Three Short-term Effects Of Asia’s Largest Trading Deal

The recently signed RCEP trade deal is expected to eliminate a range of tariffs on imports within 20 years, but what does that mean in the short run?

Vietnam's Prime Minister Nguyen Xuan Phuc (L) and Minister of Industry and Trade Tran Tuan Anh (R) cheer after the virtual signing ceremony for the Regional Comprehensive Economic Partnership (RCEP) in Hanoi, Vietnam, 15 November 2020

Three important effects of RCEP

The Regional Comprehensive Economic Partnership or RCEP is a new trade agreement between 10 ASEAN countries in Asia Pacific, along with China, Japan, South Korea, Australia and New Zealand. The agreement replaces existing trade agreements between ASEAN countries and the other five countries. It also brings China and Japan, and South Korea and Japan, into trade agreements together for the first time.

Although, RCEP will take time to come into force, with ratification in each country yet to be completed, but the primary aim is to reduce tariffs on imports within 20 years. Admittedly, that is a long time and raises the question of the short-term relevance of this trade agreement if any at all.

But we think, three important impacts are likely to be felt quite quickly.

1)  A well-timed boost for free trade

This trade agreement sends an important signal that could be more powerful than actually reducing the import tariffs.

RCEP is a vote in favour of free trade after years of rising frictions - and some of the deal’s own signatories could do with this message: China and Australia came to the table to sign RCEP, but have been exchanging threats to restrict imports of key products.

Countries outside the newly-formed trade bloc may be given pause for thought about the costs of their own trade barriers – especially India, which was initially part of the negotiations but left the table in 2019. Though it was never part of the talks, the US now stands outside of two major trade blocs in Asia-Pacific, having quit negotiations for a Trans-Pacific Partnership deal. These talks evolved into the 2018 CPTPP deal between many of the RCEP countries (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, Viet Nam) and Canada, Mexico, Chile and Peru.

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