Agreement must move on up

Four years after its entry into force, the Regional Comprehensive Economic Partnership has become a leading embodiment of a free, open and rules-based trade framework. Covering roughly one-third of global GDP, trade and population, the mega-regional agreement has helped to lock-in trade and investment and establish a unified rules-based framework across East Asia.

In 2024, intra-RCEP trade reached about $5.8 trillion, 2.4 percent higher than the level prior to its implementation in 2022, and almost twice the trade flows compared to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Yet the world today looks very different from the time when the RCEP was negotiated and entered into force in 2022. Trade rules are being stretched by disruptive yet institutionalized tariff regimes, while members' growing reliance on bilateral deals with external partners risks weakening the very foundation on which the RCEP rests — a shared recognition of the necessity for a unified regional framework. Although the RCEP Leaders' Summit in October has reaffirmed the members' commitment to the agreement, the region needs to be more proactive in managing the rising geopolitical and geoeconomic fragmentations. This is precisely the reason for the timely review of RCEP 2.0 — not as a slogan, but as a concrete agenda to turn the pact into a higher-standard, rules-based and better-governed regional cooperation mechanism.

The RCEP was conceived as a "living agreement", with general reviews scheduled every five years, the first of which is due in 2027. The first review will be critical for the agreement's transition toward the RCEP 2.0. Three priorities stand out as a collective agenda critical for the evaluation of RCEP members: a practical monitoring and evaluation framework, the timely establishment of a full-fledged RCEP Secretariat, and a timely breakthrough in accession.

First, the full positive impact of the RCEP on the region requires a workable monitoring and evaluation mechanism. This should review and monitor the implementation of the commitments of RCEP members in a clear and transparent framework — for example, through a joint online database of the implementation in terms of policy and institutional gaps in tariff reduction schedule, reforms in the rules of origin, services and investment liberalization, and trade and investment facilitation — and address the behind-the-border issues in the RCEP agreements. It should also focus on facilitating business activities to increase the utilization of the RCEP in reducing the compliance costs, especially enhancing the inclusiveness of small and medium-sized enterprises. It is even more critical to evaluate the importance of the RCEP as the regional Association of Southeast Asian Nations+1 FTAs are upgraded. It is important to develop a framework within RCEP to review whether the new agreements signed by members with external partners might inadvertently hurt members' interests and erode the RCEP's relative value to trade and investment in the region. These concerns could be addressed and discussed in a collective framework such as the RCEP.

Second, mega-regional agreements cannot run on autopilot, and the RCEP is no exception. The existing support unit at the ASEAN Secretariat, although a major step forward, has a limited mandate and constrained resources. Moving toward a full-fledged RCEP Secretariat would give the agreement a much stronger institutional backbone. Such a body could support committees and working groups under the RCEP, help members share ideas and best practices on trade issues, and play an important role in coordinating, identifying practical solutions and creating a shared vision in addressing the rising geopolitical risks in the region. Most importantly, engaging regional stakeholders — particularly think tanks and the private sector — to deepen the intellectual and social foundations of the RCEP is also critical. The China Institute for Reform and Development has taken a positive initiative in coordinating and supporting five consecutive RCEP Media and Think Tank Forums in the past few years to strengthen the private sector and institutional role in RCEP.

The third pillar of RCEP 2.0 is a clear and credible approach to accession. Currently, several economies have expressed interest in joining the RCEP, including Hong Kong SAR, Sri Lanka, Chile and Bangladesh. In fact, the accession will provide important market-expansion opportunities for existing members and enhance the RCEP's global relevance as one of the open and rules-based trade platforms in a more geoeconomically fragmented world. This makes economies such as Hong Kong and others that already have deep ties with RCEP markets pertinent candidates for new market access for RCEP expansion. Having Hong Kong in the RCEP could bring clear value-added in sectors such as finance, logistics, legal and professional services and connectivity with other regions.

Where does China fit into the RCEP 2.0 project? The recent Central Economic Work Conference lays out a blueprint. China could play a larger role as a provider of regional public goods, namely by further opening-up on the one hand and fostering domestic demand on the other.

In recent years, China has repeatedly signaled its commitment to "steadily expanding institutional opening-up" and, more specifically, to advancing voluntary opening in key service sectors. Combined with continued moves to lower tariff levels, these measures would attract more imports of goods and services into the vast Chinese market while demonstrating a willingness to keep improving the business environment and regulatory practices at home. In this regard, China's ongoing experiments in its 22 pilot free trade zones provide a laboratory for advanced rules and practices. The special customs operations of Hainan Free Trade Port, launched on Dec 18, deserve particular attention from RCEP members as a new flagship of China's opening-up in the new era. Statistics have shown that Hainan's goods trade with other RCEP members has surged from 57.36 billion yuan ($8.2 billion) in 2021 to 102.98 billion yuan in 2024, representing a 79.5 percent increase after RCEP's implementation and surpassing 100 billion yuan for the first time. Hainan's practices could eventually feed into RCEP upgrades in areas such as e-commerce, investment facilitation and sustainable trade, and technology transfer and spillovers.

At the same time, China's renewed emphasis on cultivating domestic demand bodes well for addressing structural mismatches between production and consumption within the RCEP region. In 2024, China absorbed over $597 billion worth of exports from other RCEP members, accounting for 18.1 percent of their total exports and standing 24 percent higher than their exports to the United States. If China's vast potential in domestic demand — particularly in services sector — can be further unlocked, it will generate substantial consumption and investment demand, providing RCEP members with broader market space and helping to foster a more balanced and sustainable regional economic structure.

The strength of the RCEP lies in its diversity and its scale. It connects advanced and emerging economies, manufacturing powerhouses and service hubs, large domestic markets and trade-dependent small states. In a world where new trade barriers are increasing and multiplying, the RCEP is a critical means of maintaining open and rules-based trade that benefits all members and promotes sustainable development.

Turning the RCEP into a higher open "2.0 agreement" will require political will and shared vision from all members. It will also require each RCEP member to align its domestic reforms with a shared regional vision. But in doing so, the RCEP 2.0 framework will be well placed to help Asia navigate a more fragmented global economy by promoting stable, sustainable and inclusive development.

Wang Yuehong is a research assistant at the China Institute for Reform and Development. Shandre Mugan Thangavelu is the head of Jeffrey Cheah Institute of Southeast Asia at Sunway University, Malaysia. The authors contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.