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SINGAPORE – Fifteen countries in the Asia-Pacific region signed the Regional Comprehensive Economic Partnership agreement on Sunday, creating the world’s largest trading bloc that promises to help accelerate the growth of its members after the pandemic.
The 15 countries are China, Japan, South Korea, Australia and New Zealand, along with the 10 members of the Association of Southeast Asian Nations. Together, they account for about 30% of the world’s gross domestic product and population.
This is the first time that China has entered into a non-bilateral free trade agreement of this scale. Coming at a time when the United States is less enthusiastic about joining global trade deals and talks about a post-Brexit trade deal between the European Union and the United Kingdom stall, Asia seeks to take the lead in shaping the new architecture. global trade.
The newly signed free trade framework extends beyond trade to establish common rules and standards for a variety of economic activities.
RCEP will enter into force after at least six ASEAN countries and three non-ASEAN countries ratify it.
Sunday’s signing ceremony was held online, hosted by this year’s ASEAN President Vietnam. With the gaze of national leaders, the finance ministers of the 10-member Southeast Asian bloc signed in alphabetical order, followed by the other five countries. They held up their documents for the other participants to view via the video feed, each of which drew applause from an audience in Hanoi.
“I am confident that the RCEP will soon be ratified and come into effect, further bolstering our post-pandemic economic recovery and bringing shared prosperity to individuals and businesses in all participating countries,” Vietnamese Prime Minister Nguyen Xuan Phuc said after everyone countries will sign.
The RCEP was officially proposed in 2012 and talks had dragged on since 2013. Progress was especially slow in the early years, but discussions gathered momentum after Donald Trump became president of the United States in 2017. In the midst of a growing trend of protectionism, participating governments were more motivated to promote free trade.
One exception was India, which initially participated in the negotiations but withdrew last year as it was reluctant to open up its agricultural and other key sectors.
The agreement, which members described as “modern, comprehensive, high-quality and mutually beneficial,” includes 20 chapters of rules ranging from trade in goods, investment and e-commerce to intellectual property and government procurement.
The agreement will eliminate tariffs on a wider range of goods flowing between participants, while caps on foreign holdings will increase in more service industries, such as professional services and telecommunications. The e-commerce chapter aims to improve consumer protection and safeguard personal information, as well as promote the acceptance of electronic signatures.
This marks the second major multilateral trade agreement for Asia, following the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, or CPTPP, the 11-member version of the TPP, forged after Trump ousted the United States. Seven of the 15 RCEP members also belong to the CPTPP.
Some members are also bound by bilateral free trade pacts, such as the one between ASEAN and China. Therefore, the RCEP can be seen as a framework that ties together existing agreements.
But, in some respects, the pact also brings historical advances.
For China and Japan, Asia’s second largest economies, the RCEP is the first free trade agreement connecting them. Tariffs will be eliminated on 86% of Japanese products exported to China, up from 8% today. This promises great benefits for Japanese manufacturers, such as auto parts suppliers.
The global health crisis only adds to the severity of the moment.
The signing came as the global economy continues to suffer from the chilling effects of COVID-19. While China, South Korea, and Vietnam have shown faster recoveries, many Asian countries continued to experience economic contractions in the July-September quarter. So on Sunday, members expressed their hope that RCEP would play a key role in the region’s long-term recovery and prosperity.
“The signing of the RCEP agreement is a timely boost to the region’s long-term prospects,” Singapore’s Minister of Trade and Industry Chan Chun Sing told reporters on Sunday. “It will be a bright spot pointing in the direction that lies ahead.”
He said Singapore will ratify it “very soon, in the next few months.”
Malaysia’s Minister of Industry and International Trade, Azmin Ali, said in a statement: “It certainly represents an important and imperative milestone in the integration and revitalization of the economies of the 15 parties.”
Philippine Commerce Secretary Ramon Lopez told reporters Saturday that RCEP “offers broader market opportunities for our exporters and service providers.” He added that RCEP countries account for more than 50% of the Philippine export market.
An analyst who spoke to Nikkei Asia agreed that the deal is significant, particularly given the prolonged impact of COVID-19 and the uncertain aftermath of the US presidential election.
“Trade is an important growth engine for RCEP members,” said Cassey Lee, senior fellow at the ISEAS-Yusof Ishak Institute think tank based in Singapore. While economic recovery will be slow for many countries, he said, the agreement will provide signatories with more trade and investment opportunities.
“This will put these countries in a good position to leverage and mutually reinforce their economic recovery in the future,” Lee said.
For China, RCEP aligns with President Xi Jinping’s new “dual circulation” economic strategy: refocusing domestic demand while taking advantage of trade and foreign investment.
Chinese officials have been pushing for multilateral deals in recent months, illustrated by a series of high-level meetings, both physical and virtual. Beijing has also pledged to further open trade and investment as it aims to become a “high-income country” by 2025 and a moderately developed economy by 2035.
“We will continue to reduce the negative list that prohibits access for foreign investment,” Qian Keming, China’s vice minister of commerce, said at a forum Thursday. He went on to say that multinational companies will be encouraged to participate in high-tech sectors and development projects in the less developed central and western regions of China.
Beijing also hopes that RCEP will provide a boost for other multilateral agreements currently in the works, including a China-European Union investment treaty and a China-Japan-South Korea free trade agreement.
Without India, China is by far the largest participant in the RCEP, both in terms of GDP and population. As a result, he seems willing to exert a lot of influence in the bloc, a factor that apparently made some governments reluctant to move forward if New Delhi was not attracted.
“Japan said at the beginning that it did not want to sign if India is not there because RCEP becomes too dominant in China without India,” said an ASEAN diplomatic source on condition of anonymity. “But now he said yes, because there is no other option.”
The 15 members formally left the door open for India to join later. Japanese Prime Minister Yoshihide Suga said at Sunday’s RCEP meeting that Japan will take a leadership role in working to incorporate the South Asian country.
Indonesian President Joko Widodo said the signing was just the beginning, adding that members have yet to make efforts to implement the agreement. “This also requires political commitment at the highest level,” Widodo said. “For Indonesia, we still open opportunities for countries in the region to join this RCEP.”
However, the odds of India ever joining in are difficult to measure.
“As far as India is concerned, we did not join the RCEP because it does not address the outstanding issues and concerns of India,” Riva Ganguly Das, secretary of the Foreign Ministry, said during a virtual press conference on Thursday. “However, we remain committed to deepening our trade relations with ASEAN,” he added without elaborating.
On the other hand, former Indian Foreign Secretary Kanwal Sibal tweeted on Saturday that the RCEP signing is “most inappropriate.” He said that “signal countries can not only disengage from China, but [are] ready to go deep [economic] links “with it.
Additional information from Kiran Sharma in New Delhi, CK Tan in Shanghai, Kim Jaewon in Seoul, Cliff Venzon in Manila, P Prem Kumar in Kuala Lumpur, Bobby Nugroho in Jakarta and Masayuki Yuda in Bangkok.
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