Asia-Pacific countries including Japan, China and the 10 members of ASEAN signed a regional trade deal on Sunday covering nearly a third of the global economy, wrapping up eight years of negotiations following the withdrawal of India.
The 15 signatories to the Regional Comprehensive Economic Partnership reached the agreement, aimed at cutting tariffs and establishing common rules in areas such as e-commerce and intellectual property, during a virtual leaders’ summit.
RCEP — also including Australia, New Zealand and South Korea — will create Asia’s biggest free trade zone encompassing about a third of the world’s population.
It will be Japan’s first trade deal with both China, its largest trading partner, and South Korea as negotiations for a trilateral pact have yet to be concluded.
Speaking to reporters after signing the deal, trade minister Hiroshi Kajiyama said the 15 countries were seeking to wrap up domestic procedures quickly and put the pact into effect “as quickly as possible.”
“Through the tariff removals, I believe there’ll be a major impact on improving Japan’s exports and making the region’s supply chains more efficient,” Kajiyama said. “I strongly believe we are building free and fair economic rules through introducing new rules on data free flows and the banning of demands for technology transfers, as well as the protection of intellectual property.”
Supporters of the trade pact, which covers 2.2 billion people with a combined GDP of $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.
“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 as he hosted 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.
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 — diminished America’s ability to offer a counterbalance to China’s growing regional economic influence.
That challenge will shift to President-elect Joe Biden. Still uncertain is how the Biden team will approach trade deals and whether it tries to re-enter the 11-nation TPP.
RCEP was expected to fall significantly short of the revised TPP or Japan’s trade deal with the European Union in cutting tariffs.
Despite RCEP’s historic size, it is surpassed by other major trade deals in the level of market access. The deal will eliminate tariffs on 91% of goods compared with 99.9% for the revised TPP.
Japan will eliminate 61% of tariffs on agriculture imports from ASEAN nations, Australia and New Zealand, 56% for China, and 49% for South Korea, while maintaining tariffs on five product categories — rice, wheat, dairy products, sugar, and beef and pork — to protect domestic farmers.
Meanwhile, the other countries will cut 91.5% of tariffs on Japanese industrial exports.
ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
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