The RCEP's role in keeping deglobalisation at bay

GLOBALISATION has both positive and negative effects on global growth, poverty reduction and employment opportunities. Offshoring has led to job losses, depletion of manufacturing hubs and diminished influence of private-sector labour unions.

The problem extends to the capitalist system, which is unforgiving to the impoverished and lacks social justice commitment.

It is not surprising that over the past decade, a reverse pattern or deglobalisation has occurred, manifested in protectionist trade policies, immigration barriers and a shift towards economic nationalism.

It began with declining global import and export shares in 2010. While no single event can be solely attributed as the trigger, some appear to be more significant than others.

In 2016, the United Kingdom withdrew from the European Union (in a move dubbed Brexit) owing to its desire to regain national sovereignty and control over domestic laws and regulations.

In Europe, far-right movements centred on nationalism, xenophobia and Euroscepticism contributed to a climate of isolation and decreased global cooperation intensified in the wake of the 2015 Syrian refugee crisis.

The United States pulled out of the Trans-Pacific Partnership over concerns about unemployment and scepticism on multilateral trade deals.

The Covid-19 pandemic highlighted the fragility of global manufacturing value chains. It underlined the risks of relying too heavily on one provider, leading to self-sufficiency and alliance formation.

Geopolitical instability has led to businesses repatriating operations, leading to terms like "onshoring", "nearshoring", "friendshoring" and "economic decoupling".

As the radiance of globalisation began to fade, a beacon upholding the spirit of multilateralism emerged in early 2022. On Jan 1 that year, the world's largest free trade area in history materialised when the Regional Comprehensive Economic Partnership (RCEP) came into effect.

With collaboration among 10 Asean member states, China, Japan, South Korea, New Zealand and Australia, it encompasses a third of the world’s population and gross domestic product and approximately one-quarter of global trade in goods and services.

The central question is: can the RCEP mitigate the effects of deglobalisation?

First, the RCEP is a multilateral trade agreement aimed at reducing tariff barriers and fostering greater connectivity through trade.

The aim itself contradicts the sentiment of deglobalisation. The RCEP agreement offers more flexible and simplified rules of origin for identifying a product's country of origin and qualifying for preferential tariff treatment.

Some evidence has shown that the RCEP has eased trade between Malaysia and China through the simplification of Customs clearance, whereby the time span from ordering raw materials to receiving goods between both countries has been shortened from 15 days to five days.

Simulations have further shown that by 2030, the RCEP may increase global trade by US$500bil (RM2.29 trillion) and world incomes by US$209bil (RM960.35bil) yearly.

Therefore, the RCEP addresses concerns about over-reliance or excessive dependency in value chains, which emerged post-pandemic.

Opponents of globalisation often cite unequal benefits of trade agreements, meaning some members receive more favourable outcomes than others.

This stems from asymmetric information, particularly when trade agreements lack transparency. It breeds distrust and conveys connotations of unfair advantages when some nations possess more information than others during multilateral negotiations.

The RCEP, however, effectively tackles these concerns by championing transparency, as can be seen in various chapters of the RCEP agreement.

The RCEP reduces negativity surrounding globalisation by finding common grounds for countries to cooperate and negotiate on different standards, business practices and governance.

In short, it builds business confidence and is reflected in a 2015 Khazanah Research Institute report where the RCEP is poised to stimulate increased foreign direct investment (FDI) for Malaysia from both China and Japan, potentially reversing the declining trend in FDI stock from these two nations.

Latest data further confirmed that China and Japan have increased their FDI stock in Malaysia by 16% and 10% respectively from 2021 to 2022.

Finally, geopolitical rivalries can lead to a more fragmented global economic landscape.

Despite the trade conflicts between the United States and China, the RCEP is not explicitly designed to serve as a response aimed at containing or supporting either party. Its primary focus remains on fostering regional economic cooperation and integration.

Sceptics within geopolitical circles may argue that, given China's existing robust trade partnerships with Asean, the RCEP could be perceived as its tool to pursue decoupling objectives against the United States.

This concern, however, is unwarranted because Asean and China have already established a strong trading relationship through the China-Asean Free Trade Agreement.

Also, many have overlooked that the RCEP is an Asean initiative.

Asean is founded on the principles of mutual respect for independence and non-interference in internal affairs.

Hence, the RCEP embodies the ethos of its originator. It has built-in measures to prevent dominance by any parties.

This is evidenced by the multiple annexes afforded to all parties in the RCEP agreement regardless of their geopolitical inclinations or aspirations.

In the midst of global pressures pushing nations to align with distinct geopolitical orientations – exemplified by ongoing trade tensions between the United States and China –Malaysia can proactively dismantle this polarising trend by strategically leveraging the RCEP to not only sustain but also fortify its bilateral relationship with China.

In conclusion, the RCEP serves as a much-needed hope to keep the spirit of multilateralism alive. It represents a beacon of optimism in an era where its former champions of globalisation are eschewing it.

However, the RCEP is not an absolute panacea to deglobalisation. It is a recovery process to redeem the battered reputations of globalisation.

One might call it a relatively new experiment to save multilateralism. Only time will tell whether the RCEP is a light at the end of the tunnel or an incoming train.

Associate Prof Dr Andrew Kam Jia Yi is a Senior Research Fellow at the Institute of Malaysian and International Studies, Universiti Kebangsaan Malaysia. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.