A Timely Boost to Multilateralism
The pact aims to liberalize trade and investment across the Asia-Pacific region by lowering tariffs that will likely be eliminated on 86 percent of industrial goods exported from Japan to China and laying out new rules on government procurement, competition and policy for e-commerce.
After eight years of talks reflecting the determination of related countries to strengthen economic unity and promote free trade, the long-awaited free trade pact, the Regional Comprehensive Economic Partnership (RCEP), was signed by 15 Asia-Pacific nations on November 15. It was a triumph of multilateralism. China and other Asian nations under the RCEP can use the trade pact to inject the economic vitality that Asian nations require to recover from the COVID-19 pandemic-induced slump. The RCEP will act as a vital trade instrument that will continue to power global growth and recovery as well as pull the economic center of gravity toward the continent of Asia.
The trade pact is the biggest free-trade pact globally. The RCEP encompasses close to one-third of the world’s population and covers a market of 2.2 billion people, or nearly 30 percent of the world’s population, with a combined GDP of $26.2 trillion or about 30 percent of the global GDP. It is projected to add $186 billion to the world economy via improved regional trade. It is an unprecedented regional trading pact that includes a diverse mix of developed, developing and least-developed economies of the region. The pact aims to liberalize trade and investment across the Asia-Pacific region by lowering tariffs that will likely be eliminated on 86 percent of industrial goods exported from Japan to China and laying out new rules on government procurement, competition and policy for e-commerce.
The RCEP has created the first free trade area that would bring together the three giant Asian economies of China, Japan and South Korea. The fact that South Korea and Japan are allies of the U.S. makes it quite interesting that these three nations would come together at a time U.S. President Donald Trump is moving in all directions to isolate China using the same allies (South Korea and Japan) in the East Asian region. There are three things that came to my mind when I saw this move. First, since the U.S. is presently focused on domestic concerns, including the necessity to combat the pandemic and rebuild its economy and infrastructure, the inclusion of Japan and South Korea reveals that the rest of the world will not wait around for the U.S. The EU has also pursued trade negotiations at an aggressive pace. As other nations have also signed novel agreements, with this move, the U.S. exporters may slowly lose ground. Second, it sends a signal that the RCEP nations have chosen the path of multilateralism over unilateralism and to open their market instead of resorting to protectionist measures during this hard time. Third, it also sends another strong message that affirms ASEAN’s leading role in supporting the multilateral trading system, creating a novel trading structure in the region, enabling sustainable trade facilitation, revitalizing the supply chains disrupted by the pandemic and providing a new impetus that will help the post-COVID-19 recovery globally.
The U.S. unilateral trade policy under the Trump administration, combined with COVID-19, has brought Asia-Pacific economies closer. The RCEP reflects the necessity for Asia-Pacific economies to be in one accord after Trump’s trade war and unilateral trade policies. Guaranteeing stability in regional supply chains has also turned out to be much more imperative as the pandemic has wreaked havoc on the global supply chains. Therefore, with the way it stands now, the RCEP is expected to assist South Korea, China and Japan to finally reach a trilateral trade agreement.
Although it is not clear how the U.S. will respond to the trade agreement, now that Joe Biden is set to be sworn into office on January 20, 2021, the region is watching to see how the U.S. foreign policy will play out on trade issues, since the U.S. trade relationship with China is fraught with issues. Although it may not be anytime soon, as Biden would want to focus more on handling COVID-19, I believe that after the pandemic situation has subsided, Biden will push hard to rejoin the Trans-Pacific trade agreement and roll back most of the sanctions imposed on China by the Trump regime, given the fact that the U.S.-Mexico-Canada (USMCA) Pact, the revised version of the North American Free Trade Pact, covers slightly less economic activity. Also, since the Trans-Pacific trade agreement has been promoted by former President Barack Obama under whom Biden served as vice president, the new economic integration in Asia involving China can motivate and add pressure on Biden to think that the U.S. needs to return to the Trans-Pacific trade agreement. In conclusion, the RCEP creates a momentum for free trade and sends the message that the global economy is returning to globalization, away from the protectionism and isolationism pushed by the Trump administration.
The author is executive director of the Center for Nigerian Studies, Institute of African Studies, Zhejiang Normal University