China and 14 other Asia-Pacific countries signed the world’s largest trade agreement without India

17 Nov, 2020 04:40
source: Singularity Financial

Singularity Financial Hong Kong November 17, 2020 – China and 14 other Asia-Pacific countries signed the world’s largest trade agreement, the Regional Comprehensive Economic Partnership or RCEP, over the weekend. RCEP will account for 30% of the global economy, 30% of the global population and reach 2.2 billion consumers.

Fifteen Asia-Pacific economies formed the world’s largest free trade bloc on Sunday, a China-backed deal that excludes the United States, which had left a rival Asia-Pacific grouping under President Donald Trump.

The 10-member Association of Southeast Asian Nations (“ASEAN”) – made up of Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Brunei, Cambodia, Myanmar and Laos – signed the mega deal with the region’s top trading partners China, Japan, South Korea, Australia and New Zealand.  Even as India opted to stay out after walking out of discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.

The signing of the Regional Comprehensive Economic Partnership (RCEP) at a regional summit in Hanoi, may cement China’s position more firmly as an economic partner with Southeast Asia, Japan and Korea, putting the world’s second-biggest economy in a better position to shape the region’s trade rules.

What is RCEP?

Described as the “largest” regional trading agreement to this day, RCEP was originally being negotiated between 16 countries — ASEAN members and countries with which they have free trade agreements (FTAs), namely Australia, China, Korea, Japan, New Zealand and India.

The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region. Negotiations to chart out this deal had been on since 2013, and India was expected to be a signatory until its decision last November.

Analysts said economic benefits from the mega trade pact are modest and would take years to materialize. But “the diplomatic messaging of RCEP may be just as important as the economics — a coup for China,” said analysts from Citi Research.

Given China’s absence in the TPP, many observers considered RCEP as Beijing’s counter to American influence in Asia-Pacific — even though RCEP negotiations were led by ASEAN.

RCEP benefits

The RCEP is expected to eliminate a series of tariffs on imported products for the member nations in the coming 20 years. The agreement also includes rules on intellectual property, telecommunications, financial and professional services, and e-commerce .

Under RCEP, member nations would be treated equally. It would also incentivise companies in member nations to look at the trade region for suppliers.

Analysts said RCEP is a weaker trade deal compared to the CPTPP. Tariffs among many RCEP member countries are already low given existing bilateral or smaller multilateral trade deals among them, so the direct economic benefits are limited, they said.

For example, more than 70% of trade among the 10 ASEAN countries are conducted with zero tariffs, noted Gareth Leather, senior Asia economist at consultancy Capital Economics. Additional tariff reductions under RCEP “will only come into force gradually, and it will be years before the treaty is fully operational,” Leather said in a report on Thursday.

But the mega deal lays the foundation for deeper cooperation among member countries in the future, especially between those that don’t have existing bilateral trade deals, said Simon Baptist, global chief economist at consultancy The Economist Intelligence Unit.