A total of 15 nations, including Japan, China, South Korea, and ASEAN, concluded their negotiations and signed an agreement on the Regional Comprehensive Economic Partnership (RCEP).
For Japan, RCEP is its third large-scale trade agreement following the Trans-Pacific Partnership (TPP) pact and the Japan-EU economic partnership. Although RCEP’s rules are looser and the tariff cuts are less severe than those in the TPP, the new agreement spans a region that represents 50% of Japan’s trade. Equally important, RCEP is the first trade agreement Japan has concluded with China and South Korea.
It is significant that Japan, a free-trade advocate, was able to strengthen the foundation of free trade through RCEP amid today’s increasingly protectionist trade environment. The new accord may also spur Japan’s economic recovery from the coronavirus pandemic.
Nonetheless, we should not forget an inherent risk of RCEP: it invites the risk of over-dependence on China, which comes with high political risks. There are also concerns that the agreement may accelerate China’s pursuit of military and economic hegemony.
For this reason, India’s absence is severely felt. Japan strongly pushed for India’s participation as a counterweight to China. Now, Japan must continue working on India to bring the country into RCEP.
In signing RCEP, China made certain compromises on tariff reductions and rules. A provision banning countries from demanding technology transfer was inserted mainly to prevent China from engaging in such conduct. China likely accepted it so as to accelerate the creation of its own economic sphere in order to counter the U.S.
We should not forget, however, that the coronavirus pandemic and the U.S.-China dispute have exposed the danger of depending on China for supply chains and relying on it as a trade and investment partner. The Japanese government, therefore, has urged domestic companies to diversify their overseas production facilities. Further expansion of China’s influence through RCEP may reverse this.
Japan has been promoting the free and open Indo-Pacific concept with the aim of curtailing China’s activities that violate international rules. The true goal for the Suga administration should be to create a free-trade sphere with ASEAN, Australia, India, and others. Even if India is not a member of RCEP, collaboration with the country must be strengthened.
Furthermore, Japan needs to keep a close watch on China’s adherence to the RCEP rules in digital economy and other areas, as the agreement is somewhat loosely worded. As an economic giant, China has a responsibility not only to abide by the RCEP rules, but also to facilitate a more transparent and fair economic system than RCEP requires. Together with the U.S. and European nations, Japan has an important role to play in urging China to accept responsibility to move toward that goal.