RCEP, the world’s largest free trade agreement (and how it affects Latin America)


After a decade in the making, the world’s largest trade deal is a fact.

Asian leaders signed this Sunday in Hanoi the mega-treaty that includes the ten members of the Association of Southeast Asian Countries (ASEAN) as well as China, Japan, South Korea, Australia, and New Zealand.

Between all the members they add up to almost a third of the world population and 29% of the Gross Domestic Product of the planet.

The agreement, which bears the name of RCEP ( Regional Comprehensive Economic Partnership ), will be greater than that of USMCA (United States, Mexico and Canada) and the European Union.

India was also part of the negotiations but withdrew last year over concerns that the reduction in tariffs would hurt its producers.

What does it mean?

The RCEP will eliminate tariffs on imports for the next 20 years and includes provisions regarding intellectual property, telecommunications, financial services, electronic commerce, and professional services.

The leaders and trade ministers of the RCEP member countries pose for the photo of the virtual summit.
Caption,The new trading bloc is made up of 15 countries.

Many of the member countries already have free trade agreements with each other, but with limitations.

“Existing free trade agreements can be very complex compared to RCEP,” Deborah Elms of the Asian Trade Center tells Tim McDonald, a BBC Singapore correspondent.

Businesses that rely on global supply chains could be affected by tariffs, despite a free trade agreement, because their products had components made elsewhere.

An Indonesian-made product containing Australian-made parts, for example, could be subject to tariffs.

Under RCEP, however, components from any member country will be treated the same, which could give companies in RCEP countries an incentive to partner with suppliers to the new regional alliance.

What is its geopolitical importance?

The idea of ​​RCEP was born in 2012 and was seen as a way for China, the largest importer, and exporter in the region, to counter the influence that the United States was taking in Asia-Pacific under the Barack Obama administration.

The Prime Minister of Vietnam, Xuan Phuc;  and the Minister of Industry and Commerce, Tran Tuan Anh, hosted the virtual summit at which the agreement was signed.
Caption,The Prime Minister of Vietnam, Xuan Phuc; and the Minister of Industry and Commerce, Tran Tuan Anh, hosted the virtual summit at which the agreement was signed.

Obama had promoted the Trans-Pacific Partnership (TPP), of which Mexico, Chile, and Peru were part and not China.

Interest in the RCEP grew when Trump withdrew from the TPP in 2017, which was the architect of the agreement and whose economy comprised two-thirds of that of the bloc.

In fact, the trade war between the United States and China and that Trump has privileged “America first” and ended Obama’s idea of ​​looking more towards Asia has served to promote and complete RCEP, which is seen as Beijing’s opportunity. to set the regional trade agenda in the absence of Washington.

As a key source of imports and the main destination of exports for most members of the RCEP, China appears to be the main beneficiary and is well-positioned to influence trade rules and expand its influence in Asia-Pacific, something that Obama wanted to prevent.

Will Biden’s presidency change anything?

International trade was much less on the agenda in this presidential campaign and Biden has said relatively little about whether his trade policy will change significantly or whether he will reconsider entering the TPP.

Joe Biden.
Caption,Biden is committed to multilateralism but it is not known if he will reconsider the return of the US: to the TPP.

Biden is committed to returning to a policy of multilateralism, like Obama, but it is premature to talk about trade agreements given the enormous challenges he faces internally.

And he risks being seen as hurting the unions that helped him win in the industrial belt states.

His trade priorities are expected to focus on working with allies to pressure China and force changes in the World Trade Organization.

Going back to what the TPP was might not happen in the short term.

The unions and progressives who backed Biden’s election have been skeptical of free trade agreements, and representatives from these groups are present on his transition team. They may defend certain protections for vulnerable industries like steel and aluminum.

If Biden decides to reconnect with Asia-Pacific, it could act as China’s counterbalance.

How does it affect Latin America?

Bilateral trade between Asia and Latin America has grown continuously in recent decades, but the integration between the two regions has much room for improvement.

“In the short term, the RCEP can cause some commercial diversion, limit the growth in trade between Latin America and Asia,” says Jack Caporal, a trade expert at the Center for Strategic & International Studies (CSIS), based in Washington.

“However, common standards will make it easier for Latin American companies with a presence in Asia to do business there,” says Caporal.

“An important question for Latin American countries is whether they pursue integration with Asia individually or jointly, such as through the Pacific Alliance (TPP) or Mercosur,” he adds.

“Since trade between Latin America and China exploded in the 2000s, led almost exclusively by China’s rapid growth and its need for raw materials, countries in the region have sought greater integration with Asia in general, not just with China but in particular with Japan, South Korea, and India, ” Cynthia Arnson, an expert at the Wilson Center on relations between the two regions, tells BBC Mundo.

Celac Summit with China.
Since the beginning of this century, Latin America has increased its integration with Asia and, especially, with China.

Arnson claims that was the spirit of the TPP, now decimated without the United States.

“Unless the Biden government returns to the TPP, Latin American countries will be attracted to the larger market share in Asia that is now represented by the RCEP,” he adds.

Nicolás Alberton, professor at the Catholic University of Uruguay and associate researcher at the International Policy and Security Laboratory of the University of Southern California, believes that it is a “disadvantage” for countries that are not part of this type of mega-agreements.

“It is key that the countries of Latin America (mainly of the Southern Cone) that are not party to knock on the door and ask to be part of these agreements,” he tells BBC Mundo.

“Little ambitious”

Although the RCEP was an initiative of the ten ASEAN countries, it is seen by many as a Chinese-backed alternative to the TPP, a proposed settlement that excludes China but includes many Asian countries.

El mayor acuerdo comercial del mundo se firmará en 2020; EE. UU. y Colombia  no están incluidos - Valora Analitik

Twelve nations, including Chile, Mexico, and Peru, signed the TPP in 2016 before Trump withdrew their country from the accord in 2017.

Without the United States, the rest of the countries signed the CPTPP.

Although it includes fewer countries, the CPTPP reduces tariffs further than the RCEP and includes provisions on employment and the environment.

Critics say it is an unambitious deal.

Former Australian Prime Minister Malcolm Turnbull criticized the new deal as outdated.

“There will be fanfare about the signing and entry into force of the RCEP, but it is an unambitious trade agreement, we should not be fooled,” said Turnbull, who signed the TPP on behalf of his country.

Activists fear the lack of provisions to protect workers and the environment and that it will harm farmers and small businesses at a time when they are already suffering from the pandemic.

Differences aside

On the positive side, RCEP unites countries that have often had thorny relationships, such as China and Japan.

Both Australia and China join the deal despite reports that China may boycott some Australian imports over political differences.

“You can cooperate with someone or just hate them, just like people. The RCEP has done an impressive job of separating itself from other disputes,” says Elms.

Source: bbc.com/mundo

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