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In Asia, after eight years of negotiations, the largest free trade agreement of all is born. America and Europe are not included and neither is another rival of China.
Shanghai skyline: China celebrates political success with RCEP.
Getty Images
Regardless of the trade conflict with the United States, China has signed the largest free trade agreement in the world with 14 countries in Asia-Pacific.
After eight years of negotiations, the signing took place on Sunday at the end of the virtual summit of the ASEAN community of states in Southeast Asia in the capital of Vietnam, Hanoi. The “regional and global economic partnership” or RCEP, as abbreviated in the pact, comprises 2.2 billion people and around one third of global economic output.
The agreement lowers tariffs, establishes common trade rules and thus also facilitates supply chains. It includes commerce, services, investments, e-commerce, telecommunications and copyright. RCEP stands for “Regional Comprehensive Economic Partnership”.
About one third of the world economy
In addition to the second largest economy, China and ten Asean countries participate in Vietnam, Singapore, Indonesia, Malaysia, Thailand, the Philippines, Myanmar, Brunei, Laos and Cambodia, Japan, Australia, South Korea and New Zealand.
Especially against the backdrop of the ongoing trade war with the United States, the Free Trade Pact is a great success for the Communist leadership in Beijing. According to experts, the agreement will promote economic integration in the Asia-Pacific region and counter protectionist tendencies.
Before the Crown Crisis, RCEP countries accounted for 29% of global trade volume, slightly less than the EU with 33%. The share of the RCEP community is likely to increase, as experts expect.
Redesigned map
“RCEP will redraw the economic and strategic map of the Indo-Pacific,” said Jeffrey Wilson of the Australian Strategic Policy Institute (ASPI). The free trade pact is of “enormous importance”. It will also “give a boost” to efforts for economic recovery after the pandemic.
The agreement was preceded by 31 rounds of negotiations and 18 ministerial meetings. Self-imposed deadlines were not met six times. In the end, the deal was particularly dependent on India, which didn’t want to open at that point. But when New Delhi withdrew from negotiations at the end of last year, the road was paved for the deal.
The pact constitutes a further free trade area together with the community of the other Asia-Pacific free trade agreement, the CPTPP, abbreviated to “Comprehensive and Progressive Agreement for a Trans-Pacific Partnership”.
However, the CPTPP only accounts for 13% of global economic output. He remained from the more ambitious Trans-Pacific Partnership (TPP) project after US President Donald Trump withdrew the US from the deal in 2017.
Although the ASEAN talks were only held virtually, Trump did not attend the summit for the third consecutive year. While the United States under him has lost weight in the Asia-Pacific region, China is further extending its influence with the new free trade pact.
The role of the US is open for the moment
RCEP is broader than CPTPP, but not as deep as experts describe. The CPTPP transpacific partnership between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam has so far been ratified by seven countries and includes 480 million people.
Whether the United States will rejoin the trans-Pacific partnership under new president Joe Biden remains to be seen, which would also require congressional approval. Experts stressed that the two free trade pacts are not in competition with each other and that membership is not mutually exclusive. Rather, the new RCEP agreement with China works as a supplement. Japan, Vietnam, Singapore, Brunei, Malaysia, Australia and New Zealand belong to both.
Not all problems have been solved
The new free trade pact does not mean, however, that all problems between trading partners have been solved or that individual countries are not concerned about growing dependence on China. Japan is currently reviewing its supply chains in China. There are also conflicts between Australia and China as Beijing is restricting imports from Australia due to political tensions.
However, the deal shows that Asia-Pacific economies are highly skeptical of the technological and economic “decoupling” from China propagated by the US under Trump.
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