On Sunday November 15, China and fourteen other countries signed the Regional Comprehensive Economic Partnership (RCEP), a free-trade agreement that is the result of eight years of negotiation. The RCEP is, according to The New York Times, “one of the world’s largest regional free trade agreements,” and it may actually be the largest, covering more people – roughly 2.2 billion – than any previous deal. The agreement was created as a response to American influence in the region and comes after the United States has pulled out of many trade deals across the world.
Some experts are saying that the signing of this deal signifies that, while the United States scrambles to take care of domestic issues such as the coronavirus, the rest of the world will not wait around for them to get settled. This deal is also the latest development in a long economic rivalry between the United States and China and follows a series of tariffs imposed on China by the Trump administration over the past two years.
The countries involved in this trade deal are the ten members of the Association of Southeast Asian Nations (ASAN), as well as Australia, Japan, New Zealand, South Korea, and China. The agreement, however, does not include India, as their government left negotiations in July due to concerns that the partnership would swamp India’s deficit-heavy economy with imports from creditor nations like China. China, for its part, has made clear that India is welcome to rejoin the deal at any time.
The main impact of the RCEP is its dismantling of trade barriers, especially tariffs, between member nations. The pact allows its members to maintain any tariffs in areas that they deem “especially important or sensitive,” but eliminates tariffs on goods that are considered “duty-free” under any other trade agreements currently in effect. Goods that are duty-free are exempt from indirect taxes imposed by the country’s government, while tariffs are more direct taxes that are imposed on exported goods and services. The pact also sets common standards for the amount of a product that a region needs to produce for it to be considered “duty-free” in the first place.
Experts such as Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington, say that the contents of the RCEP give foreign companies a chance to avoid tariffs set by the United States by working within the region that the agreement covers.
The Trans-Pacific Partnership, now renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPATTP), is one of the trade agreements that the United States has pulled out of in recent years; it was initially a response by the Obama Administration to China’s growing economic power. Since the departure of the United States, the other members of the CPATTP, including Japan and Australia, have remained in the agreement. It is currently unclear whether the United States will reenter the agreement when President-Elect Joe Biden takes office, as he has stated that he is more concerned with domestic issues, such as the coronavirus.