What is the RECP trade deal?

In today’s audio I continue my theme of looking at recent news stories.

In today’s audio I refer to two stories:

  1. The “world’s biggest” trade deal which was announced. Is it really as significant as the media are implying and what does it show about the state of the world we are currently in?
  2. Brexit. Is a deal on the way for the UK and the EU? There is certainly speculation that Biden’s win and the Prime Minister’s advisor (Dominique Cummings) leaving will increase the likelihood of that happening.

Articles referred to include

  1. The world’s largest trade deal could be signed in 2020 — and the US isn’t in it – CNBC

After more than six years of negotiations, more than a dozen countries in Asia Pacific are now aiming to sign what would be the world’s largest trade agreement in 2020.

The deal, called Regional Comprehensive Economic Partnership or RCEP, involves all 10 countries from the Association of Southeast Asian Nations (ASEAN) bloc and five of its major trading partners: Australia, China, Japan, New Zealand and South Korea.

Together, the 15 countries make up close to one-third of the world population and global gross domestic product, according to a Reuters report. That’s larger than other regional trading blocs such as the European Union and the United States-Mexico-Canada Agreement, or USMCA.

The mega-deal started with 16 countries but India decided not to join the trade pact over concerns that it would hurt the South Asian country’s domestic producers.

Significance of RCEP

RCEP was launched in November 2012 in Phnom Penh, Cambodia as an initiative by ASEAN to encourage trade among its member states and six other countries.

Those six other countries — Australia, China, India, Japan, New Zealand and South Korea — already have standalone free trade agreements with ASEAN. Coming together under RCEP would boost commerce across the group by lowering tariffs, standardizing customs rules and procedures, and widening market access especially among countries that don’t have existing trade deals.

All 16 countries started negotiating RCEP in 2013, when talks for another major trade pact — the Trans-Pacific Partnership or TPP — were underway. Given China’s absence in the then U.S.-led TPP, which was slated to be the world’s largest trade deal, many observers considered RCEP a way for Beijingto counter American influence in the region.RCEP was hard fought, but a choice made easier by the calculation that Asia needed to push back against protectionism even as the United States chose that path.Australian National University

In 2017, however, U.S. President Donald Trump pulled his country out of the TPP and slapped punitive tariffs on several U.S. trading partners for what he said were unfair trade practices.

In particular, the U.S.-China trade war has hurt many Asian exporters by reducing demand for their goods and slowing down growth. The urgency to conclude RCEP increased after all that.

“RCEP was hard fought, but a choice made easier by the calculation that Asia needed to push back against protectionism even as the United States chose that path,” academics from the Australian National University wrote in a report.

What will RCEP do?

The final text with details of the trade agreement will go through legal reviews before being signed and released.

Media and analyst reports have said RCEP is primarily beneficial for goods trade because it will progressively reduce tariffs on many products. In addition, the deal will allow businesses to sell the same goods within the bloc but do away with the need to fill out separate paperwork for each export destination, Reuters reported.

Deborah Elms, executive director at consultancy Asian Trade Centre, told Reuters that would help Asian producers to sell more of their products to the rest of the region.

Even for companies that export goods outside the bloc, there’ll be incentives to build their supply chains across RCEP member countries, according to Reuters.

But RCEP is said to lack the quality and scope seen in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP. The latter is the agreement that replaced the Trans-Pacific Partnership or TPP after the U.S. withdrawal.

In particular, RCEP — unlike CPTPP — lacks the call for commitments from member countries to protect workers’ rights and the environment, according to Reuters.

RCEP also covers fewer service sectors — one reason which some reports said led to India walking away from the deal.

India’s role

India, involved in RCEP negotiations from the start, declined to join the trade pact over concerns that the deal would hurt its domestic producers. India’s apprehension toward the deal had been one of the main hurdles in recent RCEP talks.

ome RCEP members, such as Japan, considered New Delhi’s participation crucial “both for economic reasons and as another counterweight to China,” according to analysts from risk consultancy Eurasia Group.

India is Asia’s third-largest economy and a large consumer market.

But the remaining 15 countries are still expected to bring RCEP into force, according to another consultancy, The Economist Intelligence Unit.

“Without India, RCEP will be less significant, but its path to implementation has become much smoother,” the EIU said in a report.

2. Asia forms world’s biggest trade bloc, a China-backed group excluding US – Tribune of India

Hanoi, November 15

Fifteen Asia-Pacific economies formed the world’s largest free-trade bloc on Sunday, a China-backed deal that excludes the United States, which had left a rival Asia-Pacific grouping under President Donald Trump.

The signing of the Regional Comprehensive Economic Partnership (RCEP) at a regional summit in Hanoi, is a further blow to the group pushed by former US president Barack Obama, which his successor Trump exited in 2017.

Amid questions over Washington’s engagement in Asia, the RCEP may cement China’s position more firmly as an economic partner with Southeast Asia, Japan and Korea, putting the world’s second-biggest economy in a better position to shape the region’s trade rules.

The United States is absent from both RCEP and the successor to the Obama-led Trans-Pacific Partnership (TPP), leaving the world’s biggest economy out of two trade groups that span the fastest-growing region on earth.

