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China and 14 other countries agreed to set up the world’s largest trading bloc, encompassing nearly a third of all economic activity, in a deal many in Asia are hoping will help hasten a recovery from the shocks of the pandemic.
The Regional Comprehensive Economic Partnership, or RCEP, was began negotiations in 2012 and was finally signed recently on the sidelines of a meeting of the Association of Southeast Asian Nations (Asean).
It is the world's largest free trade agreement, covering nearly a third of the global population and about 30% of its global gross domestic product.
The Regional Comprehensive Economic Partnership (RCEP), which could be approved at the end of a four-day ASEAN summit in Hanoi, will progressively lower tariffs and aims to counter protectionism, boost investment and allow freer movement of goods within the region.
While China already has a number of bilateral trade agreements, this is the first time it has signed up to a regional multilateral trade pact.
RCEP includes China, Japan, South Korea, Australia, New Zealand and the 10 members of the Association of South East Asian Nations (ASEAN) - Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and the Philippines.
India was also part of the negotiations, but it pulled out last year over concerns that lower tariffs could hurt local producers. Signatories of the deal said the door remained open for India to join in the future.
Comprising about 30 per cent of global Gross Domestic Product (GDP) and close to a third of the world’s population, RCEP is the world’s largest FTA to date.
The RCEP is expected to eliminate a range of tariffs on imports within 20 years. It also includes provisions on intellectual property, telecommunications, financial services, e-commerce and professional services. This encourages multinational firms to invest more in the region, including building supply chains and distribution hubs.
Under RCEP, parts from any member nation would be treated equally, which might give companies in RCEP countries an incentive to look within the trade region for suppliers.
The Peterson Institute for International Economics estimates the deal could increase global national income by $186bn annually by 2030 and add 0.2% to the economy of its member states.
However, some analysts think the deal is likely to benefit China, Japan and South Korea more than other member states.
"The economic benefits of the deal might only be marginal for South East Asia, but there are some interesting trade and tariff dynamics to watch for North East Asia," said Nick Marro at the Economist Intelligence Unit (EIU).
Countries will now work on their respective ratification processes towards the entry into force of the agreement.
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