The deal aims to lower tariffs, open up trade in services and promote investment to help emerging economies catch up with the rest of the world.
Fifteen countries on Sunday signed a sprawling Asian trade deal seen as a huge coup for China in extending its influence.
The Regional Comprehensive Economic Partnership (RCEP) — which includes 10 Southeast Asian economies along with China, Japan, South Korea, New Zealand and Australia — is the world’s largest trade pact in terms of GDP, analysts say.
First proposed in 2012, the deal was finally sealed at the end of a Southeast Asian summit as leaders push to get their pandemic-hit economies back on track.
“I am happy that after eight years of complex discussions, today we officially end RCEP negotiations,” Vietnamese Prime Minister Nguyen Xuan Phuc said ahead of the virtual signing.
The agreement to lower tariffs and open up the services trade within the bloc does not include the United States and is viewed as a Chinese-led alternative to a now-defunct Washington trade initiative.
The RCEP “solidifies China’s broader regional geopolitical ambitions around the Belt and Road initiative”, said Alexander Capri, a trade expert at the National University of Singapore Business School, referring to Beijing’s signature investment project that envisions Chinese infrastructure and influence spanning the globe.
“It’s sort of a complementary element.”
But many of the signatories are battling severe coronavirus outbreaks and they are also hoping the RCEP will help mitigate the crippling economic cost of the illness.
Indonesia recently tumbled into its first recession for two decades while the Philippine economy shrunk by 11.5 per cent 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. “RCEP can help deliver it.”
India pulled out of the agreement last year over concerns about cheap Chinese goods entering the country and will be a notable absentee during Sunday’s virtual signing. It can join at a later date if it chooses. Even without India, the deal covers 2.1 billion people, with RCEP’s members accounting for around 30 percent of global GDP.
Crucially, it 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 labour rights are not part of the pact.
The deal 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 which have seen Washington pull out of a trade pact of its own, the Trans-Pacific Partnership (TPP).
Though US multinationals will be able to benefit from RCEP through subsidiaries within member countries, analysts said the deal may cause 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), said Rajiv Biswas, APAC chief economist at IHS Markit.
“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.
What is the RCEP trade deal?
Backed by China, the sprawling Regional Comprehensive Economic Partnership (RCEP) is seen as a coup for Beijing in extending its influence across the region and marks its dominance in Asian trade.
After eight years of wrangling over the details, the trade pact — the world’s largest in terms of GDP, say analysts — will be signed on Sunday.
Launched in 2012, RCEP is a trade pact between the 10-member ASEAN bloc, along with China, Japan, South Korea, Australia and New Zealand. India had been due to sign but pulled out last year.
The deal includes 2.1 billion people, with RCEP’s members accounting for around 30 per cent of global GDP.
Its aim is to lower tariffs, open up trade in services and promote investment to help emerging economies catch up with the rest of the world.
Specifically, RCEP is expected to help reduce costs and time for companies by allowing them to export a product anywhere within the bloc without meeting separate requirements for each country.
It also touches on intellectual property, but will not cover environmental protections and labour rights.
“A key priority area for further RCEP negotiations is likely to be e-commerce,” said Rajiv Biswas, Asia Pacific chief economist at global business consultancy IHS Markit, after nations struggled to fully agree on some of the provisions on digital trade.
It is unclear when the pact will be ratified but it could come into force next year.
It mainly matters because it sets new trade rules for the region — and has China’s backing but does not include the United States.
Observers say it solidifies China’s broader geopolitical ambitions in the region, where it has faced little competition from the US since President Donald Trump pulled out of a trade pact of its own.
That deal, called the Trans-Pacific Partnership (TPP), was on track to be the world’s biggest trade pact, until Washington pulled the plug, saying it funnelled off US jobs.
However, observers say the RCEP is not as extensive as the TPP, or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as its successor is known.
It “is not a fully completed, fully rationalised agreement,” said Alexander Capri, a trade expert at the National University of Singapore Business School.
“The problem with RCEP is that you have 15 incredibly diverse countries at different stages of development and with completely internal priorities,” he added.
India withdrew last year over concerns about cheap Chinese goods entering the country, though it can join at a later date if it chooses.
It raised alarm about market access issues, fearing its domestic producers could be hard hit if the country was flooded with cheap Chinese goods.
Textiles, dairy, and agriculture were flagged as three vulnerable industries.
Prime Minister Narendra Modi faced mounting pressures at home to take a tougher stance on the terms, and proved unbending as the RCEP negotiations came to a close.
It is likely that a new US administration under President-elect Joe Biden will focus more on Southeast Asia, analysts say, although it remains unclear whether he would want to rejoin the CPTPP.
The topic remains a politically sensitive issue in the US.
“The administration will be looking at this very closely,” said Capri.
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