By contrast, the RCEP could help Beijing cut its dependence on overseas markets and technology, a shift accelerated by a deepening rift with Washington, said Iris Pang, ING chief economist for Greater China.

The RCEP groups the 10-member Association of Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia and New Zealand. It aims in coming years to progressively lower tariffs across many areas.

The deal was signed on the sidelines of an online ASEAN summit held as Asian leaders address tensions in the South China Sea and tackle plans for a post-pandemic economic recovery in a region where US-China rivalry has been rising.

In an unusual ceremony, held virtually because of the coronavirus pandemic, leaders of RCEP countries took turns standing behind their trade ministers who, one by one, signed copies of the agreement, which they then showed triumphantly to the cameras.

“The RCEP will soon be ratified by signatory countries and take effect, contributing to the post-COVID pandemic economic recovery,” said Nguyen Xuan Phuc, prime minister of Vietnam, which hosted the ceremony as ASEAN chair.

The RCEP would account for 30 per cent of the global economy, 30 per cent of the global population and reach 2.2 billion consumers, Vietnam said.

‘HISTORICAL BREAKTHROUGH’

China’s Finance Ministry said the new bloc’s promises included eliminating some tariffs within the group, including some immediately and others over 10 years.

There were no details on which products and which countries would see an immediate reduction in tariffs.

“For the first time, China and Japan reached a bilateral tariff reduction arrangement, achieving a historic breakthrough,” the Ministry said in a statement, without giving further details.

The deal marks the first-time rival East Asian powers China, Japan and South Korea have been in a single free trade agreement.

Despite being outside the RCEP and having been in the administration that propelled the TPP, President-elect Joe Biden — Obama’s vice president — was unlikely to rejoin the TPP anytime soon, analysts said, as his government will have to prioritise handling the COVID-19 outbreak at home.

“I’m not sure that there will be much focus on trade generally, including efforts to rejoin the TPP successor grouping, for the first year or so because there will be such a focus on COVID relief,” Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce said this month.

“The RCEP will help reduce or remove tariffs on industrial and agricultural products and set out rules for data transmission,” said Luong Hoang Thai, head of the Multilateral Trade Policy Department at Vietnam’s Ministry of Industry and Trade.

The pact will take effect once enough participating countries ratify the agreement domestically within the next two years, Indonesia’s trade minister said last week.

For China, the new group, including many US allies, was a windfall largely resulting from Trump’s retreat from the TPP, said ING’s Pang.

India pulled out of the RCEP talks in November last year but ASEAN leaders said the door remained open for it to join. Reuters

3. Brexit: Trade deal sticking points ‘can be resolved’, says UK minister – BBC

Sticking points over a post-Brexit trade agreement between the UK and EU “can be resolved” and a deal “can be done”, says a government minister. 

Environment Secretary George Eustice told the BBC’s Andrew Marr “agreement exists” between the two sides.

But earlier, he told Sky News there was still “some way between us” and “time is very, very short” to agree a deal.

Irish Foreign Minister Simon Coveney said talks have “got to make big progress” in the coming week. 

He told Sky’s Sophy Ridge getting a trade agreement was “difficult but also very doable”, and the consequences of failing to would be “significant”. 

The talks between the UK and EU are due to resume on Monday in Brussels. 

The UK’s chief negotiator, Lord David Frost, has arrived in the city, tweeting that there had been “some progress in a positive direction in recent days”.

But he said “significant elements” of the deal are yet to be agreed, adding: “We may not succeed.”

Any deal between the UK and EU would need to be ratified by parliaments on both sides, so time is running out for an agreement to be reached and to get the sign off before 31 December.

The UK left the EU on 31 January, but continues to follow the bloc’s rules until the end of the year while negotiations take place.

If there is no agreement at that point, trade between the two will default to World Trade Organization (WTO) rules – with tariffs set to be introduced on many imports and exports, which could push up costs.

Mr Eustice said there would be “some impact” in this situation, because of tariffs, but added most would be “quite modest”.

However, he conceded products such as lamb being sold into the EU could face taxes of more than 40%.

‘Emotive language’

The environment secretary told Andrew Marr: “We do want to get a free trade agreement with the European Union and an agreement could be done.

“We are not asking for anything remarkable. We are asking for an agreement akin to the one they have with Canada.

“We are asking for something that has got a precedent.”

The main sticking points between the two sides are over competition rules – where governments give state aid support to businesses – and on fishing rights. 

Mr Coveney said the conversation over fishing had become “very emotive” and both sides needed to “dial down the language”, or the deal could collapse over the issue. 

He added: “If a deal isn’t done this week we have real problems. We are running out of time now.”

Further Reading

Interest rates have been low ever since 2008, but coronavirus only exasperated that trend, especially in developed markets.

The UK’s economy, like much of the world, is struggling due to the coronavirus pandemic and the two national lockdowns.

Does this mean that negative interest rates are on their way in 2020?

Some people certainly think so, and many have even openly hinted at it.

How likely is this and what does this mean for your money if you are British, or indeed have money in a UK bank account?

The account below investigates this matter and more.

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