The world’s largest trade alliance
Mukammil Shah Yousafzai
Negotiations on the Regional Comprehensive Economic Partnership (RCEP) had been going on for the last eight years and its agreement was finally signed in a virtual meeting of the Association of Southeast Asian Nations hosted by Vietnam on Sunday, November 15, 2020. Total of 15 countries formed the world’s largest trade alliance, which accounts for about one third of the global economy. It is a free trade agreement between the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam. India and the United States would have to be the RCEP and CPTPP participants, respectively, but they withdrew their participation under the regimes of Modi and Trump, as the contracts are configured.
The RCEP can connect about 30 percent of the world’s population and production and produce substantial gains in the right political sense. The RCEP could add $209 billion annually to global sales and $500 billion to world trade by 2030, according to computer simulations we recently released (Johns Hopkins University and East-West Center) but there are already tax-free trade agreements between many countries in the region, so what is something unique in the RCEP?
Actually, the RCEP is expected to abolish taxes on exports of many items over the next 20 years. The agreement contains special provisions relating to all rights, telecommunications, financial services, e-commerce, and a number of other professional services. But perhaps the most important principle in this agreement will be the new ‘Rules of Origin’ i.e. determining where something is made. Many of the treaty’s member states already have free trade agreements, but some are limited.
“The current free trade agreements are more complex than the RCEP,” says Dabra Elms of the Asian Trade Center. Businesses whose supply chains cover a wide range of countries may be taxed in spite of the free trade agreement because the components of their goods are imported from another country.
Another highlight of the agreement is that it connects some countries that do not normally work together due to strained trade relations such as Japan and China. The same is true of Australia and China. The deal is seen as a growing influence in China’s region. The agreement does not include the United States, which in 2017 announced its withdrawal from an anti-Asia-Pacific trade agreement. The US President Donald Trump decided to withdraw from the Trans-Pacific Partnership shortly after taking office in 2016. The deal, involving 12 countries and backed by the former US President Barack Obama, sought to counter China’s growing power in the region.
Leaders in the deal hope it will help overcome the crisis caused by the global Coronavirus. The Chinese Prime Minister Li says that the signing of the RCEP agreement after eight years of negotiations is a ray of hope in the current global situation. The Chinese Prime Minister called the agreement a victory for multilateralism and a free economy. India was also part of the talks, but withdrew last year because it said the lower tariffs in the agreement could be dangerous for local traders.
Signatory states say that the door is open for India to be a part of the alliance in the future. This new alliance of the free economy is a larger trade alliance than the alliance of the United States, Mexico and Canada, as well as the European Union.
The RCEP member countries account for about one third of the world’s population and their gross domestic products (GDPs) approximately 30%. For example, if something made in Indonesia contains ingredients imported from Australia, it could face export tax in the ASEAN Free Trade Zone. Ingredients imported from another member state will be considered equal to make anything under the RCEP. Because of this, companies may now try to buy ingredients from countries in the region to make their products, which could benefit the local economy.
The writer is a Peshawar-based financial analyst and Program Director of De Laas Gul Welfare Program, a non-government organisation. He has done MS in Research Banking and Finance (RBF) and has been serving at many national and international organisations as an academic, researcher and financial expert. He is also the member of American Economic Association and International Academic Forum of Japan. He can be contacted at: mshahyousazy@gmail.com.
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