The RCEP, the world’s largest free trade agreement, enters into force

The Regional Comprehensive Economic Association (RCEP), the world’s largest free trade agreement signed by 15 Asia-Pacific countries, came into force this Saturday with the hope that it will encourage economic recovery in the midst of the pandemic.

The treaty began to take shape within the Association of Southeast Asian Nations (ASEAN), but China has been gaining prominence due to its size and economic hegemony that advances to the detriment of the United States, which is not part of the RCEP.

“Trade is a major growth driver in Asia, and the entry into force of the RCEP will put Asia on a pre-covid-19 growth trajectory,” HSBC’s Asia Pacific Regional Head of Global Trade said on Friday. , Ajay Sharma.

The expert said that the treaty will increase trade between Asian countries, which is currently more voluminous than that with North America and Europe combined.

“The RCEP will make it easier for companies to use Southeast Asia as a production base and could accelerate the diversification of supply chains and the relocation of investments already underway in Asia,” Sharma added in a statement.

One of the key points is that the signatory countries will be able to benefit from the lower tariffs if they can demonstrate that at least 40% of the parts of their products originate in the RCEP region.

The treaty enters into force today in Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Thailand, Singapore and Vietnam, while on February 1 it will do so in South Korea and has not yet been ratified by Burma (Myanmar) , Philippines.

Almost 20 years of negotiations

The RCEP, which began to be negotiated in 2012, is an economic agreement that seeks to eliminate tariffs and quotas on 65% of products, which will be expanded to 90% in 20 years, and other barriers to free trade.

The signatory countries represent a market of about 2,200 million people, about 30% of the world’s population, in the region with the highest economic growth in the world.

The treaty harmonizes the rules on intellectual property and addresses the digital economy and electronic commerce, which were booming after the start of the pandemic, but it does not contain regulations on labor rights and environmental impact.

Trade unions and activists in the region criticize that the mega-treaty has been negotiated in an opaque way, without consulting civil society, and that further liberalization of the economy will occur to the detriment of public services, the environment and labor rights.

Another fear of farmers’ organizations is that the RCEP will accelerate the loss of land in the region, where in the last decade 9.6 million hectares have passed from rural communities to multinationals such as Wilmar, South Korea, Daewoo or China. Beidahuang, according to data from the NGO Grain.

Disadvantages

The analyst at the Institute for International and Strategic Studies (ISIS) in Malaysia Calvin Cheng opined that the signatory economies will benefit from the RCEP in the short and especially in the long term.

He described as positive the possibility of new countries joining the agreement in the future, although he acknowledged that issues such as labor rights and climate change have been left out.

“It is a disadvantage, but one of the reasons why this has been done is that some members of the RCEP are relatively underdeveloped economies (Laos, Cambodia),” Cheng said in an email sent to Efe.

In addition to declining trade, the pandemic has disrupted supply chains in Asia and has shown the importance of state health and social systems, requiring financing through taxes.

In this sense, Cheng recalled that trade tariffs only represent between 5 and 10% of government revenues, which depend more on direct taxes, such as income, and indirect taxes to finance health and social spending.

The RCEP is Japan’s first free trade agreement with China and South Korea and also the first mega-trade agreement to which Beijing is a party.

In a report last March, experts from the United Nations Conference on Trade and Development (UNCTAD) indicated that the mega-treaty will benefit the trade balance of more developed countries such as Japan to the detriment of less wealthy ones such as Thailand, Indonesia or Cambodia.

Thus, the report affirms that ASEAN’s trade balance “will deteriorate by 6% annually”, as its imports increase more than exports.

In 2019, India decided to exit the agreement to protect its market, including the agricultural sector, fearing it would be inundated with cheaper products, mainly from China.