Saturday, November 28, 2020

RCEP: Agreement Signed to Form Massive Free Trade Area (Map)

Globe-style map of which countries have signed the RCEP (Regional Comrehensive Economic Partnership) agreement (colorblind accessible).

Graphic modified by Evan Centanni from this map by Wikimedia user Masterdeis (CC BY-SA).

What is the RCEP free trade deal?

Two weeks agao, 15 countries in Asia and Oceania signed a long-planned treaty to form the Regional Comprehensive Economic Partnership (RCEP), a free trade area widely billed as the "world's largest". However, the RCEP doesn't exist quite yet as an actual free trade area, since it's still waiting to be ratified (written into the laws of member countries). Read on for a quick explanation of what the RCEP is, when it will be implemented, and how it compares to the world's other free trade areas.

Organization Name:  
• Regional Comprehensive Economic Partnership
Founded: 2020 in video conference hosted by Hanoi, Vietnam
Headquarters: Jakarta, Indonesia (ASEAN Secretariat)

What is a free trade area?

A free trade area is a group of two or more countries that have signed a treaty making it cheaper and easier to import and export things to each other. The idea is usually to increase the total amount of trade between the member countries, in hopes that it will make the economy better for all of them. This kind of treaty is called a "free trade agreement" (FTA) because it allows people and companies to import and export things more "freely" within the group of countries.

Which countries are in the RCEP?

Fifteen countries have signed onto the RCEP, most of them in Asia. The core the area is built around is the Association of Southeast Asian Nations (ASEAN), a union of 10 neighboring countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam. In fact, the RCEP doesn't currently have its own headquarters office, and instead delegates that responsibility to the ASEAN Secretariat in Jakarta, Indonesia.

To the north, the ASEAN countries are joined in the RCEP by China, Japan, and South Korea, and to the south, by Australia and New Zealand. Significantly, this is the first-ever free trade deal to include both Japan and China, or both Japan and South Korea, even though they're next-door neighbors.

Not only that, but the RCEP is sort of the first multi-sided free trade area to even include just China, the world's second-largest country by economic size. That's because (1) China's prior free trade arrangement with ASEAN is considered a two-ended deal, (2) the Asia-Pacific Trade Agreement (APTA) isn't officially called a "free trade" deal because it's less ambitious, and (3) the WTO doesn't necessarily count (see below). All of China's other free trade agreements are one-on-one deals with single countries.

When does the RCEP come into effect?

As we mentioned at the beginning, the RCEP hasn't actually been implemented yet. According to the text of the treaty, it won't be officially in place until six of the 10 ASEAN countries plus 3 more members have finished ratifying it (writing it into their own laws) or otherwise officially approved it through their national governments. And once all those approvals have been formally registered, there will still be a 60-day waiting period before it takes effect.

As for signatory countries that still haven't finalized their membership by then, each one will be effectively absorbed into the free trade area 60 days after it submits its own ratification or approval.

Will the RCEP be the world's biggest free trade area?

Map of World Trade Organization (WTO) member and observer countries, up-to-date as of 2019, labeling the two most recent members Liberia and Afghanistan, which joined in 2016. Colorblind accessible.
The WTO covers most of the world, with 164 full members (shown in dark red)

It's not unreasonable to call the RCEP the world's biggest free trade area, but it depends a little on how you define "biggest" and "free trade area". 

As we discussed in our fact check article on the size of the AfCFTA, no free trade area can beat the World Trade Organization (WTO) for size, since it includes a large majority of the world's countries. The only question is whether the WTO counts as a free trade area at all - and many people would say it doesn't, since its goal isn't to create a separate "area" for free trade, but to unify trading standards across the whole world. On top of that, it doesn't go as far towards eliminating obstacles to trade as most regional free trade areas do - otherwise, groups of WTO member countries wouldn't bother to create regional free trade zones in the first place.

Assuming we don't count the WTO, the RCEP - once it goes into full effect - will likely be the world's largest free trade area by sheer economic size: Its combined nominal GDP* if it was implemented today would be roughly US$26 trillion, compared with about $24 trillion for the closest runner-up, the USMCA/CUSMA (formerly NAFTA). Of course, that's a pretty modest difference, so it's not impossible that the two could switch places by the time all countries have finalized their membership in the RCEP.

