Welcome to the World’s largest trade zone
On November 15, 2020, at least fifteen countries created the world’s largest trading bloc, covering nearly a third of the global economy. The new free trade zone will be bigger than both the US-Mexico-Canada Agreement and the European Union.
A third of the world’s population
The Regional Comprehensive Economic Partnership (RCEP) is made up of 10 Southeast Asian countries, as well as South Korea, China, Japan, Australia and New Zealand. The members make up nearly a third of the world’s population and account for 29% of global gross domestic product.
Negotiations over the new RCEP deal began in 2012 and it was finally signed on the sidelines of a meeting of the Association of Southeast Asian Nations (Asean). The meeting was held virtually due to COVID-19.
Why is it important?
Many analysts think RCEP’s sheer size makes it more significant.
“Its membership includes a larger group of nations, notably reflecting the membership of China, which considerably boosts the total Gross Domestic Product (GDP) of RCEP members,” according to Rajiv Biswas, Asia Pacific chief economist for analyst firm IHS Markit.
ASEAN leaders have said they still intend to expand trade with India and that the door remains open for New Delhi to rejoin the bloc. India has pulled out of the RCEP free trade deal with analysts suggesting that the move was aimed at protecting vulnerable sections of the economy as well as persuading China to grant reciprocal market access.
Japanese Prime Minister Yoshihide Suga has reaffirmed his government’s support for “broadening a free and fair economic zone, including a possibility of India’s future return to the deal, and hope to gain support from the other countries.”
The trade deal allows China — by far the biggest economy and the most populous country in the region — to cast itself as the “champion of globalization and multilateral cooperation,” Gareth Leather, senior Asian economist for Capital Economics, said in a report.
Countries around the world are facing an economic slowdown in the aftermath of the pandemic-induced lockdowns. Indonesia recently slid into its first recession in more than two decades, while the Philippines saw its economy contract by 11.5% in the latest quarter. The fast-growing and increasingly affluent Southeast Asian market has been hit hard by the pandemic and is urgently seeking fresh drivers for growth.
The establishment of free trade zones has been trendy in recent years, with the African Continent founding a Free Trade Zone on March 21, 2018. The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. According to the World Bank, the Agreement has the potential to lift 30 million people out of extreme poverty but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures.
A landmark achievement
The Chinese premier, Li Keqiang, celebrated the signing of the deal in a speech given at the summit, saying: “The signing of the RCEP is not only a landmark achievement of East Asian regional cooperation but also a victory of multilateralism and free trade.”
There is a likelihood that the world’s political spectrum might be restructured in the post-Covid era with countries forging closer ties to collectively confront common challenges in a collaborative manner.