After the world's largest free trade agreement RCEP became effective on January 1, business representatives warn of serious losses for the German industry.
Germany and the EU are at risk of losing out in the world's most significant growth region, business representatives warn, regarding the world's largest free trade agreement RCEP (Regional Comprehensive Economic Partnership), which became effective on January 1, and is still hardly known in Germany. RCEP is a free trade agreement (FTA) between 15 countries of the Asia-Pacific region, which includes the world's second and third largest economies – China’s and Japan’s respectively. Together, the RCEP countries represent nearly a third of the global GDP. RCEP has the potential of consolidating international supply chains within its member countries, luring production sites away – also from Germany, for example – and to set globally important trade norms and industrial standards. The new free trade alliance is a structural consequence of the shift in the balance of forces from the Atlantic to the Pacific and of former colonies turning their backs on their former colonial powers. German business representatives are calling for swift action to prevent potential losses to the German industry.
An ASEAN Initiative
The Asian Pacific free trade agreement RCEP (Regional Comprehensive Economic Partnership) was initiated by the Association of Southeast Asian Nations (ASEAN), which had launched initial RCEP negotiations during its summit in Phnom Penh, Cambodia in November 2012, with the objective of consolidating the various existing ASEAN FTAs into a single comprehensive agreement. This has been essentially achieved with RCEP. The central role played by ASEAN can be seen by the fact that “the ASEAN secretariat, in Jakarta, is responsible to the administrative support of RECP,” according to a recent analysis published by the Konrad Adenauer Foundation (CDU). Thus, also “the ratification documents are deposited” at the ASEAN secretariat. Since January 1, the agreement is being implemented by six ASEAN countries (Vietnam, Laos, Cambodia, Singapore, Brunei, Thailand), China, Japan, Australia and New Zealand. South Korea will follow suit at the beginning of February. Indonesia, Malaysia and the Philippines are expected to also soon follow. Myanmar has already deposited its ratification document in Jakarta; it is not yet clear, however, if it will be accepted because of that country’s military coup.
Turning Their Backs on the Colonial Powers
From a technical point of view, experts do not consider RCEP to be particularly ambitious. Unlike other free trade agreements, it is basically limited to removing tariffs and other trade barriers and standardizing rules of origin. Relatively long transition periods of up to 20 years were agreed upon for some adjustments. Rules pertaining to trade in services are weak, and there are no clauses concerning workers' and human rights and environmental protection. Yet strategically, RCEP is of considerable importance. On the one hand, RCEP brings China and Japan together – the world's second and third largest economies – as well as Japan and South Korea, for the first time, in a single free trade alliance. This facilitates further intensification of Sino-Japanese trade and counteracts US efforts to drive a wedge between the People's Republic and the western countries and their allies. On the other hand, it is a purely Asian-Pacific trade agreement. Whereas, particularly former Southeast Asian colonies had for a long time been oriented on trade with their former European and North American colonial powers, they are comprehensively turning their backs on them and systematically orientating themselves on intra-Asian trade. In the long term, the West is thus facing a further loss of influence.
This is grave, because of the great significance RCEP countries have for Germany’s economy. The RCEP countries account for €178 billion in German direct investments – with approx. half of that being in China alone. Only in the United States have German enterprises invested more – a total of around €391 billion. In the pre-crisis year, 2019, the foreign trade volume with ‘RCEP countries rose to around €363 billion and thus, accounted for 15 percent of Germany’s total foreign trade. The total trade with the Americas was only a fractional 11 percent. The EU is the sole trading partner that is more important than the RCEP countries for the German economy. However, the new FTA will now mean, for example, that Japanese enterprises will have a more advantageous access to the Chinese market, where, as Jens Hildebrandt, Chief Delegate of the German Industry & Commerce Beijing explains, “in the future they will be a stiffer competitor” – “for example, for German automobile producers.” According to a study published by the United Nations Conference on Trade and Development (UNCTAD), RCEP will cause a decline of €8.3 billion in EU exports to the RCEP countries and a decline of US $5.1 billion in US exports. On the other hand, the Asian economy will grow – the South Korean by US $6.7 billion, the Chinese by US $11.2 billion, the Japanese by US $20.2 billion.
“At the Expense of Germany as a Business Site”
Wide-ranging shifts are also emerging in international supply chains. For example, RCEP rules do not preclude the use of intermediary EU products, but favor the use of intermediary products from RCEP nations. In the long run, it reinforces the concentration of supply chains within the new free trade alliance, which tends to weaken suppliers from Europe and North America, but also those from such Asian countries as India and Taiwan, which are non-members of RCEP. For a while, India had considered joining the alliance and participating in the negotiations, but ultimately decided against membership – also because India’s business community feared, not being able to keep up with their Chinese rivals. Of course, India’s absence reinforces China’s clout within RCEP. The promotion of intra-Asian trade also supports the tendency of China being used as “an export platform to the Asian realm,” rather than serving markets in Japan, South Korea or the ASEAN countries, through use of direct exports from Germany, Jürgen Matthes of the Cologne Institute for Economic Research (IW) was quoted saying this could ultimately “be at the expense of Germany as a business site.”
Who Makes the Rules
Finally, due to its economic clout, the RCEP Alliance will develop “new rules and new standards,” for trade and industry, noted Wendy Cutler, a former U.S. trade official, who, today, is vice president of the Asia Society Policy Institute. As a result, the countries of Europe and North America will, for the first time, not be involved in setting important global standards – further evidence of the consequences of the shift toward the Asia-Pacific region in the economic balance of power. Already back in November 2020, US President Joe Biden – at the time, still President-elect – expressed his displeasure and said the United States needed to “set the rules of the road instead of having China and others dictate outcomes.” According to reports, Washington has long since been searching for a means for assuring that the USA will be able to set standards and norms even for Asia, thereby depriving RCEP of influence.
“Don’t Lose Out”
German business representatives are also applying pressure. In the RCEP countries, “they are now really getting down to business for the enterprises,” relates Volker Treier, Chief Executive of Foreign Trade of the German Chambers of Industry and Commerce (DIHK), which is why it is “that much more important” that Germany and the EU “not lose out.” One solution could be to finalize the EU’s free trade agreements with Indonesia or also with India, which have long been in the works. It is “crucial” that “the new German government quickly becomes a positive impetus for EU trade policy,” declared the DIHK’s functionary.
 Jan Cernicky: Das weltgrößte Freihandelsabkommen RCEP tritt in Kraft. Konrad-Adenauer-Stiftung: Analysen & Argumente Nr. 473. Berlin, Januar 2022.
 Die Handelsbeziehungen zwischen Deutschland und RCEP. dihk.de.
,  Nicole Bastian, Dana Heide, Martin Kölling, Mathias Peer: Fast ein Drittel der Weltwirtschaft: Die größte Freihandelszone der Welt geht an den Start. handelsblatt.com 31.12.2021.
,  Yuka Hayashi: U.S. on Sidelines as China and Other Asia-Pacific Nations Launch Trade Pact. wsj.com 01.01.2022.
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