Why are western countries so overrated

RCEP: The largest trade deal in the world

When the world's largest free trade agreement was signed in the Vietnamese capital Hanoi in mid-November 2020, even many economists were surprised: They simply did not expect the 15 countries involved to agree to a 500-page treaty after eight years of negotiation in the middle of the pandemic would agree, which bears the somewhat awkward name “Regional Comprehensive Economic Partnership”, or RCEP for short.

The new trade agreement, in which 14 other countries are participating in addition to China, represents a large part of the global population and economic output.

In addition to China, the ten Southeast Asian ASEAN countries Indonesia, Vietnam, Thailand, the Philippines, Singapore, Brunei, Malaysia, Laos, Myanmar and Cambodia as well as Australia, Japan, New Zealand and South Korea are among the signatories.

India was originally also involved, but Prime Minister Narendra Modi dropped out of negotiations last year. He feared that his country could be flooded with cheap products from China and that the many millions of Indian small traders would have to fear for their existence.

But even without India, the remaining 15 countries represent a large part of the global population and economic output (graphic):

The 2.2 billion people living in the RCEP countries generate almost 26 trillion dollars annually, which corresponds to almost 30 percent of the world's nominal gross domestic product.

This means that the new Asia-Pacific free trade agreement is already the largest in the world. And it should continue to gain in importance: The International Monetary Fund assumes that the share of the 15 RCEP member countries in global economic output will increase by 3 percentage points to around 33 percent by 2024.

The new trade agreement is also of interest from a political perspective. China has entered a plurilateral free trade agreement for the first time. It is also the first deal Beijing has entered into with Japan and South Korea, the other two major economies in the region. Together with Australia and New Zealand, a total of four countries that are politically closely linked to the United States have joined the agreement.

There are hardly any environmental and human rights standards

From an economic point of view, however, the RCEP agreement should not be overrated. Although the tariffs on almost 90 percent of goods will disappear within 20 years, EU free trade agreements usually aim at a 99 percent reduction in tariffs. In addition, many trade barriers for agriculture and the service sector remain largely in place in the new free trade agreement - for example, Japan has insisted that politically sensitive agricultural products such as rice, beef and pork, dairy products, sugar and grain as well as fishery products continue to be subject to high import duties; Environmental, labor and human rights standards also hardly appear in the contract.

Above all, the harmonization of the rules of origin, which determine the goods to which the tariff advantages of a trade agreement apply, should considerably facilitate the exchange of goods between the 15 contractual partners and strengthen the regional value chains. At the same time, the RCEP countries will no longer be so dependent on exporting goods to Europe or the USA - their share of trade in the region is likely to decline slightly.

The ASEAN countries are already China's most important trading partners

As a result of the Corona crisis, the volume of trade between China and the European Union in the first six months of this year has already fallen by 2 percent compared to the same period of the previous year, and the trade in goods with the USA even shrank by more than 6 percent due to the trade conflict. In contrast, trade between China and the ASEAN countries rose by more than 5 percent to almost 300 billion dollars in the first half of the year. This means that the ASEAN confederation is no longer the most important trading partner of the People's Republic, but the EU.

It is still unclear when the new agreement will come into force. The plan is for the world's largest free trade agreement to be ratified by the member states in the coming year. It could then come into force in early 2022. The EU already has bilateral trade agreements with the ASEAN states Singapore and Vietnam, as well as with Japan and South Korea; and she is still negotiating with Australia and New Zealand. In addition, it should conclude at least one simple trade agreement with ASEAN as a whole as soon as possible.