China has been front and center in pulling together its first multilateral trade deal, which it calls the world's largest free-trade agreement. But the United States is obvious in its absence.
In all, 15 nations joined the Regional Comprehensive Economic Pact (RCEP) when it was signed into being on Sunday. Chinese official news agency called the deal a "massive coup" for free trade, multilateralism and regional economic integration.
Those are the very kinds of concepts that President Trump has fought so hard to oppose. In so doing, though, he has belittled the U.S. presence in international agreements, and missed out on the opportunity to frame how they will work.
The RCEP agreement covers 2.2 billion people, or 29% of the world's 7.7 billion total, and a combined economic output of US$26.2 trillion, also about 30% of the world's economy.
China has been able to cast the RCEP in terms that it enjoys. The deal concentrates on trade in physical goods, with no protections on intellectual property or the environment. It also has none of the new terms on services that the Asia Pacific trade pact originally backed by the United States, the Trans-Pacific Partnership (TPP), was so groundbreaking in including.
The RCEP makes little mention of labor laws, and does not limit government subsidies to state-owned enterprises. Those would both be areas in which China would prefer not to be answering any thorny questions. They were also included in the TPP, which was notable in excluding China while including the bulk of the other nations in this deal.
Instead, the region has progressed with the Chinese version of free trade. The RCEP has been eight years in the making, originally building out of a deal that China sought with Southeast Asia.
The signing took place by video link, with separate ceremonies in each of the 15 nations. Trade ministers signed their version of the document, in the presence of their chosen head of state. Member nations must now ratify it in their local legislatures.
Chinese Premier Li Keqiang led proceedings in Beijing, with Commerce Minister Zhong Shan inking the deal. Li, China's second-highest official, called the signing a "monumental achievement," as well as a "victory of multilateralism and free trade."
Amid the pandemic, the trade deal "shines light and hope through dark clouds," Li said, and shows that "multilateralism and free trade are the right way forward."
The United States is not the only notable omission. India pulled out of the Asian trade pact in July after New Delhi pushed its organizers to expand on a more ambitious agreement, one covering the service sector, too.
The RCEP is a traditional trade deal, whereas the TPP was set to address a new-media and new-tech world with first-of-a-kind stipulations on treating services such as law and accounting, and intellectual property. Instead, the RCEP mainly takes free-trade terms that may apply across one or more borders in the nations involved, and extends that across the entire region. It does, however, create a sort of Asian Union of trade, a progression in the direction of the very extensive European Union.
That should make cross-border trade across the region easier for multinationals. The RCEP, somewhat ironically, may make it more attractive to shift production to Southeast Asia for companies facing the Trump-initiated pressure of higher tariffs on Chinese goods.
The "rule-of-origin" terms of the RCEP set clear standards for how much of a product must be made in one nation for it to count as a "local" product, and therefore qualify for duty-free treatment. A product made in one RCEP nation should count as duty-free for trade with the rest. That will clarify matters for parts suppliers and other companies with cross-border supply chains in Asia.
The RCEP eliminates around 90% of tariffs between the member nations, whereas the TPP abolishes 100%. Farm goods are generally absent from the RCEP but included in the TPP. The RCEP also says little about e-commerce or cross-border data transmission, which the TPP addressed.
Trump has shown disdain for virtually every multinational body. He has just skipped for the third year in a row the annual summit of the Association of Southeast Asian Nations, or ASEAN. That took place from Thursday through Sunday, theoretically in Hanoi, capital of host nation Vietnam, but of course taking place digitally in the end.
National Security Advisor Robert O'Brien tuned in online in Trump's stead. O'Brien said Trump regrets not being able to take part, presumably because he's spending his time challenging election results instead. Trump took part in the ASEAN summit in 2017, but has skipped it ever since.
The new trade pact grew out of negotiations between ASEAN and China. The members are the 10 ASEAN nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam), and five free-trade partners: Australia, China, Japan, New Zealand and South Korea.
The nations involved all said they would welcome India to rejoin the pact "as soon as possible." However, there's political pressure within India to talk tough on China after deadly clashes along their shared border in the Himalayas. India also sought to write protections in the form of higher tariffs should imports into it from China surge as a result of the deal. India also wanted freer terms than China on low-cost goods such as shoes and clothing, which have been moving out of China. China would like to micromanage a gradual decline in industries that still provide a lot of jobs.
The United States does US$2 trillion in trade with the nations involved. The RCEP will add US$186 billion annually to the global economy by 2030, according to the Financial Times, and boost the GDPs of member nations by 0.2%.
Outgoing President Trump made it his very first action behind the Oval Office desk to withdraw the United States from the TPP. Trump's successor, Joe Biden, must now decide whether to seek to join the TPP's successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which the remaining 11 nations agreed.
Biden has given no guidance as to his intentions, although the TPP negotiations started under the Obama administration, while Biden was vice president. Biden will certainly seek to bolster U.S. participation in multilateral bodies. He has pledged, for instance, to sign the United States back up to the Paris Agreement on climate change as his first course of action in office.