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Amid trade disputes with the United States, China and 14 other Asia-Pacific countries have reached a consensus to create the world’s largest free trade bloc. After eight years of negotiations, the agreement was signed at the virtual summit of the ASEAN community of Southeast Asian states, which took place in the Vietnamese capital, Hanoi. The Regional Comprehensive Economic Association or RCEP, as the pact is abbreviated, comprises 2.2 billion people and approximately one-third of the world’s economic output.
The deal lowers tariffs, establishes common trade rules, and thus eases supply chains. Includes commerce, services, investment, electronic commerce, telecommunications, and copyright. RCEP stands for “Comprehensive Regional Economic Association”. In addition to China and the ten Asian countries, Vietnam, Singapore, Indonesia, Malaysia, Thailand, the Philippines, Myanmar, Brunei, Laos and Cambodia, Japan, Australia, South Korea and New Zealand also participate.
The joy of the communists
Especially in the context of the 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 coronavirus pandemic crisis, the CERP countries accounted for 29% of world trade, slightly less than the EU, which accounted for 33%. RCEP community engagement 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 especially on India, who did not want to open up so much. However, when New Delhi pulled out of negotiations late last year, the road was already paved for a deal.
Chinese Prime Minister Li Keqiang praised the free trade pact, saying he was confident it would help “recover and grow the world economy.” His signature “shines like light and hope, through dark clouds,” Li was quoted as saying by German media.
The prime minister referred to the current tense international situation in the context of the pandemic economic crisis, protectionist tendencies and the US trade war with China.
It is not just a monumental achievement for regional integration, “but, above all, a victory for multilateralism and free trade.” The agreement will give new impetus to development and prosperity in the Asia-Pacific region, showing “that multilateralism and free trade are the right way,” the Chinese premier was quoted as saying by tagesschau.de.
Agreements and tensions
The pact forms another free trade zone, along with the community of the other Asia-Pacific agreement, the CPTPP, which is abbreviated as the “Comprehensive and Progressive Agreement for a Trans-Pacific Partnership.” However, the CPTPP represents only 13% of world economic production and is what remains of the most ambitious project, the Trans-Pacific Partnership (TPP), after the president of the United States, Donald Trump, withdrew the United States from the TPP in 2017.
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 includes 480 million people.
The experts emphasized that the two free trade agreements do not compete with each other and that membership is not mutually exclusive. Rather, the new PRCE agreement with China works as a complement. Japan, Vietnam, Singapore, Brunei, Malaysia, Australia and New Zealand belong to both agreements.
The new PRCP does not mean that all issues between trading partners have been resolved or that signatory countries are not concerned about increasing dependence on China. One example is Japan, which is currently reviewing its supply chains in China. There are also conflicts between Australia and China, as Beijing is restricting Australian imports due to political tensions.
