Fifteen Asia-Pacific countries, including China, are striving to clinch the largest free-trade deal in the world this weekend.
The deal would mark the culmination of China’s decade-long quest for greater economic integration with a region that encompasses nearly a third of the global gross domestic product (GDP).
The goal of the Regional Comprehensive Economic Partnership (RCEP), which involves countries ranging from Japan to Australia and New Zealand, is to reduce tariffs, reinforce common rules of origin supply chains and codify new rules on eCommerce.
Some US companies and other multinationals outside the zone may be disadvantaged by its passage, particularly after President Donald Trump withdrew from talks on a separate Asia-Pacific trade agreement formerly referred to as the Trans-Pacific Partnership (TPP).
According to the original trade deal, 16 countries were supposed to be a part of the global agreement including Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, Australia, China, India, Japan, Korea and New Zealand.
Following India’s withdrawal from RCEP negotiations last year, the remaining 15 countries sought to announce the agreement by the end of the ASEAN (Association of Southeast Asian Nations) summit this week, virtually hosted by Vietnam. Trade Minister of Malaysia Azmin Ali of Malaysia said the agreement will be signed on 15th November, calling it the culmination of “eight years of negotiating with blood, sweat and tears.”
“The TPP was involved a lot more on fundamental changes in the economy, whereas RCEP is more like ‘let’s open the door in trade and focus on the bottom line,'” said Wellian Wiranto, an economist with Oversea-Chinese Banking Corp. “RCEP will be seen as more China centric, but I don’t think it would be the same way as the TPP was US centric.”
Role of America
The impact may extend beyond the region. The progress of the deal shows how Mr. Trump’s decision to withdraw from the TPP (now known as the Trans-Pacific Partnership Comprehensive and Progressive Agreement) has diminished the capacity of America to counterbalance China’s economic leverage with its neighbors. The challenge will soon transfer to President-elect Joe Biden.
William Reinsch, a senior advisor at the Center for Strategic and International Studies in the US, said that the question of whether the RCEP shifts the regional dynamic in favor of China depends on the US response.
“If the US continues to ignore or bully the countries there, the influence pendulum will swing toward China,” Mr. Reinsch said. “If Biden has a credible plan to restore the US presence and influence in the region, then the pendulum could swing back our way.”
Although the RCEP is not as far-reaching as the TPP, its implementation will make it more difficult for US companies to compete with a Chinese-backed partnership that involves 2.2 billion people with a total GDP of about $26 trillion.
China dependence concerns
Nevertheless, many countries involved in the trade agreement are also wary of being too dependent on China economically. Japan is one of the countries that have tried to reassess China’s supply chains, and Beijing’s decision to effectively ban main Australian exports after its government called for a coronavirus origin investigation underscored the danger of relying too heavily on the world’s second-largest economy.
An inconsistent recovery has been seen in Southeast Asia, which was forced to tackle the virus as it spread from China earlier this year. In terms of their economic position, the number and intensity of successive outbreaks, the capacity and willingness to provide fiscal and monetary stimulus, lockdown timing and thoroughness, and the concentration of hard-hit industries, the 10 countries differ greatly.
Thailand’s GDP is shrinking by about 7.2 percent this year and is projected to be among the worst off in 2020, while Vietnam is set to be a rare economy in the world to not be impacted greatly.
Late last year, India surprised participants when it abandoned the China-backed trade agreement. Prime Minister Narendra Modi said at the time that he was guided by the effect it would have on the lives and livelihoods of all Indians, especially vulnerable segments of society. Despite the withdrawal, the deal is likely to leave the door open for India if it decides to join later.
In June this year, RCEP ministers reaffirmed their commitment to sign the deal, even as global trade, investment and supply chains face unprecedented challenges due to COVID-19 pandemic.