The People’s Republic of China has entered a trade agreement with 14 other countries. The states are joining forces to form the “Regional Comprehensive Economic Partnership” (RCEP), a “regional, comprehensive economic partnership.” The result is the largest free trade area on the globe.
What is the RCEP?
In addition to China, Japan, South Korea, Australia, and New Zealand are part of the agreement, as well as the ten ASEAN countries, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Cambodia, Laos, Myanmar, and Brunei.
The partnership aims to lower tariffs, which will make trade between states easier and cheaper. Overall, tariffs are to decrease for almost 90 percent of the states’ goods. Corporations that manufacture parts of their products in different countries in the free trade zone will also benefit. Moreover, the agreement includes advantageous rules for 20 other areas such as telecommunications and copyrights.
What is not Covered by the RCEP Agreement?
What is not part of the agreement is agricultural products and fish nor guidelines for the protection of workers and the environment or limits to government subsidies or rules for protecting intellectual property.
This means fewer areas are covered overall than in other comparable major free trade agreements.
RCEP Represents 29% of Global Trade Volume
In terms of population, the world’s largest free trade area is rapidly emerging. More than 2.2 billion people live in the 15 states that are now joining forces under the RCEP. Together they represent 29 percent of the global trade volume, slightly less than that of the European Union (EU), whose states together make up 33 percent.
For the 15 states who have signed on, the free trade agreement is an opportunity to accelerate their economic developments. Particularly the agreement will make it much easier for states to exchange goods with one another – without being solely dependent on exporting goods to either Europe or the US, which is likely to decrease the exchange of goods.
China-Southeast Asia Trade is Set to Boom
However, even without the EU and the US, initial forecasts have trades between China and Southeast Asia alone to grow by more than $40 billion USD by 2023.
China is the deal’s big winner. The agreement is not only a significant economic success but a political one, also. As the world’s second-largest economy and largest export nation, Chinese exporters benefit from lower tariffs and more uniform rules. Moreover, the agreement reduces the US’s influence in the Pacific region, while Beijing is expanding its own claim as a regional hegemon.
The Deal Reduces Europe’s Importance for China
Another effect is the loss of importance of Europe for China, as Beijing will no longer dependent on exporting to European nations. Conversely, European companies are also at a disadvantage if they produce in Asia or sell their goods there as Europe has so far not succeeded in signing a free trade agreement with the Association of Southeast Asian Nations (ASEAN) states.
The EU has been negotiating with China for seven years. So far, however, such an agreement has failed due to Beijing’s willingness to facilitate access to the Chinese market for European companies and reduce its own state-owned companies’ dominance. For the EU, a lot depends on China’s agreement: every day, Europeans and Chinese exchange goods and services worth around one billion euros.
China PM: ‘a Victory for Multilateralism and Free Trade’
Chinese Prime Minister Li Keqiang said the deal was not only a tremendous achievement for regional integration, “but, more importantly, a victory for multilateralism and free trade.”
The US, on the other hand, is the big loser of the RCEP agreement. Four years ago, the US sought to sign an already negotiated Trans-Pacific Partnership Agreement (TPP) in which China would not have been a party. However, the protectionist policy of US President Donald Trump did not permit such an agreement. Hence, Trump terminated American participation in the deal immediately after taking office in 2017.
The remaining Pacific nations agreed in 2018 on the “Comprehensive and Progressive Agreement for a Trans-Pacific Partnership” (CPTPP). Instead of a TPP deal without China, there are now two major trade agreements in the Pacific region v and none of them include the US.