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Regardless of the trade conflict with the US, China has signed the world’s largest free trade agreement with 14 countries in Asia and the Pacific. After eight years of negotiations, the signing took place on Sunday at the end of the virtual summit of the community of Southeast Asian states, Asean, 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 the second largest economy in the world, China and the ten ASEan countries also participate: Vietnam, Singapore, Indonesia, Malaysia, Thailand, the Philippines, Myanmar, Brunei, Laos and Cambodia, Japan, Australia, South Korea and New Zeeland.
Right behind the EU in terms of trade volume
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.
“RCEP will redraw the economic and strategic map of the Indo-Pacific,” said Jeffrey Wilson of the Australian Institute for Strategic Policy (ASPI). The free trade pact is of “enormous importance”. It will also “give a boost” to efforts for an economic recovery after the pandemic.
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.
Trump did not participate for the third consecutive year
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.
Although the Asean talks only took place virtually, Trump did not attend the summit for the third year in a row. While the United States has lost weight in the Asia-Pacific region under its command, China is expanding its influence even further with the new free trade pact. 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 states and comprises 480 million people.
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.
Japan and Australia are quite critical of the power of China
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.
Nonetheless, the agreement shows that the Asia-Pacific economies are highly skeptical of China’s technological and economic “decoupling” propagated by the United States under Trump.
