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The world’s biggest free trade deal signed virtually in Hanoi

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On November 15th, 2020 Burma, Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam as well as Australia, China, Japan, New Zealand and South Korea signed the world’s biggest free trade deal, the Regional Comprehensive Economic Partnership (RCEP).

The ten states of the Association of Southeast Asian Nations (ASEAN) and the other five signatories from the Asia-Pacific region account for about 30% of global GDP and the world’s population, 26.2 trillion US dollars and 2.2 billion people, respectively.

Following eight years of tough negotiations, the agreement was sealed on the final day of the 37th ASEAN and 4th RCEP summit hosted virtually by Vietnam for four days.

After the virtual signing, Chinese Premier Li Keqiang spoke of a victory for free trade and stated: “It clearly shows that multilateralism represents the right direction of the global economy and humanity’s progress.”

The Chinese-led initiative is seen as a huge coup for Peking in extending its influence, as it solidifies its broader regional geopolitical ambitions and complements the Belt and Road Initiative (BRI), an ambitious global infrastructure development strategy adopted by the Red Mandarins in 2013 to invest in nearly 70 countries and international organizations.

It’s also viewed as an alternative to the defunct Trans-Pacific Partnership (TPP). The TPP trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States, signed on February 4th, 2016 in Auckland, never entered into force after the newly elected US President Donald Trump withdrew Washington’s signature on January 23rd, 2017.

The convened leaders need to get their flagging economies back on track amid the coronavirus pandemic, hoping to mitigate its crippling economic costs.

While Indonesia recently tumbled into its first recession in two decades, the Philippine’s GDP shrunk by 11.5% in the latest quarter. Malaysia’s economy is projected to contract by 3.1% this year.

The RCEP will reduce tariffs, open up the service industry, strengthen supply chains with common rules of origin and codify new e-commerce rules. At the same time, it should help shrink costs and make life easier for companies by letting them export their products anywhere within the bloc without meeting separate requirements for each country.

Although the RCEP touches on the protection of intellectual property, the exclusion of environmental problems and labor rights shows its inherent weakness.

India pulled out on November 4th, 2019 over concerns about the import of cheap foreign goods and to protect its not-competitive manufacturing and services sectors.

However, due to its strategic importance, there are legitimate hopes that New Delhi will eventually join by overcoming strong resistance from farmers and industrialists alike.

Due to Trump’s retreat strategy, it’s unclear how US multinationals will benefit from the RCEP through their local subsidiaries. Should a change in the White House really take place, it isn’t expected to be an immediate priority for a new administration.

But eventually, the US might consider the potential benefits of joining the TPP’s successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), inked on March 8th, 2018 in Santiago de Chile.

Nevertheless, despite the current extraordinary circumstances around the globe, the justified concerns of segments of the American electorate about renewed US job losses to Asian countries will continue to be an issue.

Owing to China’s diplomatic influence, which considers the island merely a renegade Chinese province, Taiwan unfortunately remains excluded from ASEAN and therefore will benefit only marginally from the RCEP.

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