Asia Pacific nations including China, Japan and South Korea on Sunday signed the world’s largest regional free trade agreement, encompassing nearly a third of the world’s population and gross domestic product.
Top officials from 15 nations that also include Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations inked the Regional Comprehensive Economic Partnership, or RCEP — nearly a decade in the making — on the final day of the 37th Asean Summit hosted virtually by Vietnam.
“The completion of negotiations is a strong message affirming Asean’s role in supporting the multilateral trade system,” Vietnamese Prime Minister Nguyen Xuan Phuc said ahead of the virtual signing ceremony. The agreement will contribute to “developing supply chains that have been disrupted due to the pandemic as well as supporting economic recovery,” he said.
A minimum of six Asean countries in addition to three non-Asean partners must ratify RCEP for it to come into force, Singapore’s Minister of Trade and Industry Chan Chun Sing told reporters following the signing.
Supporters of the trade pact, which covers 2.2 billion people with a combined GDP of US$26.2 trillion, said it will bolster pandemic-weakened economies by reducing tariffs, strengthening supply chains with common rules of origin, and codifying new e-commerce rules.
Among the benefits of the agreement include a tariff elimination of at least 92% on traded goods among participating countries, as well as stronger provisions to address non-tariff measures, and enhancements in areas such as online consumer and personal information protection, transparency and paperless trading, according to a statement issued on Sunday by Singapore’s Ministry of Trade and Industry. It also includes simplified customs procedures while at least 65%t of services sectors will be fully open with increased foreign shareholding limits.
Negotiators pushed the deal across the finish line after India surprised participants late last year by abandoning the agreement. Prime Minister Narendra Modi said he pulled out over concerns about how RCEP would affect the livelihoods of Indians, particularly the most vulnerable. India, though, will be allowed to rejoin the trade pact.
“The clause allowing India to join at a later date is symbolic and shows China’s desire to build economic bridges with the region’s third-largest economy,” said Shaun Roache, Asia Pacific chief economist at S&P Global Ratings.
Whether RCEP changes regional dynamics in favor of China depends on the U.S. response, experts said. The agreement underscores how U.S. President Donald Trump’s 2017 decision to withdraw from a different Asia Pacific trade pact — the Trans-Pacific Partnership or TPP — diminished America’s ability to offer a counterbalance to China’s growing regional economic influence.
That challenge will shift to President-elect Joe Biden if, as expected, he’s officially named the winner of the Nov. 3 election. Still uncertain is how the Biden team will approach trade deals and whether it tries to re-enter the 11-nation TPP.
Australian farmers and businesses will benefit from “better export opportunities” under the RCEP pact, its government said on Sunday. There are greater investment certainties for companies and gains for Australian providers within the financial services, education, health and engineering sectors, it said.