Asia-Pacific partnership set to create new ‘centre of gravity’ for global trade

andy-li-CpsTAUPoScw-unsplash-scaled.jpg

Photo by Andy Li on Unsplash

A new Asia-Pacific free trade agreement set to enter into force on 1 January 2022 will create the world’s largest trading bloc by economic size, according to an UNCTAD study published this week.

The Regional Comprehensive Economic Partnership (RCEP) includes 15 East Asian and Pacific nations of different economic sizes and stages of development.

They are Australia, Brunei Darussalam, Cambodia, China, Indonesia, Japan, the Republic of Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Viet Nam. The RCEP will become the largest trade agreement in the world as measured by the GDP of its members – almost of one third of the world’s GDP.

By comparison, other major regional trade agreements by share of global GDP are the South American trade bloc Mercosur (2.4%), Africa’s continental free trade area (2.9%), the European Union (17.9%) and the United States-Mexico-Canada agreement (28%).

UNCTAD’s analysis shows that the RCEP’s impact on international trade will be significant. “The economic size of the emerging bloc and its trade dynamism will make it a centre of gravity for global trade,” the report says.

Amid COVID-19, the entry into force of the RCEP can also promote trade resilience. Recent UNCTAD research shows that trade within such agreements has been relatively more resilient against the pandemic-induced global trade downturn.

Eliminating 90% of tariffs within bloc

The agreement encompasses several areas of cooperation, with tariff concessions a central principle. It will eliminate 90% of tariffs within the bloc, and these concessions are key in understanding the initial impacts of the RCEP on trade, both inside and outside the bloc.

Under the RCEP framework, trade liberalization will be achieved through gradual tariff reductions. While many tariffs will be abolished immediately, others will be reduced gradually during a 20-year period.

The tariffs that remain in force will be mainly limited to specific products in strategic sectors, such as agriculture and the automotive industry, in which many of the RCEP members have opted out from trade liberalization commitments.

Boon for intraregional exports

Trade between the bloc’s 15 economies was already worth about $2.3 trillion in 2019, and UNCTAD’s analysis shows the agreement’s tariff concessions could further boost exports within the newly formed alliance by nearly 2%, or approximately $42 billion.

This would result from trade creation – as lower tariffs would stimulate trade between members by nearly $17 billion – and trade diversion – as lower tariffs within the RCEP would redirect trade valued at nearly $25 billion away from non-members to members.

RCEP is the world's largest trade bloc by economic size
Selected regional trade agreements by economic size as share of global GDP 

Leave a Reply

Your email address will not be published. Required fields are marked *