Fifteen Asia-Pacific economies formed the world’s largest free trade bloc on Sunday, a China-backed and lead deal.
The signing of the Regional Comprehensive Economic Partnership (RCEP) at a regional summit in Hanoi, is an APAC centric version of the questionable Trans-Pacific-Partnership (TPP).
RCEP may cement China’s position more firmly as an economic partner with Southeast Asia, Japan and Korea, putting the world’s second-biggest economy in a better position to shape the region’s trade rules.
By contrast, RCEP could help Beijing cut its dependence on overseas markets and technology, a shift accelerated by a deepening rift with Washington, said Iris Pang, ING chief economist for Greater China.
RCEP groups the 10-member Association of Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia and New Zealand. It aims in coming years to progressively lower tariffs across many areas.
The deal was signed on the sidelines of an online ASEAN summit held as Asian leaders address tensions in the South China Sea and tackle plans for a post-pandemic economic recovery in a region where U.S.-China rivalry has been rising.
In an unusual ceremony, held virtually because of the Chinese Virus pandemic, leaders of RCEP countries took turns standing behind their trade ministers who, one by one, signed copies of the agreement, which they then showed triumphantly to the cameras.
“RCEP will soon be ratified by signatory countries and take effect, contributing to the post-pandemic economic recovery,” said Nguyen Xuan Phuc, prime minister of Vietnam, which hosted the ceremony as ASEAN chair.
RCEP will account for 30% of the global economy, 30% of the global population and reach 2.2 billion consumers, Vietnam said.
China’s finance ministry said the new bloc’s promises include eliminating some tariffs within the group, including some immediately and others over 10 years.
There were no details on which products and which countries would see immediate reduction in tariffs.
“For the first time, China and Japan reached a bilateral tariff reduction arrangement, achieving a historic breakthrough,” the ministry said in a statement, without giving further details.
The deal marks the first-time rival East Asian powers China, Japan and South Korea have been in a single free trade agreement.
RCEP “will help reduce or remove tariffs on industrial and agricultural products and set out rules for data transmission,” said Luong Hoang Thai, head of the Multilateral Trade Policy Department at Vietnam’s Ministry of Industry and Trade.
The pact will take effect once enough participating countries ratify the agreement domestically within the next two years, Indonesia’s trade minister said last week.
For China, the new group, including many U.S. allies, is a windfall largely resulting from Trump’s retreat from the TPP, said ING’s Pang.
India wisely pulled out of RCEP talks in November last year amid concerns China would take advantage of the deal but ASEAN leaders said the door remained open for it to join.