Asia-Pacific Countries Sign Major Trade Pact in Test for Biden

Date: Monday, November 16, 2020
Source: The Wall Street Journal

SINGAPORE—Fifteen countries including China signed a major trade deal after years of tricky negotiations, posing an early challenge to President-elect Joe Biden as he formulates his administration’s trade policies.

Sunday’s agreement, called the Regional Comprehensive Economic Partnership, or RCEP, creates a regional bloc that covers around a third of global economic output.

Mr. Biden has said he would wait before signing new trade deals and will seek to rally allies behind a more forceful policy to confront China. However, the new Asian agreement signals that other countries—including U.S. allies such as Japan and South Korea—are forging ahead in the meantime.

The new bloc stretches across many of the largest and most vibrant economies in the Asia-Pacific region, which set aside geopolitical differences to boost trade and growth during the coronavirus pandemic. Apart from China, it includes Japan, South Korea, Australia, New Zealand and 10 Southeast Asian nations, from Indonesia and Vietnam to Thailand and Singapore.

“Encouraging free trade is even more important now that the global economy is in a slump and there are signs of countries turning inward,” Japanese Prime Minister Yoshihide Suga said during the RCEP meeting with other leaders, a Japanese government official said.

The world’s largest economy, the U.S., isn’t a part of the deal. It was involved in the conception of a different bloc called the Trans-Pacific Partnership, or TPP, that didn’t include Beijing and was aimed in part at countering China’s growing clout. But Washington, which shunned big multilateral trade pacts under the Trump administration, pulled out of that pact, a modified version of which was signed by the other 11 countries in the grouping.

The deal signed on Sunday—which is more limited in scope than the TPP—increases pressure on Mr. Biden to deepen U.S. trade engagement in the Asia-Pacific region. He warned last year that if the U.S. doesn’t write the rules of the road, China will, and said he would try to renegotiate the TPP, but hasn’t taken a firm position either way.

Mr. Biden’s transition team declined to comment on the RCEP on Sunday.

Although most countries that are part of Sunday’s deal already have tight trade ties—they rely on one another for goods from rice imports to semiconductor sales—their new agreement is considered significant because it will result in a more unified trading system. That should make it easier for the region’s manufacturers to import raw materials from around the bloc without facing high tariffs, and export finished products throughout the region with lower tariffs, trade experts familiar with the deal said.

At a ceremony on Sunday, which was conducted via videoconference because of the pandemic, ministers from the 15 countries signed the agreement and held up their signatures to the cameras. The deal’s completion comes after several years of growing trade tensions, particularly between the U.S. and China, that raised questions about the future of globalization.

Chinese Premier Li Keqiang said that the signing showed that multilateralism and free trade “still represent the right direction of the world economy and mankind.” He said the deal is a “landmark achievement of East Asian regional cooperation” that would provide a boost to the global economy.

According to Japan’s government, the RCEP will eliminate tariffs on 91% of goods among members. It will slice trade barriers with many of Japan’s largest trading partners, raising the level of nontariff items sent to South Korea to 92% from 19%, and to China to 86% from 8%.

Japan’s automobile industry, a key driver of the economy, stands to gain. The deal will eliminate tariffs on nearly $50 billion of auto parts sent to China each year—accounting for 87% of all such items exported to its western neighbor, the Japanese government said.

Officials across the region said they expect the agreement will help countries better fight the economic hit from the pandemic. Mohamed Azmin Ali, Malaysia’s international trade minister, called the deal an “economic-recovery tool” that will help to open markets and strengthen supply chains.

National governments need to ratify the pact before it takes effect.

Over eight years of negotiation, the deal faced deep challenges in balancing the interests of countries at varying stages of development. India, which was a part of the proposed grouping, withdrew last year, concerned that the deal would lead to a flood of imports. Mr. Suga of Japan said he regretted India’s decision and would encourage it to join.

Even without India, the population of the countries now part of the deal equals roughly a third of humanity.

“The fact that you could reach an agreement with all those parties including China is a significant accomplishment,” said William Reinsch, a trade expert at the Center for Strategic and International Studies, a Washington, D.C.-based think tank.

He said the U.S.’s absence from the agreement sends a message to Mr. Biden’s incoming administration “that they need to give a lot more thought to what policy we want to maintain in the Pacific.”


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