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TOKYO / NEW YORK – Speaking on trade last year, then-US presidential candidate Joe Biden warned that “either China is going to write the 21st-century rules of the road on trade, or we will.”
The president-elect will have to act swiftly upon taking office, after China and 14 other Asia-Pacific countries joined on Sunday to sign the Regional Comprehensive Economic Partnership agreement, creating the world’s largest tariff-free trading bloc. .
RCEP will cover 30% of the world’s population and 30% of the world’s gross domestic product. But the United States, the world’s largest economy, is not part of it. The Trump administration previously left the Trans-Pacific Partnership, a free trade group that did not include China.
Biden has said that he would try to renegotiate the TPP but has made no commitment to rejoin. In the 2016 race, internal pressure led then-Democratic candidate Hillary Clinton to distance herself from the TPP. Under current President Donald Trump’s “America First” ideology, the United States has shown little interest in joining the Asian multilateral frameworks.
The 15 countries at Sunday’s online signing ceremony said in a joint statement that “we believe that RCEP, as the world’s largest free trade agreement, represents an important step towards an ideal framework of global trade and investment rules.” .
Joe Biden smiles as former Secretary of State Hillary Clinton endorses him for president during an online public meeting in April. The 2016 Democratic presidential candidate distanced herself from the TPP. © Reuters
China has separate trade agreements with the Association of Southeast Asian Nations and Australia, but has stayed out of regional trade pacts as important as the TPP to date.
“This is not only a monumental achievement in East Asia regional cooperation, but more importantly, a victory for multilateralism and free trade,” Chinese Premier Li Keqiang told other members on Sunday via video link. .
Junichi Sugawara, a senior research official at the Mizuho Research Institute, said that while RCEP pales next to the TPP – RCEP phased out 91% of existing tariffs, while TPP phased out 99.9% – “It is not a small deal to have brought China into the common rules of trade.”
Especially notable about the RCEP is the significant removal of levies from Japanese trade with China and South Korea.
Non-tariff items from Japan to China will go from the current 8% to 86%. Also, non-tariff items to South Korea will be 92%, compared to 19% today.
On auto parts, 87% will be negotiable duty free. Steel products, which are currently taxed at between 3% and 6%, and agricultural tractors, which are subject to 6% tariffs, will be duty-free when the trade pact enters into force.
Auto parts manufacturers have welcomed RCEP. A representative for Akebono Brake, which exports its main brake pads to China, said the removal of tariffs will directly lead to lower costs.
Hiroto Suzuki, a partner at management consulting firm Arthur D. Little, said: “Japanese automakers are increasingly sharing auto parts among their plants in Asia, and this will help them strengthen supply chains in the region.”
China’s Prime Minister Li Keqiang, left, and Commerce Minister Zhong Shan, at a signing ceremony for the RCEP. (Photo courtesy of the ASEAN secretariat / Kusuma Pandu WIjaya)
China, which for years had not wanted to open its markets, recently changed the course of its commercial strategy. The new emphasis on opening doors to the outside world is a byproduct of trade tensions with the US Calculating that US pressure is likely not to abate under the Biden administration, Beijing seeks to strengthen ties with Asian neighbors to avoid isolation. international.
The United States appears to be at a crossroads. Biden pushed for the TPP while serving as vice president of the Obama administration. The advent of the RCEP could spark a new American debate on global trade agreements.
But on its 2020 platform, Biden’s Democratic Party promised: “We will not negotiate any new trade deals before investing first in American competitiveness at home.”
Biden has also emphasized a “buy American” stance in his stated policies, hinting at a more protectionist approach.
The midterm parliamentary elections are in two years, said a Democratic Party insider, adding that ambitious trade negotiations like the TPP will be shelved for the time being.
Meanwhile, in the EU, talks for a post-Brexit trade deal with the UK have hit a wall.
Indian Prime Minister Narendra Modi addresses the nation during Independence Day celebrations at the historic Red Fort in Delhi, India, in August. © Reuters
Another setback for like-minded Indo-Pacific nations is India’s absence from the RCEP.
The country announced in November 2019 that it was leaving the RCEP talks and never rejoined.
More than half of India’s 1.3 billion people are engaged in agriculture, and they can be hurt if cheap products, such as New Zealand dairy, flood the market. Prime Minister Narendra Modi has little desire to disrupt his large farmer base.
India’s withdrawal is not only driven by a desire to protect farmers, but also reflects concerns that RCEP will further widen the trade deficit with China, said Srikanth Kondapalli, a professor at the Center for East Asian Studies at the Jawaharlal Nehru University.
“It would have been better if India had participated, considering the nature of supply chains and keeping a balance with China,” said Ayako Fukuyama, chief business analyst at Owls Consulting Group. “But the fact that all 15 countries managed to commit and sign the pact is an important development. As the world leans toward protectionism, the Asia-Pacific region is sending a message that it will pursue free trade.”
“China is shifting investments from the United States to ASEAN,” he said. “Even without RCEP, that trend would have continued. Putting China under common rules is significant.”
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