US on the sidelines as China and other Asia-Pacific countries launch trade pact

It will also give China a bigger role in establishing trade rules in the Asia-Pacific region at the expense of the United States, some analysts say.

“This will be a group of countries that will work together and try to develop new rules and standards,” said Wendy Cutler, vice president of the Asia Society Policy Institute and former head of US commerce. “[The U.S. is] go the other way.

China had been excluded from an earlier trade deal, the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, which the United States had led to counter China’s influence in the region.

The United States withdrew from the Trans-Pacific Partnership in 2017 under former President Donald Trump, who said the deal was hurting American workers. Many lawmakers have also opposed the pact, and the Biden administration has said it has no plans to join it.

Henry Gao, Asian trade expert and associate professor of law at Singapore Management University, said the new RCEP “could be a wake-up call for the United States to rethink its strategy and return to Asia-Pacific.”

He said RCEP would benefit China by making its parts and components more attractive to factories that make up supply chains in Southeast Asia, and by boosting trade with Japan and South Korea.

RCEP was launched in 2012 by the Association of Southeast Asian Nations to strengthen ties with China and other countries in Asia. Ms Cutler, who was working with the U.S. Trade Representative’s office at the time, said the United States had not been invited to participate and would not have joined anyway because the agreement was considered too weak, lacking in labor standards and environmental requirements.

When RCEP members unveiled the completion of their deal in November 2020, then President-elect Biden said the United States should “set the rules of the road instead of leaving China and d ‘others dictate the results as they are the only game in town.

A senior official in the Biden administration said the White House recognizes the need for the United States to engage the Asia-Pacific region economically and discussions on how to do so are underway.

The other RCEP member countries are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand and Vietnam.

So far, 10 of the 15 member countries have officially ratified the deal and the rest are expected to do so in the coming months.

With RCEP members representing 30% of the world’s population and gross domestic product, the partnership becomes the largest regional trade agreement in the world, surpassing the United States-Mexico-Canada agreement and the European Customs Union.

The agreement aims to eliminate almost all tariffs on imports between countries within 20 years and establish common standards on intellectual property rights and electronic commerce.

Some business analysts have said the RCEP does not address issues where China may be vulnerable, including labor and environmental standards and its support for state-owned enterprises.

In a November 8 letter, 13 GOP Senators led by Mike Crapo (R., Idaho), the top Republican on the Senate Finance Committee, urged Biden to get involved in crafting new rules trade in the Asia-Pacific region, declaring the absence of the United States “encourages potential partners to move forward without us and ensures that China will hold the reins of the world economy.”

As an early indication, they pointed to the launch of RCEP, calling it “an agreement in line with China’s interests, including weak rules on intellectual property rights, and none on state-owned enterprises.”

Liu Pengyu, spokesperson for the Chinese Embassy in Washington, said China was “committed to building an open world economy, rather than forming an exclusive and closed ‘clique.’

The launch of RCEP comes at a time when China seeks a greater role in shaping trade rules in the Asia-Pacific region, while the United States remains largely absent.

In recent months, Beijing has asked to join the CPTPP and the Digital Economy Partnership Agreement, an ambitious new pact between Chile, New Zealand and Singapore that aims to establish common standards in areas such as electronic commerce and artificial intelligence. Some experts see DEPA as a model for a future agreement for the whole region.

Highlighting China’s progress in opening up its economy in a speech on November 5, Chinese President Xi Jinping said China was among the first nations to ratify RCEP nationally. He also pledged to actively work to join the CPTPP and DEPA.

As the first free trade agreement between China, Japan and South Korea, RCEP is expected to help significantly boost trade between countries.

Customs duties will be removed on 86% of industrial products exported from Japan to China, compared to 8% currently. This includes the elimination of levies on 87% of auto parts exports worth nearly $ 45 billion a year, according to the Japanese government.

Some 92% of Japanese industrial products will be exported to South Korea duty-free, compared to 19% currently.

The Brookings Institution estimates that RCEP could add $ 209 billion a year to global revenues and $ 500 billion to global trade by 2030.

The most notable feature of RCEP, according to trade experts, is the flexibility of rules of origin. It only requires 40% of the content of a product from the RCEP block to qualify for duty-free treatment, compared to 50% to 60% of floors for the USMCA.

“This offers many opportunities to create and strengthen intra-Asian supply chains,” said Jeffrey Schott, senior researcher at the Peterson Institute for International Economics.

Write to Yuka Hayashi at yuka.hayashi@wsj.com