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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE RCEP AND THE GEOPOLITICS OF REGIONAL ALLIANCES
Its potential impact on international trade insertion strategies


by Félix Peña
December 2020

English translation: Isabel Romero Carranza


 

The signing of the RCEP (Regional Comprehensive Economic Partnership) on November 18th, has opened a new stage in the geopolitics and architecture of regional trade alliances.

RCEP means a market of 2.3 billion people, with a growing percentage of middle class consumers and 30% of global trade and GDP. It was an initiative of the ASEAN countries and links countries among which free trade agreements already exist.

It introduces new elements in the architecture of preferential trade agreements. In particular, it tends to facilitate value chains of regional scope.

In addition to the role that LAIA can play in the design and implementation of a Latin American preferential trade system that makes it possible to take full advantage of the instruments provided for in the 1980 Treaty of Montevideo -the agreements of partial scope in their multiple modalities- three other issues will require a great deal of action-oriented reflection.

These are:

  • The process of revitalizing the WTO as the cornerstone of the architecture of the multilateral world trading system.

  • The concretion of the bi-regional agreement between the EU and Mercosur, with the possible and necessary developments that will allow it to be linked to the other free trade agreements that the EU has already concluded with Latin American countries, and especially with those of the Pacific Alliance,

  • The link that the Mercosur countries will finally establish with the existing agreements in the large regions of the global trading system and, in particular, with the regions of Asia-Pacific, North America, Africa and Eurasia.

As we pointed out in an article in the newspaper "La Razón" on August 31, 2006, the name Mercosur was a success in terms of the region's identity (the title of the article is "Does Mercosur have an identity problem?" and can be found at www.felixpena.com.ar). The acronym Mercosur was coined by Raúl Ochoa, who was the Undersecretary of Foreign Trade of the Argentine government at the time of its founding. We said then that the name helped us identify more than just the organization itself but mainly a strategic idea that is still valid today. (Raúl has just passed away, and this recollection is a well-deserved tribute to his memory and to his career as an expert in international economic relations and integration issues).

The strategic idea, that is, the creation of the "Southern Common Market" ("Mercosur"), is embodied in Article 1 of the Treaty of Asuncion, which together with Article 2 are the key provisions to understand how the pact of the integration process was agreed upon.

The above is important when discussing issues related to the architecture of the integration process agreed upon with the creation of Mercosur. It confirms the idea that when facing a process aimed at joint work among sovereign nations, there are no rigid models on how to develop it. In the case of the Treaty of Asunción, at no time were concepts such as "free trade zone" or "customs union" used to define the identity of the joint process.

It is also important in order to understand the process that has begun in other regions to define the architecture of joint work between countries in terms of international trade relations and economic integration, where rigid concepts taken from theoretical approaches have also been abandoned.

The signing, on November 18, of the RCEP (Regional Comprehensive Economic Partnership) between the ten ASEAN countries (Burma, Brunei, Cambodia, Philippines, Indonesia, Laos, Malaysia, Singapore, Thailand, Vietnam) and the five countries of the Asia-Pacific region (China, Japan, South Korea, Australia, New Zealand) is opening a new phase in the geopolitics and architecture of regional trade alliances.

Although India withdrew from the project before the agreement was signed and will not be a member, at least for the time being, the RCEP means a market of 2.3 billion people, with a growing percentage of urban middle class consumers and 30% of the world's trade and GDP. It was an initiative of the ASEAN countries and China, and links countries among which different modalities of preferential trade agreements already exist. Its architecture does not reflect any pre-existing model, but is in line with the requirements of the multilateral trading system embodied in the WTO.

The RCEP allows the incorporation of new members. Could they be extra-regional countries? The Agreement does not prohibit this. In an article published in Clarin newspaper on November 27, 2020, Xiaoli Zou, the Ambassador of the People's Republic of China in Argentina, does not exclude it. He points out that the "RCEP constitutes an open FTA, that is, it admits the entry of new members. Thus, some analysts argue that extra-regional countries should take advantage of the opportunity to join the economic circle of the Asia-Pacific region, which is in line with both the interests of Latin American countries and the openness purposes of RCEP and the aspirations of China and other members of this new association"...

Article 20.9 of the Agreement refers to the access of other States in the following terms:: "This Agreement shall be open for accession by any State or separate customs territory 18 months after the date of entry into force of this Agreement". Then it adds the following: "Such accession shall be subject to the consent of the Parties and any terms or conditions that may be agreed between the Parties and the State or separate customs territory". It is not thus specified whether or not the new member should belong to the region, but most certainly it does not exclude the possibility. However, it does stipulate that it must be accepted by all RCEP member countries.

The negotiation of the RCEP began in 2012, when the other major preferential trade agreement in the Asia-Pacific region, the TPP (Trans-Pacific Partnership), was still being viewed as a fact, and from which the US withdrew when Donald Trump took office in 2017. It finally entered into force with modifications and without the US, on December 30, 2018, with a new name and acronym (Comprehensive and Progressive Agreement for Transpacific Partnership - CPTPP). It has eleven members , 495 million consumers and 13% of the world's GDP (see www.international.gc.ca/trade-commerce).

For background information on the RCEP, its objectives, and the main commitments made, see, among other sources of information, the official website of its Secretariat (www.rcepsec.org). For the full text of the RCEP agreement, published on November 15th, see www.rcepsec.org/legal.text/).

