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As the United States seeks a “dissociation” from China, Beijing is entering into a grand free trade alliance with the major economies in the Asia-Pacific region. The trade volume of the agreement could exceed that of the EU in the future.
Amid trade disputes with the United States, China and 14 other countries in Asia and the Pacific forged the world’s largest free trade bloc. After eight years of negotiations, the signing of the virtual summit of the community of Southeast Asian states Asean took place in the capital of Vietnam, Hanoi. The “regional comprehensive economic partnership” or RCEP, as the pact is abbreviated, comprises 2.2 billion people and about a third of the world’s economic output.
The agreement lowers tariffs, establishes common trade rules, and thus also makes supply chains easier. It covers trade, services, investment, electronic commerce, telecommunications and copyright. RCEP stands for “Regional Comprehensive Economic Association”. In addition to China and the ten ASEAN countries, Vietnam, Singapore, Indonesia, Malaysia, Thailand, the Philippines, Myanmar, Brunei, Laos and Cambodia, Japan, Australia, South Korea and New Zealand also participate.
Agreement only after India left
Especially in the context of the ongoing trade war with the United States, the free trade pact is a great success for the communist leadership in Beijing. According to experts, the agreement will promote economic integration in the Asia-Pacific region and counter protectionist trends. Before the Corona crisis, RCEP countries accounted for 29 percent of world trade volume, slightly less than the EU at 33 percent. However, the proportion of the RCEP community is likely to increase, as experts expect.
The agreement was preceded by 31 rounds of negotiations and 18 ministerial meetings. Self-imposed deadlines were missed six times. In the end, the deal depended particularly on India, which did not want to open up so far. However, when New Delhi withdrew from the negotiations at the end of last year, the way was opened for the deal.
Another free trade zone with CPTPP
The pact forms a new free trade area together with the community of the other Asia-Pacific free trade agreement, the CPTPP, which is abbreviated as “Comprehensive and Progressive Agreement for a Trans-Pacific Partnership.” However, the CPTPP only represents 13 percent of world economic output. It remains from the most ambitious project of the Trans-Pacific Partnership (TPP) after US President Donald Trump withdrew the United States from the agreement in 2017.
RCEP is more extensive than CPTPP, but it is not as deep as experts describe. The CPTPP trans-Pacific partnership between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam has so far been ratified by seven countries and comprises 480 million people.
Not all problems are out of the world
It remains to be seen whether the United States will rejoin the trans-Pacific partnership under new President Joe Biden, which would also require congressional approval. The experts pointed out that both free trade pacts are not in competition with each other and that membership is not mutually exclusive. Rather, the new RCEP agreement with China works as a complement. Japan, Vietnam, Singapore, Brunei, Malaysia, Australia and New Zealand belong to both.
However, the new free trade pact does not mean that all problems between trading partners have been resolved or that individual countries are not concerned about increasing dependence on China. Japan is currently reviewing its supply chains in China. There are also conflicts between Australia and China because Beijing is restricting imports from Australia due to political tensions.
