Why China is creating a new Asia-Pacific trade pact

First President Donald Trump withdrew the U.S. from a 12-nation, pan-Pacific trade deal known as the TPP. Then Prime Minister Narendra Modi pulled India out of another regional grouping led by China known as the RCEP. In both cases, protectionism played a part; in both cases, the show went on without them. With the 15-country RCEP deal now signed, the question is what the impact will be on American and Chinese efforts to boost their clout—and business—across Asia.

What is the RCEP?

What began in 2012 as a routine harmonizing of agreements between members of the Association of Southeast Asian Nations, or Asean, turned into a deal creating potentially the world’s biggest free trade bloc. The Regional Comprehensive Economic Partnership, to give its full name, is aimed at strengthening trading ties among China and others with Asean members. Broadly speaking, it would lower tariffs and other barriers to the trade of goods among the 16 countries that were in, or had existing trade deals with, Asean.

But that’s now down to 15 nations?

Correct. India pulled out in November 2019, saying it wanted to protect service workers and farmers. There were also worries the country would be flooded by cheap goods from China. Modi had pushed the other nations to address concerns over deficits and to open their markets to Indian services and investments.

Is India’s loss a big deal?

It would have been the third-biggest economy in the RCEP, so yes. On the other hand, its exit ended up removing one of the biggest impediments to the pact, which the remaining 15 members hope will help them deal with the unprecedented challenge the Covid-19 pandemic has created for trade, supply chains and investment. For its part, China has been looking to further integrate itself with its neighbors as the Trump administration urged them to shun Chinese infrastructure loans and 5G technology. China says India is welcome to come back aboard whenever it’s ready.

What’s different about the RCEP?

Unlike the TPP, or Trans-Pacific Partnership, and other U.S.-led trade deals, the RCEP doesn’t require its members to take steps to liberalize their economies and protect labor rights, environmental standards and intellectual property. U.S. Commerce Secretary Wilbur Ross has called it a “very low-grade treaty” that lacks the scope of the TPP. But RCEP’s imminent implementation illustrates America’s diminished clout and could make it harder for U.S. businesses to compete in the vast region.

What happened to the TPP?

It became the the CPTPP, or Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Signed in March 2018, it’s already in force for seven of the 11 signatories. They decided to press on after Trump pulled out, saying he wanted to get better deals bilaterally. President-elect Joe Biden has indicated he’s open to joining the CPTPP but would want to see improvements.

Which countries are on which side?

Seven nations—Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam—participated in negotiations for both deals. The U.S., Canada, Chile, Mexico and Peru are TPP-only negotiators, while RCEP-only countries, other than China, are Cambodia, India, Indonesia, Laos, Myanmar, Philippines, South Korea and Thailand. The U.S. hasn’t been deliberately excluded from the RCEP. To join, it would first need to reach a free-trade arrangement with Asean, then apply to join.