July 2, 2022

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RCEP, Asian FTA ‘Minimum’ This will further boost the Chinese economy

First change:

The RCEP, the world’s largest free trade agreement, went into effect this weekend. Fifteen Asia-Pacific countries have signed up with the aim of promoting economic recovery amid the epidemic. It predicts the elimination or reduction of tariffs on 65% of goods manufactured and sold between member countries. This new trade meeting will cover one-third of the world’s population and one-third of GDP, but it will not benefit all its members equally.

The RCEP – or its acronym for Regional Comprehensive Economic Association in English – has been formed for 10 years in ASEAN, the organization of Southeast Asian countries. It went into effect on Saturday.

At a time when goods are being manufactured from RCEP countries, the idea is to intensify trade between member countries by eliminating or reducing tariffs on two-thirds of the goods. The aim is to extend these tariff benefits to 90% production within 20 years.

The deal was finalized after the United States withdrew from another FTA program in 2018 – Marine liner CPTPP. “The United States left that gap without participating in the finalization of that agreement. It pushed for progress in this other joint agreement of the RCEP, which includes Asian countries, especially China, ASEAN, Japan, South Korea and China,” he explained. Alicia Garcia-Herrero is the Chief Economist for Natix Bank’s Asia-Pacific Economy.

It is hoped that this mega deal will streamline business practices and reduce barriers to the exchange of agricultural products, finished goods and components. “But these countries realize that the RCEP is like a transition agreement, at least, trade relations in Asia will be superfluous,” he added. The FTA does not have complex features, Garcia-Herrero explains as a dispute resolution.

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Winners and losers

It does not even consider the terms of labor rights or the protection of the environment. China is the main driver of the large-scale deal. “Under these conditions, it is difficult to fully enter into subsidies in public institutions, no doubt,” says the economist, recalling that India withdrew from the agreement for non-compliance with the conditions imposed by the economic giant. “China wants to send a message that it is the greatest power in Asia.”

Eventually, he points out, this minimum deal was reached in part by Govt. The epidemic has hit the region and according to the expert on the continent it remains to be seen who will be the winners and losers of the deal. “Apart from China, Korea and Japan, there will be some competition with them to operate in Asian markets,” Garcia-Herrero predicted.