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China and 14 other countries agreed on Sunday to establish the world’s largest trading bloc, which encompasses nearly a third of all economic activity, in a deal that many in Asia hope will help accelerate recovery from the impacts of the pandemic.
The Regional Comprehensive Economic Association, or RCEP, was signed virtually Sunday on the sidelines of the annual summit of the 10-nation Association of Southeast Asian Nations.
“I am pleased to say that after eight years of hard work, starting today, we have officially brought the RCEP negotiations to a conclusion for signature,” said Prime Minister of the host country, Vietnam, Nguyen Xuan Phuc.
“The conclusion of the RCEP negotiation, the world’s largest free trade agreement, will send a strong message that affirms the leadership role of ASEAN in supporting the multilateral trading system, creating a new trade structure in the region, allowing the facilitation of sustainable trade, revitalizing supply. chains disrupted by COVID-19 and helping post-pandemic recovery, ”said Phuc.
The deal will take on already low tariffs on trade between member countries, even lower, over time, and is less comprehensive than an 11-nation trans-Pacific trade deal that President Donald Trump withdrew from shortly after taking office.
In addition to the 10 members of ASEAN, it includes China, Japan, South Korea, Australia and New Zealand, but not the United States. Authorities said the deal leaves the door open for India, which withdrew due to fierce domestic opposition to its market-opening requirements, to rejoin the bloc.
It will take time to fully assess the exact details of the agreement that encompasses the rate schedules and rules for the 15 countries involved – the rate schedule for Japan only is 1334 pages long.
It is not expected to go as far as the European Union in integrating the member economies, but builds on existing free trade agreements.
The agreement has powerful symbolic ramifications, showing that nearly four years after Trump launched his “America First” policy of forging trade deals with individual countries, Asia remains committed to multinational efforts toward freer trade that is seen as a formula for future prosperity.
Ahead of Sunday’s RCEP “special summit” meeting, Japanese Prime Minister Yoshihide Suga said he would strongly convey his government’s support for “expanding a free and fair economic zone, including the possibility of India’s return. to the agreement in the future, and that he hopes to obtain the support of the other countries. “
The deal is also a blow to China, by far the largest market in the region with more than 1.3 billion people, allowing Beijing to present itself as a “champion of globalization and multilateral cooperation” and giving it greater influence. on the rules governing regional trade. Gareth Leather, a senior Asian economist at Capital Economics, said in a report.
China’s official Xinhua news agency quoted Prime Minister Li Keqiang hailing the deal as a victory against protectionism, in remarks released via video link.
“The signing of the RCEP is not only a historic achievement of East Asian regional cooperation, but also a victory for multilateralism and free trade,” Li said.
The agreement is expected to help China, Japan and South Korea finally reach a trilateral free trade agreement after years of fighting to bridge their differences.
Now that Trump’s opponent, Joe Biden, has been declared president-elect, the region is watching how US policy on trade and other issues will evolve.
Analysts are skeptical that Biden will push hard to rejoin the trans-Pacific trade pact or to reverse many of the US trade sanctions imposed on China by the Trump administration given widespread frustration with Beijing’s trade and human rights record. , and the accusations of espionage and technology theft. .
Critics of free trade agreements say they tend to encourage companies to move manufacturing jobs abroad. So, having won over disgruntled Rust Belt voters in Michigan and western Pennsylvania in the Nov. 3 election, Biden “isn’t going to waste that going back to the TPP,” said Michael Jonathan Green of the Center for Strategic Studies. and Internationals in a webinar.
But given concerns about China’s growing influence, Biden is likely to seek a much greater engagement with Southeast Asia to protect US interests, he said.
The rapidly growing and increasingly prosperous Southeast Asian market of 650 million people has been hit hard by the pandemic and is urgently looking for new engines of growth.
The RCEP originally would have included around 3.6 billion people and encompassed roughly a third of world trade and global GDP. Except for India, it still covers more than 2 billion people and about a third of all business and commercial activity.
The United States-Mexico-Canada Agreement, or USMCA, the revamped version of the North American Free Trade Agreement under Trump, covers slightly less economic activity, but less than a tenth of the world’s population. The EU and the Comprehensive and Progressive Trans-Pacific Partnership, the revised version of the deal that Trump rejected, are also smaller. RCEP includes six of the 11 remaining members of the CPTPP.
India resisted exposing its farmers and factories to increased foreign competition. Among other concerns, Indian dairy farmers are concerned about competition from New Zealand and Australian cheese and milk producers. Automakers fear imports from the entire region. But overall, the biggest fear is a flood of manufactured goods from China.
Trade and investment flows within Asia have expanded enormously over the past decade, a trend that has accelerated amid disputes between the United States and China, which have imposed billions of dollars in punitive tariffs on exports of others.
The RCEP agreement is flexible enough to accommodate the disparate needs of member countries as diverse as Myanmar, Singapore, Vietnam and Australia. Unlike the CPTPP and the EU, it does not establish unified standards on labor and the environment, nor does it commit countries to open services and other vulnerable areas of their economies.
But it sets rules for trade that will facilitate investment and other business within the region, Jeffrey Wilson, research director at the Perth USAsia Center, said in a report for the Asia Society.
“RCEP, therefore, is a much-needed platform for the Indo-Pacific post-COVID recovery,” he wrote.
ASEAN members include Cambodia, Indonesia, Laos, Myanmar, the Philippines, Thailand, Brunei, Singapore, Malaysia, and Vietnam.
