Leaders from fifteen Asia-Pacific countries on Sunday November 15 signed the world’s biggest free trade agreement. The deal, seen by experts as a huge coup for China in extending its influence, seeks to reduce trade barriers in the area covering more than 30 percent of the world’s population.
“By some measures, this is the largest free trade agreement in history,” said Peter Petri, professor of international finance at Brandeis University. “About 30 per cent of the world’s people are covered.”
The Regional Comprehensive Economic Partnership (RCEP) includes China, Japan, South Korea, New Zealand, Australia, and 10 Southeast Asian economies – Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam.
First proposed in 2012, RCEP, the first trade agreement bringing China, Japan and South Korea together, could add almost $200bn annually to the global economy by 2030, according to some economists.
“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,” said Chinese Premier Li Keqiang 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,” he added.
The agreement includes all the usual chapters of a free trade deal — tariffs, customs administration, sanitary measures, services, investment and more.
It “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.”
The United States is not part of RCEP seen as a Chinese-led alternative to a now-defunct Washington trade initiative. The deal is 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 the United States pull out of a trade pact of its own, the Trans-Pacific Partnership (TPP).
RCEP 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.
India did not take part in signing the deal. The country withdrew from RCEP during negotiations in 2019 and has so far refused to come back due to fear that the agreement could lead to a proliferation of cheap products from China. The member nations hope that India will join in future.
Many of the signatories are badly hit by the coronavirus pandemic and are hoping the RCEP will help mitigate the crippling economic cost of the pandemic.
“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.