Conclusion of RCEP increases China’s influence as Trump administration neglects its western Pacific trade partners
The weekly trade report with L.C.
The Regional Comprehensive Economic Partnership (RCEP) was signed on November 15th. It took eight years of difficult negotiations. India opted out, but it represents a major accomplishment for the remaining 15 countries. These are Japan, China, South Korea, Australia, New Zealand, and the 10 ASEAN members.
Encompassing almost a third of the world’s population, GDP, and trade, the RCEP brings together the world’s second and third largest economies together into a free trade area. This means, among other things, that Japan will have a full FTA with China before it has one with the US.
The official signing took place during the 37th (virtual) ASEAN Summit, hosted by Vietnam.
President Trump again a no-show
For the third year in a row, President Trump was a no-show at the annual ASEAN and East Asia Summits that took place virtually on November 14-15.
National Security Adviser Robert O’Brien – who holds a non-cabinet-level position and is not Senate-confirmed – participated in the virtual events instead. In contrast with the low-level US presence, the meeting included the leaders of ASEAN and its other partner countries – Japan, South Korea, China, Australia, New Zealand, India, and Russia. Putin, Modi, Li Keqiang, among others, were there.
The East Asia Summit included the bilateral US-ASEAN Summit as is customary, but the US president didn’t attend that either.
The head of the US-ASEAN Business Council said, “We are deeply disappointed by the Trump administration’s repeated decision to have neither the president, vice president nor a cabinet member lead the US delegation to these critical summits…. Showing up matters…. [A]s a Pacific nation, the US has an obligation to help forge a free and open Indo-Pacific for all.”
Missing this year’s Asian summits was seen as a particular blow to US influence given that China’s influence just rose with the signing of the RCEP.
Earlier in the week, RCEP ministers finished many important details. Nevertheless, some further details remain to be settled. Reportedly, this includes treatment of taxes, timing of some tariff cuts (which are negotiated bilaterally), and labor provisions.
The agreement will take effect once ratified by six ASEAN members and three from among the “partner” countries of Japan, China, South Korea, Australia, and New Zealand. This could take up to two years.
India missing; China fears
Most countries wanted India in the bloc – to add to its heft and especially to be a counterweight to China’s feared clout. But efforts led by Japan to entice New Delhi to join failed as the pandemic exacerbated the India’s economic problems and made the government even more wary of opening further to imports. Yet the pact contains a specific provision enabling India’s easy return. Whereas other countries won’t be able to join soon, there is a special provision enabling India to accede at any time.
Tokyo’s concern about China dominating regional trade had led it years ago to join the Trans-Pacific Partnership negotiations and then to make sure the TPP-11 implemented the agreement after the US exit. For the same reason, it tried hard to keep India in the RCEP. Now, Japan itself is the main counterweight to China in an agreement that is, in essence, a Japan-China pact.
It must be noted that China’s recent actions in penalizing Australia by hitting its exports, as well as its actions a few years ago using trade to penalize South Korea for its THAAD missile defense deployment (despite China having bilateral FTAs with both countries), indicate that having the RCEP in place won’t guarantee that China will be a trustworthy trading partner. This adds to the worry the RCEP members have about Chinese exports dominating their economies.
RCEP’s content
The deal’s 20 chapters, 17 annexes, and 54 market access schedules cut tariffs on most goods; ease non-tariff barriers; set rules and standards in many areas, including data flows; and has chapters on intellectual property, investment, customs facilitation, economic cooperation, small-medium-size enterprises, government procurement, and trade and investment in services.
The market access provisions and intra-bloc rules-of-origin could disadvantage US companies, making them less competitive in participating markets. The US does, however, have FTAs with South Korea, Australia, and Singapore and a limited trade agreement with Japan. Asked about whether the RCEP will hurt US producers, Commerce Secretary Wilbur Ross told Bloomberg TV, “It’s a very low-grade treaty.” Few outside analysts were that dismissive, seeing the agreement rather as a victory for China and a threat to US regional influence whatever its specific weaknesses.
Japan obtained significant benefits. According to Nikkei, “tariffs are expected to be removed from 91.5% of goods exported from Japan, as well as 98.6% of goods imported by Japan.” China will phase out duties on over 80% of Japanese industrial goods including auto parts, and South Korea will phase out duties on over 90% of Japanese exports. Japan will also gain more access in China and South Korea for its food and drink exports.
Many of the FTAs between RCEP members, including the CPTPP (the TPP successor after the US dropped out) and the Japan-Australia FTA, are much more ambitious than RCEP. Ross was not wrong on that. But RCEP, representing such a huge portion of global GDP and trade and forming a region-wide bloc, is highly significant nonetheless, both economically and strategically.
The RCEP was a Chinese wish from the start. Beijing first envisioned a Trilateral China-Japan-South Korea FTA that would later expand to include ASEAN as a counterweight to the then-fledgling TPP. ASEAN then caught the idea, seeing it as a way to consolidate its web of bilateral FTAs with other countries in the region into an integrated bloc. The Obama administration realized at once that this threatened to isolate it from the region, and this realization gave further impetus to its push for the TPP. But in the 2016 US presidential campaign, both Hillary Clinton and Donald Trump opposed the TPP.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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