In a trade deal that is backed by China but excludes the United States, world’s largest free trade bloc was created by fifteen Asia-Pacific economies on Sunday.
The US had left a rival Asia-Pacific grouping under President Donald Trump in 2017.
This new trade deal which is known as the Regional Comprehensive Economic Partnership (RCEP) is also a blow to the rival trade bloc that was pushed by former US president Barack Obama.
China’s position as an economic partner with Southeast Asia, Japan and Korea could get cemented more firmly with the signing of the RCEP amid questions over Washington’s engagement in Asia. This trade deal has also placed China, the second largest economy of the world, in a much better position to influence the trade rules of the region.
With the RECP and Obama-led Trans-Pacific Partnership (TPP) both now not including the US, the world’s largest economy is now out of the two trade groups that cover that region of the world that has the fastest growth.
On the other hand, China now could have the opportunity to reduce its dependence on overseas markets and technology because of the RCEP. According to Iris Pang, ING chief economist for Greater China, this change of China has been accelerated by a deepening of differences with the US.
The 10-member Association of Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia and New Zealand make up the RCEP.
It aims in coming years to progressively lower tariffs across many areas.
“RCEP will soon be ratified by signatory countries and take effect, contributing to the post-COVID pandemic economic recovery,” said Nguyen Xuan Phuc, prime minister of Vietnam, which hosted the ceremony as ASEAN chair.
Vietnam said that 30% of the global economy, 30% of the global population and a reach to 2.2 billion consumers will be available to RCEP.
Among the promises being made by the new bloc is to eliminate some tariffs within the group countries which would include some removals being implemented immediately while others over a 10 period, said China’s finance ministry.
No details on which products and which countries would be affected by the immediate reduction in tariffs was available.
“For the first time, China and Japan reached a bilateral tariff reduction arrangement, achieving a historic breakthrough,” the Chinese ministry said in a statement, without giving further details.
This is also the first time that rival East Asian powers China, Japan and South Korea have come together in a single free trade deal.
According to analysts, it is unlikely that the US will re-join the TPP anytime soon under the leadership of President-elect Joe Biden – Obama’s vice president despite the US being outside RCEP, because of the priority of the new administration to tackle the Covid-19 situation on a priority basis.
“I’m not sure that there will be much focus on trade generally, including efforts to rejoin” the TPP successor grouping, “for the first year or so because there will be such a focus on COVID relief,” Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce said this month.
RCEP “will help reduce or remove tariffs on industrial and agricultural products and set out rules for data transmission,” said Luong Hoang Thai, head of the Multilateral Trade Policy Department at Vietnam’s Ministry of Industry and Trade.
(Adapted from CNBC.com)