Fifteen Asia-Pacific nations including China signed a pact on Sunday to promote regional stability by creating the world’s biggest trading alliance, covering 30 percent of global GDP and a market of 2.2 billion people.
The Regional Comprehensive Economic Partnership agreement culminates eight years of negotiations and is the biggest free trade pact to date led by the Association of Southeast Asian Nations, or ASEAN, the 10-nation intergovernmental organization. It was signed virtually by ministers at the end of ASEAN’s 37th annual summit, hosted this year by Vietnam.
RCEP promises to open up ASEAN markets by creating a free trade zone with a combined market value of US$26.2 trillion, ASEAN officials said in a statement. Easing the trade barriers would help the region deal with the Covid-19 pandemic’s challenges to trade, investment and supply chains.
“RCEP will give a much-needed boost for a swift and robust recovery for businesses and peoples in our region, particularly during the current COVID-19 pandemic crisis,” said ASEAN’s secretary-general, Dato Lim Jock Hoi of Brunei.
ASEAN members — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam — signed the deal with Australia, China, Japan, South Korea and New Zealand. India, the world’s fifth biggest economy, considered joining the deal but dropped out of negotiations last year, saying it wanted to protect farmers and service workers and citing concerns it would be flooded with cheap products at a time when its trade deficit with China, the world’s second biggest economy, already exceeded US$50 billion.
Negotiations over the trade pact, supported by ASEAN’s secretariat, began in 2013, and were overseen by Iman Pambagyo, director-general of the trade ministry in Indonesia, where ASEAN’s secretariat is based. It is the first free trade agreement that includes China, Japan and South Korea.
With is exclusion of India and the United States, the trade pact could make it more difficult for companies from those countries to compete in the region. But the United States, the world’s biggest economy, could yet apply to join if it were to first reach a free trade deal with ASEAN.
The new trade pact, which spans 510 pages including 20 chapters and 17 annexes, sets rules for trade that are intended to ease investment but do not impose regional standards for labor, environmental issues or intellectual property. It will have little impact on cross-border services. Tariffs and quotas will be eliminated among more than 65 percent of the goods traded among those nations, making business activity “predictable with common rules of origin and transparent regulations, upon entry into force,” according to ASEAN, which also posted a 10-page summary of the pact.
“This will encourage firms to invest more in the region, including building supply chains and services, and to generate jobs,” ASEAN said.
Participating nations agreed to set rules of origin that determine levels of production needed to qualify for duty free treatment, which simplifies international supply chains. But the trade pact also permits nations to retain tariffs for industry sectors they regard as important, while eliminating tariffs imposed on goods that already are considered duty-free according to other free trade agreements.
TODAY: Leaders from 15 RCEP Participating Countries will witness the signing of the biggest Regional Trade Agreement, which is also an ASEAN-led mechanism. Learn more about #RCEP, its objectives, coverage areas and how RCEP contribute to regional economic integration:#ASEAN pic.twitter.com/gZrViNNvaW
— ASEAN (@ASEAN) November 15, 2020
‘Victory of multilateralism and free trade’
Proponents of the trade deal contended last year that it could help ease trade tensions elsewhere including the United States-China trade war sparked by U.S. President Donald Trump’s punishing tariffs.
Some ASEAN members also tangled with China over trade and territorial issues. Vietnam, for example, said it worried that China appeared bent on encroaching on other nations’ rights in the South China Sea. China had been accused of delaying the trade talks for years, so it could send fishing boats into disputed waters and populate contested reefs with military encampments built on artificial islands.
But while Trump skipped the 2019 ASEAN summit, hosted by Prime Minister Prayuth Chan-cha of Thailand, and sent U.S. national security adviser, Robert O’Brien, instead, Chinese Premier Li Keqiang attended last year to emphasize that Beijing, by far the region’s largest market, was committed to the trade deal.
After the trade deal’s signing on Sunday, Li, in an apparent reference to the Trump administration’s demonstrated antipathy to multilateral organizations and agreements, was quoted by China’s official Xinhua News Agency describing the ASEAN-brokered trade pact as “not only a landmark achievement of East Asian regional cooperation, but also a victory of multilateralism and free trade.”
The United States also is missing from the other major trade bloc for the Asia-Pacific region that covers many of its fast-growing economies. One of Trump’s first actions after taking office in January 2017 was to fulfill a campaign pledge by signing an executive order for the U.S. pullout from the Trans-Pacific Partnership, former President Barack Obama’s big trade deal with 11 Pacific Rim nations.
That alliance, revived as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, is now called the TPP-11. It took effect at the end of 2018, and includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
The TPP and RCEP “originally sought to limit China’s influence,” the Washington-based Peterson Institute for International Economics observed on Twitter, “but without the balancing influences afforded by the United States and India, they will enhance rather than limit China’s outsized influence in regional decision making.”