The Association of Southeast Asian Nations (ASEAN) has been called weak, divided, ineffective and even non-existent; as a regional organisation, it barely registers on the diplomatic radar, though it brings together ten countries with a combined population of 652 million: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Not much notice was taken of its 37th summit, which opened in Hanoi on 12 November 2020, until it pulled off a major coup: the signing of the Regional Comprehensive Economic Partnership (RCEP), an ASEAN free trade agreement with Australia, China, South Korea, Japan and New Zealand.
At a time when bringing manufacturing home, buying local and protecting markets should be the basis for a new development model, Asia’s major countries (apart from India, which withdrew from the negotiations for fear of competition from its neighbours) are betting their futures on more globalisation. ‘A victory of multilateralism and free trade’, was how China’s prime minister, the Communist Li Keqiang described it. His Japanese counterpart, the liberal Yoshihide Suga, hailed ‘a historic day that marks the signing of this Agreement after eight years of negotiations ... We expect the RCEP Agreement to enter into force as soon as possible’ (1). Free traders of the world, unite!
RCEP is the largest ever agreement of its kind, involving 30% of the world’s wealth production, 28% of world trade and 2.2 billion people, and all achieved without US involvement: it is a historic turnaround to have China presiding in Southeast Asia, which was formerly so hostile to it. ASEAN was founded in 1967, at the height of the cold war, with the express aim of containing communism. A core group of ‘reliable countries’, including Indonesia, Malaysia, the Philippines, Singapore and Thailand, which had often rooted out ‘reds’, real or imagined, at home and were staunch US allies, joined forces to keep the ‘evil’ of communism at bay.
Old enemies in from the cold
With time, ideological disagreements faded, especially after the collapse of the Soviet Union. The Asian crisis of 1997-98, which hit the region just as the Chinese economy was taking off, did the rest: old enemies came in from the cold and joined ASEAN. It further expanded by creating ASEAN+3, with Asia’s economic giants China, South Korea and Japan, as well as organisations with various membership line-ups, such as the ASEAN Regional Forum, which has 27 members (including ASEAN+3, the US, North Korea, Russia, India and the EU) and the ASEAN Defence Ministers Meeting Plus with 18 countries (ASEAN+3, Australia, the US, India, New Zealand and Russia).
ASEAN has quietly created a broad diplomatic network that may have prevented territorial conflicts in the China Sea from escalating, though it has failed to resolve them. In 2018 it drafted a code of conduct (COC) in collaboration with China to serve as a basis for negotiations between all nations claiming sovereignty over the Paracel and Spratly Islands: China uncompromisingly claims them all; Vietnam, the Philippines, Malaysia, Brunei and Indonesia have lesser demands, but competing national interests are involved (2). The COC is now deadlocked; flashpoints are proliferating and resentment is building.
RCEP ensures that China's economic power will expand ... The power of China's approach to the world is that it seeks to transform the economy at capillary level, from bottom up rather than from top down David P Goldman
Yet such tensions did not stop the signing of RCEP, which brings together the world’s second (China) and third (Japan) largest economies in a single agreement. In English it runs to 521 pages, with 20 chapters, 17 annexes and a timetable for access to national markets that aims to eliminate customs duties and quotas on goods, according to the ASEAN website. It also covers a few non-tariff barriers relating to standards, some trade in services, e-commerce and intellectual property issues, but omits most agricultural products.
The rules appear rather lax: goods made from raw materials originating in one of the 15 signatory countries will be automatically admitted to the others. This will have consequences for the EU, which has free trade agreements with RCEP signatories Vietnam, South Korea and Japan. It will become more difficult, even impossible, to trace the origin of products, which will enjoy preferential treatment in the EU.
RCEP contains no environmental, health or social regulations. Despite fine words, agreements made under the aegis of the US and EU do little better, except the social clauses on the minimum wage or the right to strike introduced in 2018 in the revised North American Free Trade Agreement (NAFTA) (3). However, RCEP does not grant multinationals the power to challenge states when they dislike measures. And it allocates no role to the International Centre for Settlement of Investment Disputes (ICSID), a body that supervises arbitration, whose judgments take precedence over national jurisdictions (4).
New free trade agreements generally produce a flurry of promises about growth, jobs and trade that are never kept. With RCEP, even the most liberal economic experts are cautious, expecting a 0.2-0.4% average increase in growth at best. Most signatory countries already have bilateral free trade agreements, especially with the big three, and tax-exempt special economic zones abound in the region: there are 700 in Southeast Asia and more than 2,500 in China (5).
The expected changes will be limited, and not all countries will benefit in the same way or to the same degree, even though RCEP is officially intended to promote Asian economic integration. ASEAN states have very different levels of wealth. At the top of the league, Singapore, with a per capita income of $64,567, has little in common with Burma ($1,440) (6). In Brunei, 78% live in cities, in Cambodia only 23%. Their needs and resilience are of a different order. Regional and global multinationals will find rich pickings in their quest for new low-wage countries.
