China Signs R.C.E.P. Trade agreement. Will Biden Follow?

BEIJING – After eight years of talks, China and 14 other nations from Japan to New Zealand to Myanmar officially signed one of the largest regional free trade agreements in the world on Sunday, a pact that Beijing partly shaped as a counterbalance to American influence in the region.

The agreement, the Regional Comprehensive Economic Partnership (R.C.E.P.), is limited in scope. Nevertheless it has considerable symbolic weight. The pact covers more people – 2.2 billion people – than any previous regional free trade agreement and could help cement China’s image as the dominant economic power in its neighborhood.

It also comes after the United States withdraws from sweeping trade deals that are reshaping global relations. Almost four years ago, President Trump pulled the United States out of the Trans-Pacific Partnership (T.P.P.), a broader arrangement than the R.C.E.P. This was widely viewed as a Washington-led response to China’s growing influence in the Asia-Pacific region. Joseph R. Biden Jr., the President-elect, made no commitment as to whether he would succeed T.P.P. would join.

For some trade experts, this new deal shows that the rest of the world will not wait for the United States. The European Union has also conducted trade negotiations at an aggressive pace. As other countries sign new contracts, American exporters may gradually lose ground.

“While the United States is currently focused on domestic issues, including the need to fight the pandemic and rebuild its economy and infrastructure, I’m not sure the rest of the world will wait for America to put its house in order” he said to Jennifer Hillman, a senior fellow on trade and international political economy at the Council on Foreign Relations. “I think there will need to be some response to what China is doing.”

The signing of the agreement on Sunday was unusual due to the pandemic. Separate ceremonies took place in each of the 15 member countries, all of which were linked by video. Each country’s trade minister took turns signing a separate copy of the pact while their head of state or government stood nearby and watched.

The various ceremonies were broadcast simultaneously on a split screen, providing an insight into the political culture of each country. Vietnam, the host country for this year’s talks, and South Korea and Cambodia each had a small desktop flag or two next to their ministers. At the other extreme, China’s ceremony was performed in front of a wall of five very large, bright red Chinese flags.

Prime Minister Li Keqiang, China’s second most senior official after Xi Jinping, oversaw the event in Beijing. In a statement released by the state news media, he described the pact as a “victory for multilateralism and free trade”.

The R.C.E.P. includes the 10 countries the Association of Southeast Asian Nations as well as Australia, China, Japan, New Zealand and South Korea.

The pact will most likely formalize rather than reshape business between countries. The R.C.E.P. removes tariffs mainly for goods that can already be treated duty-free under existing free trade agreements. It allows countries to maintain import tariffs in sectors that they consider particularly important or sensitive. The so-called rules of origin of the pact will set common standards for how much of a product has to be produced in the region for the end product to qualify for duty-free treatment. These rules could make it easier for companies to set up supply chains that span multiple countries.

It has little impact on cross-border legal work, accounting or other services and does not venture far into the often controversial issue of ensuring better protection of intellectual property. The R.C.E.P. It also circumvents general issues such as protecting independent trade unions and the environment, and limiting government subsidies to state-owned companies.

Most notably, the pact does not include India, another regional giant. The New Delhi government withdrew from the negotiations in July. China had rejected India’s calls for a more ambitious pact that would have done far more to connect the region’s economies, including trade in services and goods.

He Weiwen, a former Beijing Commerce Department official and a prominent expert on China’s trade policy, said the deal was still a big step forward.

“The regional comprehensive economic partnership will certainly contribute to global free trade because of its size,” he said.

The deal’s lower trade barriers could encourage global corporations to bypass Mr Trump’s tariffs on Chinese-made goods in order to keep work in Asia rather than relocating to North America, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington.

“RCEP gives overseas companies more flexibility to navigate between the two giants,” she said. “Lower tariffs in the region add value to operations in the Asian region, while the uniform rules of origin make it easier to move production away from mainland China. while this access remains. “

The prospect of closer economic ties between China and its neighbors has raised concerns in Washington. President Barack Obama’s response was the T.P.P., which contained extensive provisions on services, intellectual property, independent unions, and the environment. She also called for restrictions on government sponsorship of industries, which is both a challenge for China and an enticement for Beijing to ease its economy, the world’s second largest.

The T.P.P. did not include China, but did include many of its largest trading partners such as Japan and Australia, and Chinese neighbors such as Vietnam and Malaysia. After President Trump pulled the United States out of this agreement, the other 11 countries made it their own.

China sought to get into this vacuum. Still, it has to steer India’s ambitions. India’s relations with China have deteriorated significantly in recent months due to clashes between troops on their mountainous shared border.

Beijing had originally tried to get New Delhi to join the R.C.E.P. Indian politicians, however, were suspicious of lowering their country’s high tariffs and admitting another flood of Chinese manufactured goods. China delivers $ 60 billion more goods to India annually than it receives.

India wanted more flexibility to raise tariffs when imports rose. It also sought tariff reductions on lower-priced, labor-intensive industrial goods, for which production has already been relocated from China. However, Beijing has been cautious about pulling busy industries like shoe and shirt making out of China too quickly.

“As for India, we are R.C.E.P. not joined. Riva Ganguly Das, the Indian Foreign Ministry’s Eastern Relations Secretary, said at a press conference Thursday that she was not addressing India’s outstanding questions and concerns.

Nevertheless, Ms. Das emphasized that India was still interested in deepening trade relations in Southeast Asia.

It is unclear how the United States will react to the new trade pact. As Mr. Biden will take office in January, trade and China have become difficult issues.

The T.P.P. has been targeted by both Republicans and Democrats for exposing American companies to foreign competition. It remains controversial and Mr Biden has not said whether he would rejoin the deal – which has been renamed the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership – after taking office. However, analysts say this is unlikely to be a high priority.

Mr Biden said he would wait to negotiate new trade deals. He wants to focus his energies on the pandemic, economic recovery, and investments in American manufacturing and technology.

Keith Bradsher reported from Beijing and Ana Swanson from Washington. Hari Kumar contributed to the coverage from New Delhi. Claire Fu contributed to the research.