On the RCEP in the perspective of Argentina's foreign trade see, among other recent publications, the INAI Foundation report prepared by Nelson Illescas: "RCEP. Some initial considerations after signing", published on November 18 (www.inai.org.ar) and the article by Gabriela Origlia, published in the Foreign Trade Supplement of La Nación newspaper on November 26, entitled "RCEP. With the agreement of fifteen countries, the largest free trade agreement in the world is born"). On the RCEP itself, see the already mentioned article by Zou Xiaoli, Ambassador of the People's Republic of China in Argentina, whose reference is included as recommended reading. For a European view of the RCEP, see Joseph Borrell's blog, also included as recommended reading at the end of this newsletter.

The RCEP introduces novel elements in the architecture of preferential trade agreements, which tend to facilitate value chains of regional scope. In this regard, the application of chapter 3 of the Agreement, referred to the rules of origin, should be closely monitored, in particular, the evolution of Article 3.4.1, which refers to the possible modifications that may be introduced later.

This Article confirms the idea that regional integration processes not only do not base their architecture on pre-existing models, but also have the characteristic of being processes in permanent evolution in their long-term construction.

The RCEP is highlighting the need to further the debate in our region on how to position the Latin American integration agenda in the context of the new realities that are emerging in the workings of the international trading system.

This makes the need to strengthen ALADI's role more current, as we have stated before, among other times, in our October newsletter, ("The construction of Latin America as an organized region: a necessary task, with very long-term objectives and uncertain results", www.felixpena.com.ar).

In addition to the role that LAIA can play in the design and implementation of a Latin American preferential trade system, especially one focused on the joint work of the Mercosur countries and those of the Pacific Alliance, and one that makes it possible to take full advantage of instruments already provided for in the 1980 Treaty of Montevideo-such as the agreements of partial scope in their multiple modalities-three other issues will require much action-oriented thought.

These are,

  • The process of revitalizing the WTO as a cornerstone of the architecture of the multilateral world trading system. (On the issue of redesigning the architecture of the world trade order, see the recent book by Simon J. Evenett and Richard Baldwin,and also the recent book by Hals Brand and Francis J. Gavin, noth included as recommended reading at the end of this newsletter).

  • The completion of the postponed bi-regional agreement between the EU and Mercosur, with the subsequent developments in order to help link it with other free trade agreements that the EU has already concluded with Latin American countries, and especially with those of the Pacific Alliance (in this regard, see the September 2020 , December 2019 and September 2019 editions of this newsletter).

  • The link that Mercosur has with existing agreements in the large regions of the global trading system and, in particular, with the regions of Asia-Pacific, North America, Africa and Eurasia.

These are issues that make the idea of repowering the role that LAIA can play in the development and harnessing of the architecture of a potential Latin American common market more current. All of them imply the establishment, from a geopolitical perspective, of different strategic alliances between countries that are relevant to international trade.


Recommended Reading:


  • Borrell, Joseph, ""The Regional Comprehensive Economic Partnership - what that it means for the EU?", European Union External Action Blog, Brussels, 19-11-2020 (en www.
  • Brands, Hal; Gavin, Francis J. (editors), "Covid-19 and World Order. The Future of Conflict, Competition, and Cooperation", John Hopkins University Press, Baltimore 2020.
  • Castro, Jorge, "China es la clave del acuerdo de libre comercio más grande del mundo", en diario "Clarin", 29 de noviembre de 2020, Económico, página 9.
  • Elizondo, Marcelo, "Un acuerdo comercial que cambia el eje de los negocios mundiales", en diario "Clarin", 29 de noviembre de 2020, Económico, ps.8 y 9.
  • Evenett, Simon J.; Baldwin, Richard (editors), "Revitalizing Multilateralism. Pragmatic Ideas for the New WTO Director-General", Gradaute Institute Geneva - Centre for Trade and Economic Integration - University of St.Gallen - CEPR Press, London 2020.
  • Fenton, Alex; Fletcher, Gordon; Griffiths, Marie (editors), "Strategic Digital Transformation. A Results-Driven Approach", Routledge, London and New York 2020.
  • Fundación INAI, "RCEP. Algunas consideraciones iniciales", Fundación INAI, Noviembre 2020.
  • Grabendorff, Wolf; Serbin, Andrés (editores), "Los actores globales y el (re) descubrimiento de América Latina", Colección Pensamiento Propio - ICARIA editorial y CRIES, Barcelona 2020.
  • Harris, Kamala, "The Truths We Hold. An American Journey", Penguin Books, New York 2020.
  • Jankowski, Paul, All Against All. The Long Winter of 1933 and the Origins of the Second World War", Harper Collins Publishers, New York 2020.
  • Mabrouk, Hatem, "Would Harmonizing Preferential Rules of Origin Aid Trade Liberalization?", 2015.
  • Osnos, Evan, "Joe Biden. The Life, the Run, and What Matters Now", Scribner, New York 2020.
  • RCEP, "Regional Comprehensive Economic Partnership Agreement". Full Text, en www.mofa.jp/files/100114853,.pdf.
  • Scurati, Antonio, "M. El Hijo del Siglo", Alfaguara, Barcelona 2020.
  • Skinner, Chris, "Doing Digital. Lessons from Leaders", Marshall Cavendish Business, Singapore 2020.
  • Xiaoli, Zou, "Acuerdo RCEP: la mayor zona de libre comercio del planeta", en diario Clarin, 28 de noviembre 2020.
  • Wilson, Ben, "Metropolis. A History of the City, Human's Greatest Invention", Doubleday, New York 2020.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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