Why is there no Asian Union

The world's largest free trade zone is created : What is behind China's deal with 14 states

The largest free trade area in the world is emerging in the Asia-Pacific region. China has now signed a corresponding agreement with 14 countries. They negotiated for eight years - "with blood, sweat and tears," as the Malaysian Trade Minister puts it. On Sunday they signed the agreement after a virtual summit of the Southeast Asian community of states Asean. The states are joining forces to form the “Regional Comprehensive Economic Partnership” (RCEP), a “regional, comprehensive economic partnership”.

China's Prime Minister Li Keqiang spoke of a "glimmer of hope" that proves that multilateralism is the "right way".

Who is participating in the agreement - and who is not?

In addition to China, the free trade area includes Japan, South Korea, Australia and New Zealand. The ten Asean states are also participating. These are Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Cambodia, Laos, Myanmar and Brunei.

India originally wanted to participate in the alliance, but withdrew from the negotiations at the end of last year. Prime Minister Narendra Modi's fear that his country could be flooded by Chinese exports was too great. India is said to have been assured that it could join the new free trade area at any time. However, observers see this as a symbolic offer.

What exactly does the agreement include?

The focus is on lowering tariffs. That makes trade between states easier and cheaper. Overall, the tariffs are to fall for almost 90 percent of the goods that the states exchange with each other. Corporations that manufacture parts of their products in various countries in the free trade zone also benefit from this. The agreement also includes rules for 20 other areas such as services, investments, online trading, telecommunications and copyrights.

However, agricultural products and fish were excluded - Japan had insisted on that. There should also be no guidelines for the protection of workers and the environment. And there are no limits to government subsidies or rules for protecting intellectual property. As a result, fewer areas are covered overall than in other large free trade agreements. Rather, the agreement is significant because of the size of the new economic area.

What is the economic power behind it?

In terms of population, the largest free trade area in the world is emerging. 2.2 billion people live in the 15 states that are now joining forces. Together they represent 29 percent of the global trade volume. That is slightly less than that of the European Union (EU), whose states together make up 33 percent. However, this relationship could quickly be reversed. Because while the economy in Europe continues to suffer from the consequences of the pandemic, it is already growing vigorously in China.

And regardless of Corona, the Asia-Pacific region has great potential: On average, the population is much younger than in the EU, for example, there is a growing middle class and the region is also catching up economically. According to calculations, global economic output could grow by 200 billion dollars by 2030 through closer cooperation between China, Japan and South Korea alone.

What does the agreement mean for the participating states?

For the 15 states, the free trade agreement is an opportunity to develop further - from the “factory of the world” to the “market of the world”, as one economist puts it. It will be much easier for states to exchange goods with one another, which is why they will no longer be so dependent on exporting goods to Europe or the USA.

The Boston Consulting Group assumes that trade between China and Southeast Asia alone is likely to grow by more than $ 40 billion by 2023. The exchange of goods with the USA and Europe, on the other hand, is likely to decline.

What does the agreement mean for China?

For the People's Republic of China, the agreement is certainly a great economic and political success. “China achieves a victory because 15 Asian nations sign the world's largest free trade agreement,” headlined the “South China Morning Post” on Sunday. Chinese Prime Minister Li Keqiang said the deal was not only a tremendous achievement for regional integration, "but, more importantly, a victory for multilateralism and free trade."

For China, as the world's second largest economy and largest exporting nation, the economic benefits of the agreement are obvious. Chinese exporters benefit from lower tariffs and more uniform rules. In addition, with the agreement, China has succeeded in reducing the influence of the USA in the Pacific region and expanding its own claim as a regional power. "RCEP will redraw the economic and strategic map of the Indo-Pacific," says Jeffrey Wilson from the Australian Strategic Policy Institute (ASPI) of the German Press Agency.

The US, on the other hand, is the big loser of this agreement. Four years ago they wanted to sign an already negotiated Trans-Pacific Partnership Agreement (TPP) in which China would not have been a party. But the isolationist US President Donald Trump terminated US participation in the agreement immediately after taking office in 2017. The remaining Pacific nations agreed in 2018 on the "Comprehensive and Progressive Agreement for a Trans-Pacific Partnership" (CPTPP). Now, instead of a TPP deal without China, there are two major trade agreements in the Pacific region - and none of the US is involved.

Why do non-Asean countries like Australia and New Zealand also participate?

In South Korea, Japan, Australia and New Zealand, four countries that are politically closely linked to the United States have also joined the trade agreement. Japan also has a historical rivalry with China, plus the territorial conflict over the Senkaku and Diaoyu Islands. In Australia and New Zealand, political relations with China are currently at a low point. Allegations of espionage and a trade war mark their current relationship with the People's Republic. At the Asean meeting, the Australian Prime Minister Scott Morrison criticized the military activities of China in the South China Sea as "destabilizing actions", as reported by the Australian broadcaster "ABC".

Nevertheless, the economic advantages of the RCEP agreement and a cooperation with the second largest economy in the world outweigh these countries as well. “There are twofold benefits,” says Australian Trade Minister Simon Birmingham. "One thing lies with our farmers and exporters, they get a more uniform set of rules for all 15 nations". On the other hand, the service sector would also benefit, says the Australian trade minister.

What does the agreement mean for Europe?

With the agreement, Europe will lose some of its importance for China. In the future, the People's Republic will no longer be so dependent on having its goods sold to Germany or France. Conversely, European companies are also at a disadvantage if they produce in Asia or want to sell their goods there. Because Europe has so far not succeeded in signing a free trade agreement with the Asean states. The European Union only has bilateral agreements with Vietnam and Singapore.

The EU has been negotiating with China for seven years. So far, however, such an agreement has failed due to Beijing's willingness to facilitate access to the Chinese market for European companies and to reduce the dominance of its own state-owned companies. For the EU, a lot depends on such an agreement with China: every day, Europeans and Chinese exchange goods and services worth a billion euros.

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