Jakarta, CNBC Indonesia – A total of 15 Asia-Pacific countries have signed the world’s largest free trade agreement. This agreement is seen as a way China in expanding its influence on the world economy.
The agreement is the Regional Comprehensive Economic Partnership (RCEP) which covers 10 countries in the ASEAN region along with China, Japan, South Korea, New Zealand and Australia, with a percentage of around 30% of global GDP.
However, India did not sign the RCEP. The country of Bollywood was absent during the virtual signing and has already withdrawn from last year’s agreement over fears of cheap Chinese goods entering the country.
First proposed in 2012, the deal was finally sealed at the end of the Southeast Asia Summit to restore an economy shattered by the coronavirus (Covid-19) pandemic.
“In the current global situation, the fact that RCEP has been signed after eight years of negotiations brings a ray of light and hope amidst the clouds,” said Chinese Premier Li Keqiang after the virtual signing on Sunday (15/11/2020).
“This clearly shows that multilateralism is the right path, and represents the right direction of the global economy and human progress.”
A deal to lower tariffs and open up trade in services within the bloc without US interference is seen as an alternative for China to find a replacement for a trade agreement with the now-defunct United States.
Alexander Capri, a trade expert at the National University of Singapore Business School, said RCEP reinforces China’s broader regional geopolitical ambitions around the Belt and Road Initiative (BRI / OBOR).
“It’s kind of a complementary element,” said Capri, referring to a typical Beijing investment project that envisions Chinese infrastructure and influence that span the globe.
The countries that signed the agreement hope RCEP will help reduce the cost of the economy crippled by the pandemic. Indonesia recently fell into a recessionary abyss, while the Philippine economy shrank 11.5% annually in the last quarter.
Iris Pang, ING’s chief economist for China, thinks RCEP could help Beijing reduce its reliance on foreign markets and technology. Both elements are currently plagued by a deepening rift with Washington.
This agreement further alienates the US from the region with the fastest growing economy in the world. Previously US President Donald Trump also pulled Washington out of the Trans Pacific Partnership (TPP), which was previously drafted by President Obama.
Although Joe Biden was elected president in last week’s election, analysts say the US is unlikely to join RCEP or the Trans Pacific Partnership (TPP) immediately because of the focus on tackling Covid-19 at home.
Meanwhile, India, as described earlier, withdrew from the RCEP talks in November last year. However, ASEAN leaders say the door remains open for anyone in the Asia Pacific to join.
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