On Sunday, fifteen Asia-Pacific countries signed the world’s largest free trade pact, seen as an unprecedented coup for China in expanding its reach.
In addition to China, Japan, South Korea, New Zealand and Australia, the Regional Comprehensive Economic Partnership (RCEP) comprises 10 Southeast Asian economies, with participants contributing about 30 percent of the global gross domestic product.
First suggested in 2012, the deal was eventually sealed at the end of a Southeast Asian summit as leaders push to get their pandemic-hit economies back on track.
Following the virtual signing, Chinese Premier Li Keqiang said Under current global conditions, the fact that the RCEP was signed after eight years of negotiations generates a ray of light and hope within the clouds.”
In the present global conditions, the fact that the RCEP was concluded after eight years of talks adds light and optimism to the clouds,” said Chinese Premier Li Keqiang after the virtual signing.
“It clearly indicates that multilateralism is the right path forward and the right course for the world economy and the development of mankind.”
The proposal to reduce tariffs and free up trade in services within the bloc does not include the United States and is seen as a Chinese-led alternative to the now-defunct Washington Trade Initiative.
The RCEP “consolidates China’s larger international geopolitical aspirations around the Belt and Road Initiative,” said Alexander Capri, a trade analyst at the National University of Singapore Business School, referring to Beijing’s flagship construction programme that envisions Chinese infrastructure and affects the world.
“It’s kind of a complimentary feature.”
Yet all of the signatories are dealing with serious coronavirus outbreaks and are still hopeful that the RCEP can help mitigate the devastating economic costs of the pandemic.
Indonesia has recently plummeted into its first recession for two decades, while the Philippine economy has contracted by 11.5 pc a year in the last quarter.
“Covid has reminded the region that trade concerns and governments are more keen than ever to achieve sustainable economic development,” said Deborah Elms, Executive Director of the Asian Trade Center, a Singapore-based consultancy.
India withdrew from the deal last year on reservations over cheap Chinese goods entering the country and was a conspicuous absentee during Sunday’s virtual signing.
Signators of the agreement said they wished that New Delhi will be reunited in the future, noting its “strategic significance” to the contract, which now includes more than two billion citizens.
The deal could help to lower costs and make it easier for businesses by allowing them to sell goods anywhere within the bloc without meeting different conditions for each member.
The agreement concerns intellectual property, but environmental conservation and labour rights are not part of the arrangement.
The agreement is also seen as a way for China to draught trade rules in the region, after years of US withdrawal under President Donald Trump, which saw Washington withdraw from its own Trans-Pacific Partnership (TPP) trade treaty.
While US multinationals would be able to profit from RCEP through subsidiaries within member countries, analysts said the agreement could lead to President-elect Joe Biden rethinking Washington’s presence in the region.
This will see the possible benefits of joining the TPP Successor Arrangement, the Comprehensive and Progressive Partnership Agreement (CPTPP), said Rajiv Biswas, Chief Economist at IHS Markit, APAC.
“However this is not likely to be an imminent priority issue […] given the substantial negative reaction of several sectors of the US electorate to the TPP negotiations due to fears about US employment losses in Asian countries,” he said.