After almost a decade in the making, a mammoth trade deal is to be signed by Asian leaders this weekend.
The deal would have in its fold ten member countries of the Association of Southeast Asian Nations (Asean), as well as China, Japan, South Korea, Australia and New Zealand.
This deal will bring together almost one third of the global population as well as about 29 per cent of the global gross domestic product.
Compared to both the US-Mexico-Canada Agreement and the European Union, this new free trade zone will be bigger.
After being part of the initial rounds of negotiations, another Asian economic power India pulled out of the deal claiming the its local producers would get hurt by the lower tariffs due to the deal.
It is expected that the deal, known as the Regional Comprehensive Economic Partnership (RCEP), will be signed on the side lines of the mostly-online Asean conference during the current weekend.
It is also expected that within 20 years, a range of tariffs on imports will be eliminated by RCEP.
Provisions on intellectual property, telecommunications, financial services, e-commerce and professional services is also included in the deal.
But according to analysts, the biggest possible impact of the deal will be because of the new “rules of origin” which officially define where a product comes from.
Free trade agreements (FTA) already exist between many member states but they have their limitations.
“The existing FTAs can be very complicated to use compared to RCEP,” said Deborah Elms from the Asian Trade Centre.
Even within an FTA, there can be tariffs imposed on businesses with global supply chains since components made elsewhere might have been used in the products. For example, there would be parts made in Australia in a product made in Indonesia which might face tariffs elsewhere in the Asean free trade zone.
But parts that are made in any member nation of the RCEP will not be tariffed which can be an incentive for companies in the RCEP countries to seek out suppliers within the trade region.
Many analysts also consider the RCEP to be a China-backed alternative to the Trans-Pacific Partnership (TPP) even though it was an Asean initiative.
The TPP is still a proposed deal that does not include China but has many Asian countries.
Prior to the US President Donald Trump taking the US out of the TPP in 2017, twelve member states signed the deal in 2016.
The remaining members excluding the US went on to form the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The new deal was old-fashioned, said Australia’s former Prime Minister Malcolm Turnbull while speaking at an online event at the Peterson Institute of International Affairs.
“There’ll be some hoopla about the signing and the entry into force of RCEP. I mean RCEP is a really low ambition trade deal. We shouldn’t kid ourselves,” said Mr Turnbull, who signed Australia up to the TPP.
(Adapted from BBC.com)