Strategic interest
Vietnam is already benefiting from the relocation of factories formerly sited in China. Japan has adopted a plan to disengage from China and is helping Japanese companies to move back home or to invest in Vietnam, Burma or Thailand (7). Japan’s economy is among Asia’s most outward-looking, and is its leading provider of funds: it accounts for 13.7% of foreign direct investment (FDI) in ASEAN nations, compared with 7% from China. So RCEP is more likely to bring reconfiguration than upheaval within the zone.
At a time when bringing manufacturing home, buying local and protecting markets should be the basis for a new development model, Asia's major countries are betting their futures on more globalisation
The fundamental interest of this agreement is strategic, because it cements China’s geopolitical centrality. RCEP was initiated by China in response to the Trans-Pacific Partnership (TPP), which was conceived by the Obama administration as a way of containing China’s rise but went nowhere for eight years (and was dropped by Donald Trump). What finally brought RCEP to fruition is what ASEAN calls ‘cooperation diplomacy’, and China’s desire to clinch the deal.
RCEP is a ‘low-level trade agreement’, as former Singaporean diplomat and professor of public policy Kishore Mahbubani describes it (8), but in his view it marks ‘a major turning point in world history. It would be a huge mistake to underestimate its significance.’ For him, ‘before RCEP came along, there were at least three potential visions for cooperation in Asia: the Asia-Pacific, the Indo-Pacific, and East Asian. RCEP has confirmed that the dominant vision will be East Asian. The Asia-Pacific vision was promoted by the US, first through the Asia-Pacific Economic Cooperation (APEC) Forum and then through the Trans-Pacific Partnership (TPP). President Trump’s withdrawal from TPP and non-participation in APEC meetings killed this vision. The Indo-Pacific vision, which everyone welcomed, was meant to anchor India’s presence in East Asia. India’s withdrawal from RCEP has suspended this vision, although the door has been kept open for India to re-join.’
The Indian and US withdrawals are likely to be temporary; China will not be on its own for long and it will not be isolated, which is its greatest fear. RCEP ‘ensures that [China’s] economic power will expand,’ said US economist and political scientist David P Goldman, who points to its ability to draw ‘the Global South into China’s economic model by means of Chinese technology and business organisation. It has nothing to do with exporting China’s political model; on the contrary, the power of China’s approach to the world is that it seeks to transform the economy at the capillary level, from the bottom up, rather than from the top down’ (9).
Western countries are looking to the political and military domain instead. The Trump administration relaunched the Quadrilateral Security Dialogue (QSD, or the Quad), which brings together Japan, India, Australia and the US with the clear objective of forming an anti-Chinese coalition. The US has also forged closer military ties with the Philippines and Indonesia, whose defence minister made much of welcoming his US counterpart (10). It has moved closer to Vietnam and Taiwan. All this has been accompanied by a significant volume of arms deals and a ‘profusion of American and Chinese displays of strength in the South China Sea’ (11), risking false moves and misunderstandings with terrible consequences.
Which form of coercion?
So the confrontation comes to look like a choice between two forms of coercion: no security protection without allegiance to the US versus no (or rather, fewer) economic dealings without acceptance of Chinese rules. Each partner country is required to choose a side or anyway not to choose the other side. China sent Australia, which has openly aligned itself with the US by calling for a commission of inquiry into the origin of Covid-19 and rejecting the agreements with Huawei on 5G, a list of ‘14 grievances’, and a warning: ‘If you make China the enemy, China will be the enemy’ (12). To back this up, Australian wines have been made subject to huge import duty, along with coal, beef and barley. Disputes will be taken before the World Trade Organisation (WTO), but Australian producers are already feeling the pain.
ASEAN has quietly created a broad diplomatic network that may have prevented territorial conflicts in the China Sea from escalating, though it has failed to resolve them
Most Asian governments, however, refuse to accept this great-powers rhetoric. Mahbubani warns against misinterpretation: ‘While they are concerned over China’s rise, China’s neighbours also acknowledge that the rise has been peaceful. However, concern about China’s rise does not mean opposition to China’s rise.’ Some, like Singapore and South Korea, see it as a form of rebalancing; everyone wants the two giants’ respect.
Wendy Cutler, vice-president of the Asia Society Policy Institute in New York said, ‘the 15 countries chose to join hands under the RCEP framework regardless of their differences and their disputes with other parties in the region.’ Most significantly, ‘RCEP is another reminder that our Asian trading partners have developed a confidence about working together without the United States’ (13). It is too early to say whether this will have lasting geopolitical consequences.
In the meantime, Xi Jinping, fresh from his RCEP success, has announced that China is ready to join TPP-11, the new version of the Trans-Pacific treaty that Japan promoted after the US withdrawal. This is more a political coup than an economic commitment. The Chinese president wants to champion free trade, but only as long as the state remains in control. Not everybody will share that view.
