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BEIJING – After eight years of talks, China and 14 other nations from Japan to New Zealand to Myanmar formally signed one of the world’s largest regional free trade agreements on Sunday, a pact designed by Beijing in part as a counterweight to the American influence in the region.
The pact, the Regional Integral Economic Association, or RCEP, has a limited scope. Still, it carries considerable symbolic weight. The pact covers more of humanity (2.2 billion people) than any previous regional free trade agreement and could help further solidify China’s image as the dominant economic powerhouse in its neighborhood.
It also comes after the United States withdrew from radical trade deals that reshape global relations. Nearly four years ago, President Trump pulled the United States out of the Trans-Pacific Partnership, or TPP, a broader agreement than the RCEP that was widely seen as a Washington-led response to China’s growing influence in the Asia-Pacific region. Peaceful. Joseph R. Biden, the president-elect, has been evasive about whether he would join the successor to the TPP.
Due to the pandemic, the signing of the agreement on Sunday was unusual, with separate ceremonies in each of the 15 member countries, all linked by video. Each country’s commerce minister took turns signing a separate copy of the pact while their head of state or head of government stood by and watched.
Simultaneously broadcast on a split screen, the different ceremonies offered a glimpse into the political culture of each country. Vietnam, the host country for this year’s talks, and South Korea and Cambodia each held a small desk flag or two alongside their ministers. At the other end, the China ceremony was held in front of a wall of five very large and bright red Chinese flags.
Prime Minister Li Keqiang, China’s second highest official after Xi Jinping, oversaw the Beijing event. In a statement released by state media, he described the pact as “a victory for multilateralism and free trade.”
The RCEP encompasses the 10 countries of the Association of Southeast Asian Nations plus Australia, China, Japan, New Zealand and South Korea.
Most likely, the pact will formalize, rather than redo, business between the countries. The RCEP removes tariffs primarily for goods that already qualify for duty-free treatment under existing free trade agreements. It allows countries to maintain tariffs on imports in sectors that they consider especially important or sensitive. The pact’s so-called rules of origin will establish common standards on how much of a product must be produced within the region for the final product to qualify for duty-free treatment. These rules could make it easier for companies to create supply chains that span several different countries.
It has little impact on legal work, accounting, or other services that cross borders, and it doesn’t venture far into the often divisive issue of ensuring greater protection of intellectual property. The RCEP also sidesteps general issues such as protecting independent unions and the environment and limiting government subsidies to state-owned companies.
Most strikingly, the pact does not include India, another regional giant. The New Delhi government withdrew from the negotiations in July. China had rejected India’s demands for a more ambitious pact that would have done much more to unite the region’s economies, including trade in services and trade in goods.
He Weiwen, a former official at the Ministry of Commerce in Beijing and a leading expert on Chinese trade policy, said Sunday’s pact nevertheless represented a big step forward.
“The Regional Comprehensive Economic Association, due to its size, will certainly contribute to world free trade,” he said.
The RCEP’s lower trade barriers could encourage global companies trying to avoid Trump’s tariffs on products made in China to continue working in Asia rather than moving it to North America, said Mary Lovely, principal investigator at the Peterson Institute for International Economics in Washington. .
“RCEP gives foreign companies greater flexibility to navigate between the two giants,” he said. “Lower tariffs within the region increase the value of operating within the Asian region, while uniform rules of origin make it easier to extract production from mainland China without losing access.”
The prospect of China forging closer economic ties with its neighbors has raised concerns in Washington. President Barack Obama’s response was the TPP, which had extensive provisions on services, intellectual property, independent unions, and environmental protection. He also called for limits on state sponsorship of industries, which represents both a challenge for China and a temptation for Beijing to relax its grip on its economy, the second largest in the world.
The TPP did not include China, but covered many of its main trading partners, such as Japan and Australia, as well as Chinese neighbors such as Vietnam and Malaysia. After President Trump pulled the United States out of that deal, the other 11 countries went ahead on their own.
China has been eager to step into that void. Still, he must navigate India’s ambitions. India’s relations with China have deteriorated considerably in recent months amid clashes between troops on their mountainous shared border.
Beijing had initially tried to convince New Delhi to join the RCEP. However, Indian politicians were wary of lowering their country’s high tariffs and admitting a new flood of Chinese manufactured goods. China sends $ 60 billion a year more in goods to India than it receives.
India sought more flexibility to increase tariffs if imports increased. It also sought tariff reductions for low-consumption, labor-intensive industrial goods whose production has already been moving out of China. But Beijing has been cautious about allowing high-employment industries like shoe and shirt manufacturing to leave China too quickly.
“As far as India is concerned, we are not joining the RCEP as it does not address the outstanding issues and concerns of India,” said Riva Ganguly Das, secretary for eastern relations at the Indian Ministry of Foreign Affairs, in a press conference on Thursday. .
Still, Das emphasized that India remains interested in deepening trade ties in Southeast Asia.
It is not clear how the United States will respond to the new trade pact. While Biden will take office in January, trade and China have become sensitive issues.
The TPP was criticized by Republicans and Democrats for exposing American companies to foreign competition. It remains controversial, and Biden has not said whether he would rejoin the agreement, renamed the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, once he takes office. But analysts say it is unlikely to be a high priority.
Biden has said he will wait to negotiate new trade deals. He wants to focus his energy on the pandemic, economic recovery, and investment in American technology and manufacturing.
But for some trade experts, the signing of the RCEP shows that the rest of the world will not wait for the United States. The European Union has also conducted trade negotiations at an aggressive pace. As other countries sign new deals, US exporters may gradually lose ground.
“While the United States is currently focused on domestic concerns, including the need to fight the pandemic and rebuild its economy and infrastructure, I am not sure the rest of the world is going to wait until the United States gets its house in order.” , said. Jennifer Hillman, senior fellow in international trade and political economy at the Council on Foreign Relations. “I think there will have to be some response actions to what China is doing.”
Keith Bradsher reported from Beijing and Ana Swanson reported from Washington. Hari Kumar contributed reporting from New Delhi. Claire Fu contributed research.
