The United States on the sidelines as China and other Asia-Pacific countries launch a trade pact

WASHINGTON-China joins US allies, including Japan and Australia, in a new Asia-Pacific trade deal launched on Saturday – with the US following from the sidelines.

The new Regional Comprehensive Economic Partnership, or RCEP, will eventually remove more than 90% of tariffs on trade among its 15 member states, in what economists say will be a boon to trade in the region.

It will also give China a more prominent role in setting rules for trade in the Asia-Pacific region at the expense of the United States, according to some analysts.

“This will be a group of countries that will work together and try to develop new rules and new standards,” said Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trader. “[The U.S. is] moving in the other direction. “

China had been excluded from a previous trade agreement, the comprehensive and progressive Trans-Pacific Partnership agreement reached by the United States to counter China’s influence in the region.

The United States withdrew from the Trans-Pacific Partnership in 2017 under former President Donald Trump, who said the deal hurt U.S. workers. Many lawmakers were also against the pact, and the Biden administration says it has no plans to rejoin it.

Henry Gao, an Asian trade expert and associate professor of law at Singapore Management University, said the new RCEP “could be a wake-up call for the United States to reconsider its strategy and return to the Asia-Pacific region.”

He said the RCEP would benefit China by making its parts and components more attractive to factories that make up supply chains in Southeast Asia, and by increasing trade with Japan and South Korea.

RCEP was initiated in 2012 by the Association of Southeast Asian Nations to strengthen ties with China and other nations in Asia. Ms. Cutler, who was working with the U.S. Trade Representative’s office at the time, said the United States was not invited to attend and said it would not have joined anyway because the agreement was considered too weak and lacked labor requirements. and environmental standards.

When RCEP members unveiled the completion of their agreement in November 2020, then-newly elected President Biden said the United States had to “set the rules of the road instead of getting China and others to dictate the results because they are the only game” in the city.”

A senior Biden administration official said the White House recognizes the need for the United States to engage the Asia-Pacific region financially, and discussions on how to do so were ongoing.

The other member nations of the RCEP are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam.

So far, 10 of the 15 member states have formally ratified the agreement, and the others are expected to do so in the coming months.

With RCEP members accounting for 30% of the global population and gross domestic product, the partnership will be the world’s largest regional trade agreement, exceeding the agreement between the United States and Mexico and the European Customs Union.

The agreement aims to eliminate almost all customs duties on imports between nations in up to 20 years and establishes common standards for intellectual property rights and e-commerce.

Some trade analysts have said the RCEP falls short by failing to address issues where China may be vulnerable, including labor and environmental standards and its support for state-owned enterprises.

In a letter dated November 8, 13 GOP senators led by Mike Crapo (R., Idaho), the top Republican on the Senate Finance Committee, called on Mr. Biden to become involved in new rules on trade in the Asia-Pacific region, saying the absence of the US “encourages potential partners to move forward without us and ensures that China will keep the reins of the global economy.”

As an early indication, they pointed to the launch of the RCEP, calling it “an agreement that is in line with China’s interests, including weak intellectual property rights rules, and none at all for state-owned enterprises.”

Late. Mike Crapo (R., Idaho) has called on President Biden to get involved in new trade rules in the Asia-Pacific region.


Photo:

Chip Somodevilla / Getty Images

Liu Pengyu, a spokesman for the Chinese embassy in Washington, said China was “committed to building an open world economy instead of forming an exclusive and closed ‘clique’.”

The launch of RCEP comes at a time when China is seeking bigger roles in making trade rules in the Asia-Pacific region, while the US is largely absent.

In recent months, Beijing has applied to join the CPTPP and the Digital Economy Partnership Agreement, an ambitious new pact between Chile, New Zealand and Singapore that aims to build common standards in areas such as e-commerce and artificial intelligence. Some experts see the Danish Environmental Protection Agency as a model for a future agreement for the wider region.

In a speech on November 5, Chinese President Xi Jinping emphasized the progress China has made in opening up its economy, pointing out that China was among the first nations to ratify the RCEP in the domestic market. He also promised to work actively to become a member of the CPTPP and DEPA.

As the first free trade agreement linking China, Japan and South Korea, the RCEP is expected to help increase trade between nations significantly.

Tariffs will be removed on 86% of industrial goods exported from Japan to China, up from 8% at present. It includes the abolition of taxes on 87% of exports of auto parts worth nearly $ 45 billion annually, according to the Japanese government.

About 92% of Japanese industrial products will be exported to South Korea duty free, compared to 19% at present.

The Brookings Institution estimates that the RCEP could add $ 209 billion annually to world revenues and $ 500 billion to world trade by 2030.

The most notable feature of RCEP, trade experts say, is flexible rules of origin. It only requires that 40% of the contents of a product originate from the RCEP block to qualify for duty-free processing, compared to 50% to 60% floors for the USMCA.

“It provides a lot of opportunities to build and strengthen intra-Asian supply chains,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

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