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China, 14 other Asian nations set to sign trade pact

by PHILIP J. HEIJMANS, MICHELLE JAMRISKO AND BRYCE BASCHUK BLOOMBERG NEWS | November 13, 2020 at 1:59 a.m.

Fifteen Asia-Pacific nations including China aim to clinch the world's largest free-trade agreement this weekend, the culmination of Beijing's decade-long quest for greater economic integration with a region that encompasses nearly a third of the global gross domestic product.

The Regional Comprehensive Economic Partnership, which includes countries stretching from Japan to Australia and New Zealand, aims to reduce tariffs, strengthen supply chains with common rules of origin, and codify new e-commerce rules. Its passage may disadvantage some U.S. companies and other multinationals outside the zone, particularly after President Donald Trump withdrew from talks on an Asia-Pacific trade deal formerly known as the Trans-Pacific Partnership.

Following the withdrawal of India from partnership negotiations last year, the remaining 15 nations sought to announce the agreement by the end of this week's Association of Southeast Asian Nations summit, which Vietnam is hosting virtually. Malaysian Trade Minister Azmin Ali told reporters the deal would be signed Sunday, calling it the culmination of "eight years of negotiating with blood, sweat and tears."

"China has pulled off a diplomatic coup in dragging RCEP over the line," said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings. "While RCEP is shallow, at least compared to TPP, it is broad, covering many economies and goods, and this is a rarity in these more protectionist times."

The effects may extend beyond the region. The deal's advance illustrates how Trump's move to withdraw from the Trans-Pacific Partnership -- now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership -- has diminished America's ability to counterbalance China's economic clout with its neighbors. That challenge may soon shift to Joe Biden if, as expected, he's certified the winner of the Nov. 3 election.

The question of whether the regional partnership changes the Asian dynamic in favor of China depends on the U.S. response, said William Reinsch, a trade official in the Clinton administration and senior adviser at the Center for Strategic and International Studies in Washington.

"If the U.S. continues to ignore or bully the countries there, the influence pendulum will swing toward China," Reinsch said. "If Biden has a credible plan to restore the U.S. presence and influence in the region, then the pendulum could swing back our way."

FORMIDABLE COMPETITION

Even though the partnership isn't as far-reaching as the Trans-Pacific Partnership, its implementation could make it harder for U.S. businesses to compete with a Chinese-backed alliance that encompasses 2.2 billion people with a combined gross domestic product of about $26 trillion.

Still, many countries participating in the trade deal are wary of becoming too economically dependent on China. Japan is among those that have looked to reassess supply chains in China, and Beijing's move to effectively ban key Australian exports after its government called for an investigation into the origin of the coronavirus underscored the risk of relying too much on the world's second-biggest economy.

While it remains politically tricky for Biden to join the successor to the Trans-Pacific Partnership, some analysts still see that as the best vehicle for the U.S. to deepen economic ties with the region.

"The choice for Biden is clear," said Mary Lovely, a Syracuse University economics professor. "Return the U.S. to the Trans-Pacific Partnership to ensure access for U.S. companies."

Several sticking points remained among partnership nations even days before the signing. Vietnamese Deputy Foreign Minister Nguyen Quoc Dzung said during a briefing Monday that the signing will depend on whether "internal procedures" of the participating nations are completed.

"There are still issues on RCEP," Deborah Elms, founder and executive director of the Singapore-based Asian Trade Centre, whose firm consults with businesses trading across Asia and who is in frequent contact with officials across the Association of Southeast Asian Nations, said last week. "The sticking points remain the same: an inability of some member pairs to finish the last details of the tariff schedules. These are negotiated bilaterally, especially for sensitive products."

TRUMP ORDER ON INVESTMENTS

Separately, Trump on Thursday signed an executive order prohibiting U.S. investments in Chinese firms determined to be owned or controlled by the country's military, the latest bid by the White House to pressure Beijing over what the president has described as abusive business practices.

China is "increasingly exploiting" U.S. capital for "the development and modernization of its military, intelligence, and other security apparatuses," posing a threat to the U.S., according to the order.

Relations between the U.S. and China have deteriorated following the signing of a trade deal early in the year. Trump has repeatedly vowed to punish Beijing over the pandemic, its treatment of Muslim minorities and the crackdown on protesters in Hong Kong. Chinese officials have threatened to retaliate with their own blacklist of U.S. companies.

Top Chinese firms -- including China Mobile Ltd and China Telecom Corp Ltd. -- fell on reports of the impending executive order, which will prohibit U.S. investment firms and pension funds from buying and selling shares of 20 Chinese companies designated by the Pentagon as having military ties in June, as well as an additional 11 companies added in August.

The prohibition will take effect Jan. 11, and allows U.S. investment firms and pension funds to divest their holdings in companies linked to the Chinese military over the next year.

Information for this article was contributed by Justin Sink of Bloomberg News.

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