The world’s largest free trade deal was signed last week as 15 Asia-Pacific nations – between them accounting for one-third of the world’s output and a third of its population – agreed on a programme to substantially reduce barriers to trade. The blandly-named Regional Comprehensive Economic Partnership (RCEP) marks another shift in the world’s balance of power away from the historic centres of capitalism – and will enter into force at just the moment when a post-Brexit United Kingdom is scrabbling for a new place in the world.
That scrabble is made harder by the agreement. It is the first multilateral trade deal that China, its lead signatory, has signed, and follows hot on the heels of one it signed bilaterally with the EU earlier this year. Relative to the vast potential market of RCEP, or the smaller but richer one of the EU, the UK is a minnow. For much of this year, the Conservatives dealt with this exclusion by pinning their hopes on a trade deal with the US. The change in administration all but removes this option, leaving the UK little choice but creep back to its one remaining significant option: the EU.
This illustrates a more general problem for “Global Britain”. We no longer live in the nineteenth century, whatever the “Empire 2.0” fantasists might believe, nor in the twentieth, when broadly equal nation-states could establish their own independent trade policies and plausibly make a case that this would be to their advantage. For forty years, the UK has not had to bother with trade deals: the EU dealt with them. But as waking up from a decades-long coma, the UK government is emerging, blinking in the sunlight, expecting the world to still operate as it did in the early 1970s. What we’ve missed isn’t only the change in the balance of global power towards continental trading blocs like the EU, but the growing importance of international regulation and standards-setting, as enforced by the major global power centres.
The RCEP isn’t yet a vast zone for common regulations, but its line of travel towards becoming one is clear. The deal is broad – massively so, with 2.1 billion people to be covered by it – but shallow. It is expected to eliminate 90% of the tariffs on goods trade and standardise rules for e-commerce and intellectual property over the next two decades, but does not specify new rules in great detail. Many of the countries involved already have free trade agreements amongst themselves, so the practical difference made by RCEP will be minimal. Unlike the proposed Trans-Pacific Partnership (TPP), ratified under the Obama administration to cover North and South America plus US-aligned Pacific Rim countries, RCEP says little to nothing on so-called “behind the border” regulations, covering rules on things like trade in services and environmental protection.
Donald Trump pulled the plug on TPP shortly after arriving in office, citing concerns about US jobs. This isn’t implausible: the North American Free Trade Agreement (NAFTA), signed between the US, Canada and Mexico in 1994, hugely reduced tariffs on goods trade and led to the loss of nearly 690,000 US manufacturing jobs, mostly better-paid and concentrated in the so-called “rust belt” that was so decisive in Trump’s 2016 victory. This concern over job losses aligned with Trump’s turn against the existing structures of global trade. “America First” meant steering past the multilateral institutions that attempt to govern the global economy, principally the World Trade Organisation, to apply direct economic pressure to competitors, principally China.
Pressure from Indian unions, also citing job concerns, led to the Modi government pulling out of RCEP negotiations. These unions are right to protest against their respective free trade agreements. Despite the claims of conventional economics, any gains from unfettering trade do not distribute themselves equally amongst populations. Agreements have been used to tear down protections for workers and the environment. The multilateral system of the last few decades, overseen by the World Trade Organisation and seemingly working towards a “level playing field”, has in reality been skewed towards the larger countries, predominantly the US. (It is only recently, as China’s success in using the system after its 2001 entry into the WTO, that US opinion began turning against it.)
The control of labour is a crucial, if understated, part of trade: trade agreements help establish the ground rules over which it is possible to manage labour – either indirectly, through the competitive pressures on trade in goods and services can provoke on the labour needed to produce them, or directly, through negotiations over labour standards. This aspect of trade agreements may become increasingly important over the next few decades. A 2017 paper co-authored by economists Charles Goodhart and Manoj Pradhan, suggests that the last four decades of “globalisation” saw unusually loose labour markets – that is, there was a huge global supply of labour relative to demand for it, which kept its price down and reduced prices in general. Goodhart and Pradhan claim this period is now drawing to a close, primarily as population growth slows, swinging the balance of power back towards labour. I’ve suggested elsewhere that a longer-term effect of the current pandemic could be to magnify this impact. One implication of this would be the increased importance of rules needed to regulate labour.
The RCEP’s immediate effects will be more limited; its real significance lies in the long term. First, as nervous US foreign policy wonks have realised, this is a further move by China to establish its leading role within at least the Asia-Pacific region. It is the first multilateral agreement China has signed, and the first trade agreement of any kind between China, Japan and South Korea – helping clear a path to a deeper trade agreement that’s been in the works since 2012. Second, RCEP helps set the frame by which future agreements will be conducted amongst what have been fast-growing economies in the Asia-Pacific. These are likely to cover not just goods trade but, importantly, “behind-the-border” issues relating to the regulation of services and digital trade.
In other words, RCEP is likely to move the world closer to the creation of a vast, integrated regional economy in the Asia-Pacific. In the place of US-led globalisation, with a single set of rules in theory applying to the whole economy, it indicates a further turn of the globe towards at least three major regulatory powers – the EU, the US, and China – whose ability to establish and enforce rules over the use of digital technology, in particular, is going to become integral to their influence.
Countries that can manage integration into two or more of these blocs – Japan, say, which is both entering the RCEP and is historically close to the US – could find themselves kingmakers. Global Britain enthusiasts have imagined the UK as a cunning negotiator between the lumbering giants of the world economy. Their fantasy ignores the fact that there will be no pick n’ mix on offer in a world structured like this: you will be either in a bloc or you will not.
James Meadway is an economist and Novara Media columnist.