Fifteen Asia-Pacific countries yesterday signed the world’s biggest free-trade deal, seen as a huge coup for China in extending its influence.
The Regional Comprehensive Economic Partnership (RCEP) includes 10 Southeast Asian economies along with Australia, China, Japan, New Zealand and South Korea, with members accounting for about 30 percent of global GDP.
First proposed in 2012, the deal was sealed on the final day of the 37th ASEAN summit hosted virtually by Vietnam, as leaders push to get their economies back on track amid the COVID-19 pandemic.
“Under the current global circumstances, the fact the RCEP has been signed after eight years of negotiations brings a ray of light and hope amid the clouds,” Chinese Premier Li Keqiang (李克強) said after the virtual signing. “It clearly shows that multilateralism is the right way, and represents the right direction of the global economy and humanity’s progress.”
The agreement to lower tariffs and open up the services trade within the bloc does not include the US and is viewed as a Chinese-led alternative to the now-defunct Trans-Pacific Partnership (TPP), which was a Washington trade initiative.
The RCEP “solidifies China’s broader regional geopolitical ambitions around the Belt and Road Initiative,” said Alexander Capri, a trade expert and visiting senior fellow at the National University of Singapore Business School. “It’s sort of a complementary element.”
However, many of the RCEP signatories are battling severe COVID-19 outbreaks and are also hoping that the deal will help mitigate the crippling economic costs of the pandemic.
Indonesia recently tumbled into its first recession in two decades while the Philippine economy shrunk by 11.5 percent year-on-year in the latest quarter.
“COVID has reminded the region of why trade matters and governments are more eager than ever to have positive economic growth,” said Deborah Elms, executive director of the Asian Trade Centre, a Singapore-based consultancy.
Supporters of the trade pact, which covers 2.2 billion people with a combined GDP of US$26.2 trillion, said that it would bolster pandemic-weakened economies by reducing tariffs, strengthening supply chains with common rules of origin and codifying new e-commerce rules.
India pulled out of the agreement last year over concerns about cheap Chinese goods entering the country and was a notable absentee during the virtual signing.
Signatories to the agreement said they hoped New Delhi would rejoin, acknowledging its “strategic importance” to the deal.
The pact should help shrink costs and make life easier for companies by letting them export products anywhere within the bloc without meeting separate requirements for each country.
The agreement touches on intellectual property, but environmental protections and labor rights are not part of the pact.
It is also seen as a way for China to draft the rules of trade in the region, after years of US retreat under President Donald Trump.
Although US multinationals would be able to benefit from RCEP through subsidiaries within member countries, analysts said that the deal might cause US president-elect Joe Biden to rethink Washington’s engagement in the region.
This could see the US eye the potential benefits of joining the TPP’s successor deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), IHS Markit Ltd chief Asia-Pacific economist Rajiv Biswas said.
“However, this is not expected to be an immediate priority issue ... given the considerable negative response to the TPP negotiations from many segments of the US electorate due to concerns about US job losses to Asian countries,” he added.
Additional reporting by Bloomberg
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