for doing business in Australia?

The RCEP will play an important role in contributing to a stable and prosperous Indo-Pacific region and sends a clear signal of confidence in an open global economy founded on trade liberalisation and rule-based trading arrangements. In addition, the RCEP will support economic recovery from the impact of the coronavirus pandemic and act as a forum for ongoing dialogue and co-operation on a range of economic and trade issues impacting the Indo-Pacific region. The benefits of signing the RCEP for Australian businesses include:

• Tariff preferences: A single set of rules of origin to access tariff preferences with other RCEP countries and also allow producers in other RCEP countries to count Australian inputs towards qualification for tariff preferences when exporting to third countries within the RCEP.
• Supply of services: A strong platform to expand trade in services throughout the Indo-Pacific region by establishing high quality rules for the supply of services between parties, which enhances transparency and predictability of domestic regulation affecting trade in services.
• Flexibility of movement: Enhanced flexibility of movement of business people across the Indo-Pacific region such as expedited processing of applications for entry and temporary stay in RCEP countries, when travelling for business purposes (presumably following the coronavirus pandemic).
• Facilitating investment: Provisions aimed at facilitating investment for Australian investors through investment protections such as rules requiring payment of compensation where an investment is expropriated and compensation for losses due to conflict and civil strife.
• Intellectual property: Provisions reflecting a shared commitment by RCEP members to ensure an effective and balanced intellectual property regime that will provide businesses with confidence that their intellectual property rights can be protected and enforced in RCEP markets.
• Financial services: Enhanced rules on the supply of financial services, which will facilitate business operations and guard against instability in the financial system.
• E-commerce: Additional rules to promote the digitisation of trade documentation and the use of electronic signatures and electronic authentication to facilitate cross-border trade.
• Competition: The inclusion of provisions requiring parties to maintain competition laws and regulations that proscribe anti-competitive activities, as well as ensuring independent enforcement. RCEP will also include obligations in relation to the use of misleading practices or false or misleading descriptions.
• Market access commitments: New market access commitments for service suppliers and investors in ASEAN markets such as Malaysia, the Philippines and Thailand, which will provide an additional avenue through which exporters can access those markets.

Next steps for the RCEP

The RCEP can only be realised once it is ratified into the domestic legislation in each signatory's jurisdiction with Australia working towards ratification in 2021. In addition, the RCEP will only be in force once at least six of the ASEAN member states and three non-ASEAN signatories ratify the RCEP into domestic law.

As an aside, it is interesting to note that India has not signed the RCEP despite being at the negotiating table for much of the past eight years. The Ministers of the RCEP nations who signed the agreement have recognised this, and expressly noted that the RCEP is open for accession by India should it choose to do so. Any future states who wish to accede into this agreement will need to wait 18 months, with the process for accession to occur in accordance with the procedures adopted by the RCEP Joint Committee.

The signing of the RCEP also forces the incoming Biden administration to play catch-up in signing the United States up to new trade deals. This is because, under the Trump administration, the United States withdrew from the Trans-Pacific Partnership (TPP) which was at the time set to become the world's largest free trade zone. The withdrawal of the United States from the TPP and recent signing by other global powers of the RCEP therefore places added pressure on the incoming Biden administration to join the TPP or other trade deals.

Adopting the RCEP is a step forward to ensuring trade liberalisation in the Indo-Pacific region. The benefits for Australia from signing trade deals is evident from the past benefits received by the Australian economy through the China-Australia Free Trade Agreement, the Singapore-Australia Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

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