The Regional Comprehensive Economic Partnership (RCEP) was finally signed on Sunday, after 8 years of negotiations. It is made up of 10 Southeast Asian countries, in addition to South Korea, China, Japan, Australia and New Zealand.
The RCEP is expected to get rid of many tariffs within the next two decades. This includes “provisions on intellectual property, telecommunications, financial services, e-commerce and professional services.”
Although many states within the RCEP have free trade agreements with each other, they still face some limitations. Businesses that have global supply chains still need to pay tariffs within the free trade agreements since their products have elements that are made in other countries. For example, a product made in Indonesia that contains Australian parts may face tariffs elsewhere in the Asean free trade zone.
Members of the RCEP account for one-third of the world’s population and 29% of global gross domestic product.
The US, however, is not part of the deal. President Trump withdrew the US from the Trans-Pacific Partnership (TPP) in 2017, which is a rival Asia-Pacific trade pact.
India is not part of the agreement either. It was part of the negotiations, until it pulled out last year, citing concerns of lower tariffs hurting local producers.
Even though the RCEP doesn’t cut tariffs as much as the TPP, the huge size of it makes it a monumental deal. The Asia Pacific chief economist for the HIS Markit firm said, “[The RCEP’s] membership includes a larger group of nations, notably reflecting the membership of China, which considerably boosts the total Gross Domestic Product (GDP) of RCEP members.”
This agreement is bigger than the NAFTA agreement between the US, Mexico, and Canada, as well as the free trade agreement between the European Union.
This is the first time that China has signed a regional multilateral trade pact, although they are in many bilateral agreements.
Right now, signatory countries are hopeful that this pact will help them start the recovery from the pandemic.