We can probably also call the RCEP the world's largest proper free trade area by population, with about 2.25 billion people living in its member countries once they've all finished joining. The Asia-Pacific Trade Agreement (APTA) is bigger, with about 3 billion people, but as mentioned above, it's conventionally considered only a "preferential trade" area rather than a full "free trade" area. Without China, the world's most populous country, it's a challenge for any other trade area to compete. Though the South Asian Free Trade Area (SAFTA) includes India, which has almost as many people as China, it still falls well short of the RCEP, at about 1.8 billion people.

Interestingly, by the same measurement reporters relied on to label the AfCFTA the world's "biggest free trade deal since the WTO" - that is, the number of member countries - this new "world's biggest free trade deal" falls hopelessly short. The RCEP only has 15 signatory countries, while the AfCFTA has 54 - at least 28 of which are already fully-ratified members.

African Continental Free Trade Area countries: Map of AfCFTA members and signatories as of October 2019. Who has signed the AfCFTA, who has ratified the AfCFTA, and who has not signed. Updated for 28th ratification by Mauritius. Colorblind accessible.
The AfCFTA promises to be bigger than the RCEP by land area and number of member countries.

And what if we measure the size of free trade areas by, well, area? The RCEP, covering about 22.5 million square kilometers (10 million square miles) of land, can't claim the top spot there either. As we found in our AfCFTA size fact check article, the Eurasian Economic Union (EAEU)-China free trade area is probably the most expansive today, at about 29.8 million sq. km. (11.5 million sq. mi.). 

And even if we don't count that one for whatever reason, the area of Africa's AfCFTA itself, counting all its signatory countries (as everyone is doing for the RCEP), is almost exactly the same size as the EAEU-China area.

*Though we used PPP GDP numbers in our AfCFTA fact check article, we've since decided that nominal GDP is a better measure for these purposes.

Gaps in the free trade area: Which countries are missing from the RCEP?

Though it doesn't look like a gap on the map, the biggest missing piece of the RCEP is usually considered to be India: Roughly the world's fifth-biggest country by economic size, and the world's second-biggest by population (after China), India was always intended to be one of the RCEP's key members. But after almost a decade of negotiations, India decided to pull out of the project in late 2019, citing worries that the free trade rules would make it too hard for Indians to compete in the world.

In the Oceania region, Australia and New Zealand are the only countries to have joined the RCEP. The rest of the region's island countries - including Papua New Guinea, which shares a land border with Indonesia but is considered part of Oceania for cultural reasons - are smaller players and less plugged into the major trade routes.

Tucked in between Indonesia and Australia, tiny Timor-Leste (East Timor) is the only independent country expected to be fully surrounded by the RCEP's free trade area, mainly because it hasn't yet been allowed into ASEAN after seceding from Indonesia in 2002. The special territories of Hong Kong and Macao also form bubbles inside the planned area - though they're officially part of China, the two cities are treated like separate countries for trade purposes under WTO rules, which from the background for the RCEP agreement. Hong Kong's government says it is interested in joining the RCEP as a separate member in the future.

Taiwan's situation is even more complicated. China considers it to have the same status as Hong Kong and Macao: a special trade zone officially within China. However, the government in control of Taiwan disagrees. As a compromise, Taiwan (together with the smaller islands it controls) is officially known at the WTO as the "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei)". But as long as the disagreement over Taiwan's political status continues to be an issue, China would probably veto any attempt for Taiwan to join the RCEP.

In Asia's northeast, the only remaining countries not part of the RCEP are the famously-closed-up North Korea, more-Europe-oriented Russia, and sparsely-populated, landlocked Mongolia.

Can more countries join the RCEP?

Yes, the rules of the agreement say that "any state or customs territory" can join, but only after the trade area has already been in force for 18 months - except for India, which is allowed to change its mind and rejoin any time. A "state" here means an independent country, and the term "customs territory" is mainly a reference to Hong Kong, Macao, and - in theory - Taiwan (see previous section). 

For a new country or territory to join, its application has to be accepted by all current full members, and it won't be fully absorbed into the trade area until all of them are satisfied that any legal conflicts have been resolved.

Can a member country leave the RCEP?

Yes, even once a country or territory has become a full, integrated part of the trade area, it can still always choose to leave. However, there will be a six-month waiting period before its withdrawal takes effect, unless the other members agree to shorten it. The rest of the free trade area will continue to exist even if one or more of the original members pulls out.


For In-Depth Research: Full Text of the RCEP Agreement

This is the first article in PolGeoNow's planned ongoing coverage of RCEP membership. To check for future updates and related stories, you can view all RCEP articles on PolGeoNow.