Asia-Pacific nations sign a historic free-trade deal

Asia-Pacific nations sign a historic free-trade deal

On Sunday, 15th November 2020, Asia Pacific nations including China, Japan and South Korea signed the world’s largest regional free-trade agreement, encompassing nearly a third of the world’s population and gross domestic product (https://www.bloomberg.com/news/articles/2020-11-15/asia-pacific-nations-sign-the-world-s-biggest-trade-deal).

Top officials from 15 nations that also include Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations, inked the Regional Comprehensive Economic Partnership, or RCEP – nearly a decade in the making – on the final day of the 37th Asean Summit hosted virtually by Vietnam.

The RCEP, marks a major step forward for economic integration in the region, and follows almost a decade of negotiations (https://www.ft.com/content/2dff91bd-ceeb-4567-9f9f-c50b7876adce).

The significance of this deal is further emphasized by the fact that this is the first trade agreement bringing together China, Japan and South Korea, and that, according to economists, it could add almost USD 200 billion annually to the global economy by 2030.

The new Economic Partnership encompasses most of the existing agreements signed by the 10 members of the Association of Southeast Asian Nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, as well as combines them into a single multilateral pact with Australia, China, Japan, New Zealand and South Korea.

The deal brings Asia a step closer to becoming a coherent trading zone like the EU or North America, even if it is not expected to lead to large overall tariff reductions (https://www.ft.com/content/2dff91bd-ceeb-4567-9f9f-c50b7876adce).

The RCEP is expected to eliminate a range of tariffs on imports within 20 years, and it also includes provisions on intellectual property, telecommunications, financial services, e-commerce and professional services (https://www.bbc.com/news/world-asia-54949260).

Most prominently, the deal includes the rules of origin, which is the criteria that determine where a product was made. This ensures that if a product is made in a country within the RCEP, then it works for all 15 countries (https://www.ft.com/content/2dff91bd-ceeb-4567-9f9f-c50b7876adce).

As such, under RCEP, parts from any member nation would be treated equally, which might give companies in RCEP countries an incentive to look within the trade region for suppliers (https://www.bbc.com/news/world-asia-54949260).

Amongst the biggest winners from the deal are Japan and South Korea, although the benefit of cheaper goods will spread as far as Europe and the US (https://www.ft.com/content/2dff91bd-ceeb-4567-9f9f-c50b7876adce).

It is important to note that the pact is seen as an extension of China’s influence in the region and it excludes the US, which withdrew from the Trans-Pacific Partnership (TPP), in 2017 (https://www.bbc.com/news/world-asia-54949260).

The signing of the RCEP of the deal comes shortly after Joe Biden won the US presidential election. Biden is expected to shift US foreign policy to take more of a lead on global issues (https://www.theguardian.com/business/2020/nov/15/china-and-14-asia-pacific-countries-agree-historic-free-trade-deal).

It should be noted that analysts are sceptical of Biden will push hard to rejoin the TPP or to roll back many of the US trade sanctions imposed on China by the Trump administration, given widespread frustration with Beijing’s trade and human rights records and accusations of spying and technology theft (https://www.euronews.com/2020/11/15/asia-pacific-countries-including-china-sign-world-s-biggest-trade-pact).

India was also part of the negotiations, but it pulled out in 2019 over concerns that lower tariffs could hurt local producers. However, the signatories of the deal said the door remained open for India to join in the future.

The signing of the RCEP is perceived as a triumph, reflected by the fact that China’s premier, Li Keqiang, described the agreement as “a victory of multilateralism and free trade” and stated that “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” (https://www.ft.com/content/2dff91bd-ceeb-4567-9f9f-c50b7876adce) (https://www.bbc.com/news/world-asia-54949260).

On parallel lines, the leaders’ statement said the deal “demonstrates our strong commitment to supporting economic recovery, inclusive development, job creation and strengthening regional supply chains as well as our support for an open, inclusive, rules-based trade and investment arrangement” (https://www.theguardian.com/business/2020/nov/15/china-and-14-asia-pacific-countries-agree-historic-free-trade-deal).

Although the RCEP is a landmark deal, it does not go beyond the above-mentioned nor does it rival the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as a detailed model for trade and economic growth.