Brunei all set to join Asia-Pacific free trade agreement

Image from Borneo Bulletin/ANN

BANDAR SERI BEGAWAN, Dec 18 (Borneo Bulletin/ANN): Brunei is set to join the new Asia-Pacific free trade agreement, which will come into force on January 1, 2022.

The pact will create the world’s largest trading bloc by economic size, and is set to become a new “centre of gravity” for global trade, according to a United Nations Conference on Trade and Development (UNCTAD) study published on December 15.

The Regional Comprehensive Economic Partnership (RCEP) includes 15 East Asian and Pacific nations of different economic sizes and stages of development.

They are: Australia, Brunei, Cambodia, China, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

The RCEP will become the largest trade agreement in the world as measured by the gross domestic product (GDP) of its members – almost one third of the world’s GDP.

By comparison, other major regional trade agreements by share of global GDP are the South American trade bloc Mercosur (2.4 per cent), Africa’s continental free trade area (2.9 per cent), the European Union (17.9 per cent) and the United States-Mexico-Canada agreement (28 per cent).

The agreement encompasses several areas of cooperation, with tariff concessions a central principle, which will eliminate 90 per cent of tariffs within the bloc.

The concessions are key in understanding the initial impacts of RCEP on trade, both inside and outside of the bloc.

Intra RCEP-trade was already worth about USD2.3 trillion (2019) and the analysis shows that RCEP’s tariff concessions would further boost the intra-regional exports of the newly formed alliance by nearly two per cent, approximately USD42 billion.

This is the result of two forces: trade creation, as lower tariffs would stimulate trade between members, by nearly USD17 billion; and trade diversion, as lower tariffs within RCEP would redirect trade away from non-members to members, equivalent to nearly USD25 billion.

As in any other trade agreement, RCEP members are expected to gain to a varying extents from the agreement.

Tariff concessions are expected to produce higher trade effects for the largest economies of the bloc, not because of negotiations asymmetries, but largely due to the already low tariffs between many of the other RCEP members. Indeed, the patterns of tariff concessions in RCEP show a degree of cooperation in the negotiation process.

The finding may have implications for potential new members because latecomers may find little left to negotiate, as the concessions of many of the existing RCEP members might already be shaped around the interests of the incumbents.

Overall, the tariff concessions of RCEP result in gains for the entire region. Most of these gains come from trade diverted away from non-members. As the process of integration of RCEP members goes further, these diversion effects could be magnified. - Borneo Bulletin/ANN

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