5 Things to Know About Asia’s Regional Comprehensive Economic Partnership

Two years after President Donald Trump withdrew from the Trans-Pacific Partnership (TPP), another sweeping global trade agreement is expected to pass in the next year — but this one doesn’t involve the U.S.

The Regional Comprehensive Economic Partnership (RCEP), which is being spearheaded by China, includes more than a dozen Asia-Pacific countries. If it passes, these nations will institute reduced duties on footwear and other products, but American consumers won’t be the primary beneficiaries.

The deal is considered by experts to be less robust than other trade agreements, for instance, TPP. However, there are likely to be financial benefits for shoppers in the member nations.

Here are five salient points to remember about RCEP.

The deal has been in the works for a while

RCEP talks began in 2012 at an Association of Southeast Asian Nations (ASEAN) summit in Cambodia. Since then, there have been over a dozen rounds of talks on the deal. Now, seven years into negotiations began, RCEP is expected to be nearing passage. According to spokespeople from several of the involved nations, the deal could be ratified as early as 2020.

Of the 15 nations included in RCEP, 10 are ASEAN members, while the other five represent major trading partners of the association. The 10 ASEAN nations are: Malaysia, Brunei, Singapore, Vietnam, Myanmar, the Philippines, Thailand, Laos, Cambodia and Indonesia. The non-ASEAN nations included are China, Australia, Japan, New Zealand and South Korea.

If passed, RCEP is would become reportedly the largest regional trading bloc in the world, with some of world’s biggest global economies linked to the deal.

In the shoe space, the agreement includes both some of the world’s biggest markets (China and Japan) and biggest suppliers (China and Vietnam), according to Nate Herman, senior vice president of supply chain at the American Apparel & Footwear Association (AAFA).

“It should be a big boon to consumers in those countries,” Herman said.

A 16th country pulled out last week

While the RCEP includes five non-ASEAN countries, there were six until last week, when Indian Prime Minister Narendra Modi declined to sign on. In a statement to reporters, a Modi associate alluded to perceived unfairness in the agreement.

“This reflects both our assessment of the current global situation as well as of the fairness and balance of the agreement,” Vijay Thakur Singh, a diplomat in charge of East Asian relations for India at the Ministry of External Affairs, told reporters at a Nov. 4 press briefing. “We would continue to persevere and strengthening our trade, investment and people-to-people relations with this region.”

Some say RCEP is China’s answer to the TPP

The TPP was a U.S.-led agreement that included nine of the 15 countries linked to RCEP. That agreement was signed by the U.S. in February 2016, but President Trump pulled out in 2017, saying he wanted a fairer deal.

While many RCEP nations were TPP signatories, the leader behind RCEP — China — notably wasn’t. Some say RCEP gives China advantages in the Asia-Pacific region that the U.S. could have had under TPP.

“The irony is when the administration decided to leave the Trans-Pacific Partnership, we all pointed to the fact that China would be the driving force behind the RCEP and because of that we were going to give up our leadership role on the trade side,” Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA), told FN. “It really represents a lost opportunity for us, but it’s also an ‘I told you so.’ Just about every economist and critical thinker said this would happen if we left the TPP, and lo and behold, that’s what’s going to happen.”

While there could still be tweaks made to the RCEP agreement, one thing is certain, according to Herman: American customers aren’t the winners here.

“It’s a major agreement [and] whatever this agreement says at the end, United States consumers won’t benefit in any way,” said Herman. “You go back to the Trans-Pacific Partnership trade agreement [and] we were setting the rules of the game for trade in Asia; now, it’s China setting the rules.”

RCEP includes fewer welfare measures than TPP

RCEP provides support for investment and trade opportunities across the region, according to a document from the Australian government, with the aim of improved economic capacity in member countries.

However, RCEP includes fewer social welfare protections than TPP. Countries signed onto TPP agreed to abide by labor and environmental standards; RCEP does not require members to agree to such regulations, according to documents released by the New Zealand and Australian governments.

“While there may be duty reductions for footwear in the RCEP, all the other things we care about — in terms of intellectual property right protection, which is very important in footwear and other industries — will not be part of that agreement,” said Herman.

U.S. involvement is key to implementing these protections, Priest said, because the U.S. sets the terms for agreements it signs on to.

“[U.S.] trading partners who were part of TPP and are also a part of this, they will tell you that TPP was far more robust and far more solidified,” Priest said. “Now we have a lesser agreement with a country that doesn’t necessarily have the same interests as the United States has.”

U.S. trade groups see it as a ‘lost opportunity’ for U.S. companies

Over the past year and a half, the U.S. and China have been entangled in an ongoing trade war, with levies imposed on billions of dollars in items coming from both countries. The first round of the fourth tranche of tariffs took effect on Sept. 1, placing a 15% duty on certain Chinese imports and leading China to retaliate with new tariffs on U.S. imports. On Dec. 15, Washington is expected to slap a 15% duty on a wide variety of consumer goods, including footwear, apparel and other accessories.

According to Priest, the TPP would have given U.S. businesses an advantage — and the lack of action is a “lost opportunity.”

“I spent a decade of my life working on the Trans-Pacific partnership because it would have created a lot of opportunities for footwear companies in particular. It would’ve eliminated a big chunk of our duties coming in from countries like Vietnam,” Priest said. “It would’ve created a platform for economic engagement in the region that didn’t include China and boxed them out economically. We tore that up and walked away as a country.”

While American consumers and the U.S. government won’t see benefits from RCEP, companies based in the U.S. could see reduced duties, according to Herman.

“U.S. brands who sell into these [RCEP] countries will be winners,” said Herman.

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