13 Nov China and 14 Asian nations to sign the world’s biggest free-trade deal
Fifteen Asia-Pacific nations, including China, are striving to clinch the world’s largest free trade agreement this weekend, the culmination of Beijing’s decade-long search for greater economic integration with a region that comprises nearly one-third of the global GDP.
The Regional Comprehensive Economic Partnership, which involves countries from Japan to Australia and New Zealand, aims
to lower tariffs, reinforce supply chains with shared rules of origin, and codify new e-commerce rules. Its passage disadvantages some U.S. companies and other multinationals outside the region particularly after President Donald Trump withdrew from talks on a separate Asia-Pacific trade agreement previously called the Trans-Pacific Partnership.
Following India’s withdrawal from RCEP talks last year the remaining 15 nations tried to announce the agreement by the end of Vietnam’s Asean Summit this week. Malaysian Trade Minister Azmin Ali told reporters the agreement would be signed on Sunday, calling it the culmination of “eight years of blood, sweat, and tears negotiation.”
“The TPP has become much more interested in structural economic reforms, while RCEP is more like ‘let’s open the door in trade and concentrate on the bottom line,'” said Wellian Wiranto, an economist with Oversea-Chinese Banking Corp. “RCEP would be seen as more China-centric, but I don’t think it will be the same as the TPP was U.S.-centric.”
The effect could spread beyond the area. The deal’s advance shows how Trump’s decision to withdraw from the TPP—now known as the Trans-Pacific
Partnership Comprehensive and Progressive Agreement—has weakened America’s ability to counterbalance China’s economic clout with its neighbours. The challenge will soon move to President-elect Joe Biden if as planned, he’s officially certified Nov. 3 election winner. Whether RCEP changes the regional environment for China depends on the U.S. response, said William Reinsch, a Clinton administration trade official and senior advisor at Washington’s Center for Strategic and International Studies.
“If the U.S. continues to neglect or bully the countries there the pendulum will swing towards China,” Reinsch said. “If Biden has a credible plan to restore the region’s U.S. presence and power, the pendulum could swing back our way.”Although RCEP is not as far-reaching as the TPP, its implementation could make it harder for U.S. corporations to compete with a Chinese-backed alliance that involves 2,2 billion people with a combined GDP of about $26 trillion.
Even many trading countries are also wary of being too economically dependent on China. Japan is one of the countries that tried to re-evaluate supply chains in China, and Beijing’s decision to effectively ban main Australian exports after its government called for an investigation into the origin of coronavirus underscored the danger of relying too much on the world’s second-largest economy.
While joining the TPP’s successor remains politically tricky for Biden, some analysts still see it as America’s best vehicle to deepen economic links with the region.
“Biden’s simple option,” said Mary Lovely, professor of economics at Syracuse University. “Back to the Trans-Pacific Alliance to ensure access for U.S. businesses.”
Even days before signing, many sticking points remained among RCEP nations. Vietnam’s Deputy Foreign Minister Nguyen Quoc Dzung said during Monday’s briefing that signing would depend on whether participating nations’ “internal procedures” are completed.
“There are still issues on RCEP,” said Deborah Elms, founder and executive director of the Singapore-based Asian Trade Center, whose company advises companies across Asia and is in regular touch with officials across Asean, last week. “Sticking points remain the same: inability of some member pairs to finish the final tariff schedules info. These are negotiated bilaterally, especially for sensitive items.”
Southeast Asia, forced to tackle the virus as it spread from China earlier this year, saw uneven recovery. The 10 countries differ greatly in their starting economic role, number and intensity of successive outbreaks, capacity and willingness to provide fiscal and monetary stimulus, timing and stringent lockdowns, and concentration of hard-hit industries.
Thailand’s GDP is set to worsen in 2020, contracting by around 7.2 percent this year while Vietnam is set to be a rare economy in the world to eke out growth.
India stunned participants late last year by abandoning China-backed trade agreement. Prime Minister Narendra Modi said he was guided by the effect it would have on all Indians’ lives and livelihoods, particularly vulnerable sections of society. Despite its withdrawal, officials said India might enter talks if it wishes to do so later.
India’s departure from the deal eventually eliminated one of the pact’s greatest impediments. RCEP ministers reaffirmed their commitment to sign the agreement as global trade, investment and supply chains face unprecedented obstacles due to the Covid-19 pandemic.
“All major and smaller agreements come down to a wild last-minute sprint,” Elms said. “Officials retain their best and final deals until there is absolutely no time left for any other concessions.”