On 15 November, the ten members of the Association of Southeast Asian Nations (ASEAN), along with China, Japan, South Korea, Australia and New Zealand, signed a Regional Comprehensive Economic Partnership (“RCEP”) agreement. Although India had previously pulled out, the agreement still establishes the world’s largest single trade block, covering 30% of the global population and 30% of global GDP. Whilst less ambitious than other free trade agreements, it still reduces a range of tariffs, lowers customs red tape, eases restrictions on investment, makes government procurement more transparent and establishes unified rules of origin. There is, however, little in the RCEP on more political issues such as labour unions, environmental protection, and government subsidies.
The new agreement comes after a tumultuous four-year period for international relations, with an on-going trade dispute between China and Australia in progress and at a time when there is little likelihood of progress on global trade liberalisation through the WTO, even under a new Biden Presidency in the USA.
Regional trade agreements can result in greater distortions to global trade than the benefits they create and the RCEP is seen by some through a negative lens of China increasing its sphere of influence on global markets and other economies. Most economists, nevertheless, expect the agreement to boost the global economy. The COVID-19 pandemic has put a spotlight on international supply chains, and it is also encouraging that many governments remain outward looking for the longer term.
The tariff reduction schedules include cuts on a range of metals, minerals and downstream product taxes. For example, Chinese import taxes of 2% today on a range of ferro-alloys are abolished. Downstream steel product tariffs see larger reductions. Whilst tariffs on mining products were already lower than in other sectors, such as agricultural goods, these changes will boost trade and result in lower prices across the region. Producers in counties within the RCEP will also now have greater access to the Chinese metals and minerals consumers than those commodity producers in countries outside it. This will, for example, likely benefit Australian salt producers over exporters in Indian and Mexico.
However, the fact that environmental protection and subsidies are largely left outside of the agreement, the importance of freight costs on commodity trade in the region, and the fact that most tariffs on metals were already low, means that Roskill expects the agreement to have mainly positive, incremental long run effects on most metals and minerals markets, rather than radical short run effects.