RCEP, the ‘minimum’ Asian Free Trade Agreement that boosts China’s economy

First Amendment:

This weekend, the RCEP, the world’s largest free trade agreement, went into effect. Fifteen Asian and Pacific countries have signed the agreement with the aim of encouraging economic recovery in the midst of the pandemic. It expects to eliminate or reduce tariffs on 65% of products manufactured and sold between member states. This new trade bloc covers a third of the world’s population and GDP, but it will not necessarily benefit all of its members equally.

RCEP – or Regional Comprehensive Economic Association for its short in English – is a project developed at ASEAN, Organization of Southeast Asian Nations, for 10 years and which took effect on Saturday.

The idea is to intensify trade between member states by eliminating or reducing tariffs for two-thirds of the products, while being made from materials from the RCEP country. The intention is to extend this tariff to 90% of production within 20 years.

The agreement was finalized after the United States withdrew in 2018 from another draft FTA – CPTPP ocean line. “As the United States left that gap by not participating in the finalization of that agreement, it has pushed Asian countries, especially China, to move forward with this other RCEP parallel agreement, which includes ASEAN, Japan, South Korea and China,” he explains. Alicia Garcia-Herrero, chief economist for the Asia Pacific region at Natixis Bank.

It is believed that this massive treaty will simplify business procedures and reduce barriers to the exchange of agricultural commodities, finished goods and components. “But these countries understand that the RCEP is a transitional agreement, at least, so that trade relations in Asia remain thriving,” he adds. The FTA lacks complex aspects, García Herrero explains, such as dispute settlement.

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Winners and losers

Nor does it consider clauses relating to labor rights or environmental protection. Largely because the main driver of the treaty is China. “It is difficult under these circumstances to also fully enter into subsidies in public companies without a doubt,” says the economist, and states that India withdrew from the agreement for not accepting the terms imposed by the economic giant. “China wants to send a message that Asia is the superpower.”

Ultimately, he points out, this minimal agreement was reached in part by Covid. The epidemic has hit the region, and according to the continent’s specialist, it remains to be seen who will be the winner and loser of the treaty. “They, in addition to China, Korea and Japan, are going to have some competition with them to work in Asian markets,” García Herrero predicts.

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