US Right to Refuse RCEP Trade Deal Favoring China

News Analysis China stands to be the big winner of RCEP, and it would have won even more if the United States had joined the multilateral trade deal. “With the RCEP going ahead officially, China will now be able to drive trade on its terms,” according to the South China Morning Post (SCMP), claiming that the United States had missed out on an opportunity by not joining the Regional Comprehensive Economic Partnership (RCEP), a free-trade pact signed by 15 countries in 2020. The U.S. refusal seems to be the correct response, given that Washington does not want Beijing dictating the terms of trade. The RCEP will go into force on Jan. 1, 2022, after it met the minimum number of ratifications last week. It was signed by the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Burma (also known as Myanmar), New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. So far, of the 15 member states, 10 have ratified the agreement. Bryan Mercurio, an international trade law professor at Chinese University of Hong Kong, told the SCMP that RCEP was a victory for China, while it remains to be seen how much economic benefit there will be. In addition to trade benefits, China is hoping that RCEP will help with the internationalization of its currency, the yuan. The Asia-Pacific nations entered into the agreement, ostensibly, because they believed their own economies would benefit. However, Mercurio explained that according to the results of mathematical modeling, the three winners will be China, Japan, and South Korea. China’s Ministry of Commerce issued a statement declaring that Beijing would be ready to cut trade tariffs as soon as RCEP goes into effect. The elimination of tariffs will benefit the Chinese regime, while hurting most of its RCEP trade partners, as China already runs a trade surplus with Vietnam, the Philippines, Singapore, Cambodia, Brunei, Burma, and Indonesia. Containers are seen at the Yangshan Deep-Water Port in Shanghai, China, on Oct. 19, 2020. (Aly Song/Reuters) Signing RCEP will pull the member states closer to the Chinese regime’s sphere of economic influence. It will also increase cheap imports from China, further delaying these countries’ development of domestic technologies and manufacturing capabilities. Globalists say the United States missed out on an opportunity because RCEP has very loose rules of origin, meaning that China could open factories and supply chains across the member nations, exporting inputs and finished goods largely tariff-free. The United States, however, could also open factories across the RCEP nations and export from one to the other, tariff-free. RCEP is a trade agreement, not an investment agreement. The United States would have the same opportunity to invest in factories in RCEP countries, as it always has. Meanwhile, a product manufactured in Vietnam by a U.S. company would be treated the same when shipped to Indonesia, as it would if the factory were owned by a Vietnamese company. The tariff rules are based on the country of manufacture and export, not on which country owns the factory. Proponents claim that if the United States had joined RCEP, America would be in a better position to negotiate fair terms of trade with China. This seems unlikely, however, as China has failed to comply with the terms of the Phase One trade deal that it signed with the United States. There is no indication that China will fulfill its role as “buyer of last resort” in RCEP. This is particularly true at a time when Chinese leader Xi Jinping is rolling out economic policies that are focused on strengthening the domestic economy, rather than international trade. Additionally, RCEP makes no provisions for non-tariff barriers (NTBs) to trade. One of the reasons for the U.S.-China trade war has been China’s excessively high tariffs on U.S. imports. But the tariffs are a very small part of the U.S. grievances, although they are the easiest to see and thus get the most attention in the media. The more important issue is non-tariff barriers to trade—such as limited market access, restricted industries, prohibited sectors, and other regulations within China—that prevent the United States from investing or trading in certain areas of the economy. The United States, by contrast, has very few restrictions on China’s access to U.S. markets. China has been profiting from the openness of the U.S. economy, while preventing the United States from enjoying the same benefits in China. RCEP would not have changed this. Other U.S. grievances include forced technology transfer and state subsidies given to Chinese firms. Although the World Trade Organization (WTO) has rules against these issues, and the United States has filed grievances, the WTO has failed to remedy them. RCEP does not even address these issues, and so would be even less likely to fix them. Time magazine said that the United States missed out on RCEP, the same wa

US Right to Refuse RCEP Trade Deal Favoring China

News Analysis

China stands to be the big winner of RCEP, and it would have won even more if the United States had joined the multilateral trade deal.

“With the RCEP going ahead officially, China will now be able to drive trade on its terms,” according to the South China Morning Post (SCMP), claiming that the United States had missed out on an opportunity by not joining the Regional Comprehensive Economic Partnership (RCEP), a free-trade pact signed by 15 countries in 2020.

The U.S. refusal seems to be the correct response, given that Washington does not want Beijing dictating the terms of trade.

The RCEP will go into force on Jan. 1, 2022, after it met the minimum number of ratifications last week. It was signed by the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Burma (also known as Myanmar), New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. So far, of the 15 member states, 10 have ratified the agreement.

Bryan Mercurio, an international trade law professor at Chinese University of Hong Kong, told the SCMP that RCEP was a victory for China, while it remains to be seen how much economic benefit there will be. In addition to trade benefits, China is hoping that RCEP will help with the internationalization of its currency, the yuan.

The Asia-Pacific nations entered into the agreement, ostensibly, because they believed their own economies would benefit. However, Mercurio explained that according to the results of mathematical modeling, the three winners will be China, Japan, and South Korea.

China’s Ministry of Commerce issued a statement declaring that Beijing would be ready to cut trade tariffs as soon as RCEP goes into effect. The elimination of tariffs will benefit the Chinese regime, while hurting most of its RCEP trade partners, as China already runs a trade surplus with Vietnam, the Philippines, Singapore, Cambodia, Brunei, Burma, and Indonesia.

