Fifteen Asia-Pacific countries on Sunday signed the world’s biggest free trade deal, seen as a huge coup for China in extending its influence.
The Regional Comprehensive Economic Partnership (RCEP) accounts for a third of global GDP and is a major step towards economic integration amid the devastating pandemic.
‘Under the current global circumstances, the fact the RCEP has been signed after eight years of negotiations brings a ray of light and hope amid the clouds,’ said Chinese Premier Li Keqiang after the virtual signing.
The deal builds on existing terms among the Association of Southeast Asian Nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – and forges a new single pact that includes Australia, China, Japan, New Zealand and South Korea.
Vietnam’s Prime Minister Nguyen Xuan Phuc and Minister of Industry and Trade Tran Tuan Anh (R) attend the signing ceremony for the Regional Comprehensive Economic Partnership (RCEP) trade pact at the ASEAN summit that is being held online in Hanoi on Saturday
Australia’s Prime Minister Scott Morrison (C) watching as Australia’s Minister for Trade, Tourism and Investment Simon Birmingham signs the agreement
New Zealand’s Prime Minister Jacinda Ardern (C) looks on as New Zealand’s Trade Minister Damien O’Connor (R) signs the deal
The deal is a boon for China’s president Xi Jingping (pictured last week) as it helps to solidify his Belt and Road initiative for economic dominance
First proposed in 2012, the deal was finally sealed at the end of a Southeast Asian summit as leaders push to get their pandemic-hit economies back on track.
What is the Belt and Road Initiative?
Unveiled in 2013 in Kazakhstan and Indonesia by Chinese President Xi Jinping, the Belt and Road Initiative is the most ambitious infrastructure project in modern world history.
The multi-trillion-dollar initiative involves hundreds of projects, most of them built by Chinese contractors and financed by loans from Chinese state-owned banks, across an arc of 65 countries from the South Pacific through Asia to Africa, Europe and the Middle East.
The Belt and Road Initiative, essentially a Modern Silk Road, is made up of a ‘belt’ of six overland corridors that direct trade to and from China and a maritime ‘road’ of shipping routes and seaports from the South China Sea to the Indian Ocean.
The initiative countries account for 40 per cent of global gross domestic product growth and 44 per cent of the world’s population, according to an analysis from Morgan Stanley.
As of July 2018, more than 100 countries and international organisations had signed Belt and Road cooperation documents with China, extending the initiative’s scope from the Eurasian continent to Africa, Latin America and the Caribbean, and the South Pacific region.
The Chinese government calls the initiative ‘a bid to enhance regional connectivity and embrace a brighter future’.
Other observes and critics, however, see it as a push for the country’s position as a global economic power with a China-centred trading network while burying some countries under massive debt.
The agreement to lower tariffs and open up the services trade within the bloc does not include the United States and is viewed as a Chinese-led alternative to a now-defunct Washington trade initiative.
In a significant step, it is the first free trade deal among the three big players China, Japan and South Korea.
The deal was signed by prime ministers and their trade ministers at a virtual conference hosted by the Vietnamese delegation in Hanoi on Saturday.
The RCEP ‘solidifies China’s broader regional geopolitical ambitions around the Belt and Road initiative’, said Alexander Capri, a trade expert at the National University of Singapore Business School, referring to Beijing’s signature investment project that envisions Chinese infrastructure and influence spanning the globe.
‘It’s sort of a complementary element.’
But many of the signatories are battling severe coronavirus outbreaks and they are also hoping the RCEP will help mitigate the crippling economic cost of the pandemic.
Indonesia recently tumbled into its first recession for two decades while the Philippine economy shrunk by 11.5 percent on-year in the latest quarter.
‘Covid has reminded the region of why trade matters and governments are more eager than ever to have positive economic growth,’ said Deborah Elms, executive director of the Asian Trade Centre, a Singapore-based consultancy.
India pulled out of the agreement last year over concerns about cheap Chinese goods entering the country and was a notable absentee during Sunday’s virtual signing.
Signatories to the agreement said they hoped New Delhi would rejoin in the future, acknowledging its ‘strategic importance’ to the deal which already covers more than two billion people.
The pact should help shrink costs and make life easier for companies by letting them export products anywhere within the bloc without meeting separate requirements for each country.
The agreement touches on intellectual property, but environmental protections and labour rights are not part of the pact.
China’s Premier Li Keqiang (C) looks on as Chinese Minister of Commerce Zhong Shan (R) signs the agreement
The deal is also seen as a way for China to draft the rules of trade in the region, after years of US retreat under President Donald Trump which have seen Washington pull out of a trade pact of its own, the Trans-Pacific Partnership (TPP).
Though US multinationals will be able to benefit from RCEP through subsidiaries within member countries, analysts said the deal may cause President-elect Joe Biden to rethink Washington’s engagement in the region.
This could see the US eye the potential benefits of joining the TPP’s successor deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), said Rajiv Biswas, APAC chief economist at IHS Markit.
‘However, this is not expected to be an immediate priority issue… given the considerable negative response to the TPP negotiations from many segments of the US electorate due to concerns about US job losses to Asian countries,’ he added.