The new Regional Comprehensive Economic Partnership, or RCEP, will eventually eliminate more than 90% of tariffs on commerce among its 15 member states, which economists say will be a boon for trade in the region.
According to some analysts, this would give China a more prominent role in establishing trade rules in the Asia-Pacific region at the expense of the US.
“It will be a group of countries working together and trying to develop new rules and new standards,” said Wendy Cutler, vice president of the Asia Society Policy Institute and a former US trade executive.[The U.S. is] heading in the other direction.”
China was excluded from an earlier trade agreement, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, which led the US to counter China’s influence in the region.
The US withdrew from the Trans-Pacific Partnership in 2017 under former President Donald Trump, who said the agreement hurt American workers. Several lawmakers also opposed the agreement, and the Biden administration says it has no plans to rejoin.
Henry Gao, Asia business expert and associate professor of law at Singapore Management University, said the new RCEP “could be a wake-up call for the US to reconsider its strategy and return to the Asia-Pacific.”
He said RCEP would benefit China by making its parts and components more attractive to factories forming supply chains in Southeast Asia, and promoting trade with Japan and South Korea.
RCEP was initiated in 2012 by the Association of Southeast Asian Nations to strengthen ties with China and other countries in Asia. Ms Cutler, who worked with the US Trade Representative’s office at the time, said the US was not invited to participate and said it would not be involved anyway because the agreement was considered too weak, including Labor and environmental standards were not required.
When RCEP members revealed the completion of their agreement in November 2020, then-president-elect Biden said that the US needed to “set the rules of the road rather than determine the consequences for China and others as they enter the city.” The only game.”
A senior Biden administration official said the White House recognizes the need for the US to economically engage the Asia-Pacific region and that discussions were ongoing about how to do so.
Other member countries of RCEP are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand and Vietnam.
So far, 10 of the 15 member states have formally ratified the agreement and others are expected to do so in the coming months.
With RCEP members accounting for 30% of the global population and GDP, the partnership becomes the world’s largest regional trade agreement, surpassing the US-Mexico-Canada Agreement and the European Customs Union.
The agreement aims to eliminate almost all tariffs on imports between nations for 20 years, and to establish common standards on intellectual property rights and e-commerce.
Some trade analysts have said that RCEP does not address issues where China may be weak, including labor and environmental standards and its support for state-owned enterprises.
In a November 8 letter, 13 GOP senators led by the Senate Finance Committee’s top Republican Mike Crapo (R., Idaho) urged Biden to get involved in creating new trade rules in the Asia-Pacific region, saying the US The absence of “encourages potential partners to move forward without us and ensures that China will take the reins of the global economy.”
As an early sign, he pointed to the launch of the RCEP, “an agreement that is in line with China’s interests, including weak rules on intellectual property rights, and none on state-owned enterprises.” “
Liu Pengyu, a spokesman for the Chinese embassy in Washington, said China is “committed to building an open world economy rather than creating a special and closed ‘clique’.”
The launch of RCEP comes at a time when China wants a bigger role in trade rule-making in the Asia-Pacific region while the US is largely absent.
In recent months, Beijing applied to join the CPTPP and the Digital Economy Partnership Agreement, an ambitious new agreement between Chile, New Zealand and Singapore aimed at building common standards in areas such as e-commerce and artificial intelligence. To do. Some experts see DEPA as a model for future agreements for the broader sector.
Emphasizing the progress China has made in opening up its economy, in a November 5 speech, Chinese President Xi Jinping said that China was one of the first countries to ratify the RCEP domestically. He also promised to actively work towards joining CPTPP and DEPA.
As the first free trade agreement linking China, Japan and South Korea, RCEP is expected to go a long way in promoting trade between nations.
Tariffs on 86% of industrial goods exported from Japan to China will be abolished from the current 8%. This includes the abolition of a levy on 87% of auto-parts exports worth about $45 billion, according to the Japanese government.
Some 92% of Japanese industrial products will be exported duty-free to South Korea, compared to 19% currently.
The Brookings Institution estimates that RCEP could add $209 billion annually to world income and $500 billion to world trade by 2030.
Trade experts say the most notable feature of RCEP is the flexible core rules. The USMCA requires only 40% of the product’s content within an RCEP block to qualify for duty-free treatment, compared to 50% to 60% of floors.
“It provides a lot of opportunities to build and strengthen inter-Asian supply chains,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.
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