Epoch Times Photo
Containers are seen at the Yangshan Deep-Water Port in Shanghai, China, on Oct. 19, 2020. (Aly Song/Reuters)

Signing RCEP will pull the member states closer to the Chinese regime’s sphere of economic influence. It will also increase cheap imports from China, further delaying these countries’ development of domestic technologies and manufacturing capabilities.

Globalists say the United States missed out on an opportunity because RCEP has very loose rules of origin, meaning that China could open factories and supply chains across the member nations, exporting inputs and finished goods largely tariff-free.

The United States, however, could also open factories across the RCEP nations and export from one to the other, tariff-free. RCEP is a trade agreement, not an investment agreement. The United States would have the same opportunity to invest in factories in RCEP countries, as it always has. Meanwhile, a product manufactured in Vietnam by a U.S. company would be treated the same when shipped to Indonesia, as it would if the factory were owned by a Vietnamese company. The tariff rules are based on the country of manufacture and export, not on which country owns the factory.

Proponents claim that if the United States had joined RCEP, America would be in a better position to negotiate fair terms of trade with China. This seems unlikely, however, as China has failed to comply with the terms of the Phase One trade deal that it signed with the United States. There is no indication that China will fulfill its role as “buyer of last resort” in RCEP. This is particularly true at a time when Chinese leader Xi Jinping is rolling out economic policies that are focused on strengthening the domestic economy, rather than international trade. Additionally, RCEP makes no provisions for non-tariff barriers (NTBs) to trade.

One of the reasons for the U.S.-China trade war has been China’s excessively high tariffs on U.S. imports. But the tariffs are a very small part of the U.S. grievances, although they are the easiest to see and thus get the most attention in the media. The more important issue is non-tariff barriers to trade—such as limited market access, restricted industries, prohibited sectors, and other regulations within China—that prevent the United States from investing or trading in certain areas of the economy. The United States, by contrast, has very few restrictions on China’s access to U.S. markets. China has been profiting from the openness of the U.S. economy, while preventing the United States from enjoying the same benefits in China. RCEP would not have changed this.

Other U.S. grievances include forced technology transfer and state subsidies given to Chinese firms. Although the World Trade Organization (WTO) has rules against these issues, and the United States has filed grievances, the WTO has failed to remedy them. RCEP does not even address these issues, and so would be even less likely to fix them.

Time magazine said that the United States missed out on RCEP, the same way it missed out on the Trans-Pacific Partnership (TPP). According to Time, the multilateral free-trade deal “included a raft of environmental, human rights, intellectual property and labor regulations that stood to bolster U.S. competitiveness.”

In actuality, America missed out on nothing. If the United States felt that imposing environmental, human rights, and labor regulations on itself would “bolster U.S. competitiveness,” then Washington would have already done so, without joining a multilateral free-trade agreement.

Epoch Times Photo
(Left to right) Trade or foreign ministers of Singapore, New Zealand, Malaysia, Canada, Australia, Chile, Brunei, Japan, Mexico, Peru, and Vietnam pose for an official picture after signing the rebranded 11-nation Pacific trade pact Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Santiago, Chile, on March 8, 2018. (Claudio Reyes/AFP via Getty Images)

Some critics of the U.S. decision suggest that if both China and the United States had joined the TPP, Washington could pressure Beijing to make structural changes in the areas of environmental, human rights, intellectual property, and labor regulations, which would increase U.S. competitiveness. But many of these rules already exist in the WTO and the Chinese regime ignores them. Since Beijing refuses to comply with WTO norms, it is unlikely that China would be willing to make major changes in its domestic economy to appease the members of a free trade deal, whether it’s the RCEP or the TPP.

The United Sates refusing to join RCEP or the TPP is not new, and not the result of one political party versus the other in Washington. Historically, the United States has preferred bilateral trade agreements with its trading partners. The United States is a signatory to only three major multilateral trade agreements: the WTO, USMCA (which replaced NAFTA), and the CAFTA-DR, composed of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. The United States maintains free-trade agreements with 20 countries, including three countries—Australia, South Korea, and Singapore—that are also members of RCEP.

The United States not joining RCEP changes nothing about trade with Australia and South Korea. It would, however, have meant tariff-free trade with China and Japan, which the United States does not want. Consequently, Chinese exports to the United States will continue to be tariffed, and China will not be able to bypass U.S. tariffs by exporting from RCEP member countries, if the United States has tariffs against them.

Chinese state-run media Global Times said that Washington’s failure to join RCEP will end U.S. hegemony. The globalists say the United States is being left behind and that it will miss out on trade opportunities with countries that generate 30 percent of the world’s GDP. But RCEP is not a fortress that requires its members to put tariffs on non-RCEP trade. RCEP members are still permitted to trade with the United States under current terms dictated by Washington.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


Antonio Graceffo

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Antonio Graceffo, Ph.D., has spent over 20 years in Asia. He is a graduate of Shanghai University of Sport and holds a China-MBA from Shanghai Jiaotong University. Antonio works as an economics professor and China economic analyst, writing for various international media. Some of his China books include "Beyond the Belt and Road: China’s Global Economic Expansion" and "A Short Course on the Chinese Economy."