A Trade Pact with an Im-Pact: Asia-Pacific Nations sign the largest free trade agreement in history

December 14, 2020

2 min read

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What's going on here?

15 Asia-Pacific nations have sealed one of the biggest trade deals in history, covering a third of the world’s population and economic output.

What does this mean?

The Regional Comprehensive Economic Partnership (RCEP) was signed in November 2020 after almost a decade of negotiations. It was signed by China, Australia, Japan, New Zealand, South Korea and all members of the Association of Southeast Asian Nations (ASEAN). This 10-member strong group includes Indonesia, Malaysia, the Philippines & Thailand. 

The deal covers goods and services, cross-border investments, e-commerce and intellectual property. RCEP covers the standard chapters of free trade deals – customs, administration, investment, tariffs – but one provision which is notable is the inclusion of rules of origin. This allows products to use the same components and one document for transport to 15 different countries. This brings Asia a step closer to becoming a trading zone comparable to the EU or America. The deal was set to be even larger had India not pulled out due to concerns over domestic goods and agriculture. Analysts have predicted that the deal may add $200bn a year to the global economy by 2030.

What's the big picture effect?

The timing of the deal comes just after the US Presidential election and the expectation that Joe Biden will shift US policy to take a lead on global issues. This follows Donald Trump pulling the US out of the Trans-Pacific Partnership in 2017, of which many of the RCEP signatories are a part. Many analysts believe that the deal will affect US influence in the region. The deal gives Beijing an important voice to set standards for regional trade. More importantly, it is a source of soft power for China over its US rival.

The deal, however, is not ambitious. For example, it fails to establish standards on labour, agriculture and the environment or to commit any of the signatories to open services or other at-risk areas of their economies. Former Australian Prime Minister Malcolm Turnbull called the deal “old fashioned,” stating “we shouldn’t kid ourselves… it’s a really low ambition trade deal.” Furthermore, the deal does not remove 100% of tariffs – although 90% is quite close – and does nothing to set common standards for products. This means that countries who have traditionally had poor diplomatic relationships (like China & Japan) can choose not to open up their economies to one another.

To come into effect, the deal now needs to be ratified by all signatories which could be a slow process. Ratifying the treaty in countries with a national parliament could be tricky due to Anti-China sentiment. However, if approved, the world’s historic largest trading powers – the EU and the US – will have no voice when Asia sets trading rules. Maybe the West can no longer best the rest? 

Report written by Michael Johnson

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