Asia's RCEP: free trade without the red tape

This week saw the signing of the Regional Comprehensive Economic Partnership (RCEP), an unwieldy name for a vast new trading bloc that will cover 15 countries, including China, South Korea, Australia, Malaysia and Vietnam. Between them those countries account for a third of the world’s population, and 30% of global GDP. It will be the biggest single trade bloc in the world. How deep that integration turns out to be, and how much it will be dominated by China, and how much it boosts trade, remains to be seen. But there can be no question that it is a huge step towards dismantling trade barriers.

A blossoming of blocs

It is not alone. Over the course of the coming year the African Continental Free Trade Area will come into effect – Nigeria, Africa’s biggest economy, has just ratified it – taking down tariffs and liberalising trade in one of the fastest-growing regions of the world. It will cover 1.2 billion people and $3trn in combined GDP, and should substantially boost trade across the continent. South America already has the Mercosur free-trade zone and that is gradually being deepened and strengthened, and North America has a revamped Nafta. The net result is that there are now four major trading blocs in the world, of which the EU’s single market is just one. That matters for three reasons.

First, in many ways the latest trade areas are far better designed than the EU’s. None of them have all the baggage of a superstate that the EU insists is essential to make a free-trade area work. There isn’t a commission based in Malacca or Lagos drawing up tens of thousands of directives, there aren’t any flags or anthems, and the Australians and the Vietnamese and the Kenyans and the Ghanians don’t have to elect anyone to a supranational parliament. They are far simpler to run and they don’t provoke the kind of nationalistic backlash that the EU does, nor does it create a clique of over-powerful regulators who are accountable to no one. Tariffs get taken down and common rules are established, and that is just about it. If it works for Asia and Africa it will show that much of the state-building the EU insists on is nonsense. You can trade freely without it.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Second, the new trade blocs are designed for the 21st century, not the 20th. The EU’s single market is already 30 years old. It was designed at a time when fax machines were the quickest way to send documents and phones were things you spoke into (and usually came with wires plugged into the wall). Asia’s new trade zone is far stronger on issues such as services and intellectual property, which the EU has so far struggled to liberalise effectively. So is the African deal. In truth, under World Trade Organisation rules, tariffs on goods are mostly fairly minor anyway. The new round of trade blocs will be opening up markets in the sectors of the economy that really matter – and where there is real potential for liberation to drive growth. The EU’s single market has hardly even started on that.

The EU is yesterday’s news

Finally, the EU is steadily becoming less and less important. For most of its history it was the biggest trade bloc in the world and the richest as well. That was a big deal and gave it a lot of muscle. Every company in the world had to think about what the EU rules were and what it needed to do to access that market. But the fourth or fifth biggest trade bloc in the world and the one with the slowest growth? It is not quite the same thing. It won’t have quite the same sort of muscle. Companies will be less worried about its standards. Other countries may still want to secure access to its markets, but it will hardly be much of a priority and they won’t be willing to offer much in the way of concessions to get a deal.

The EU’s commissioners still act as if they are in charge of the most important market in the world. But that is not true anymore – and it is getting less and less true with every year that passes. The UK need not worry about leaving too much – there are now several far more important blocs it can trade with instead.