A huge trading bloc accounting for about 30% of the world's population and gross domestic product will be created. It is hoped that the new trading bloc will be used as a basis for developing the global free trade system.
A total of 15 countries, including Japan, China, South Korea, the Association of Southeast Asian Nations (ASEAN) and Australia, have signed the Regional Comprehensive Economic Partnership (RCEP) agreement. The negotiations had difficulties and it took about eight years until the agreement was reached.
The RCEP is the first free trade agreement that Japan has signed with China, its largest trading partner, and South Korea, its third-largest trading partner.
This large-scale agreement comes after the Trans-Pacific Partnership (TPP) multilateral free trade pact and the economic partnership agreement with the European Union. It is commendable that an agreement on the RCEP has been reached.
Expansion of trade and investment and increased efficiency of supply chains are expected. It is desirable to use the RCEP to vitalize the stagnant Japanese economy.
Under the accord, tariffs will be abolished for 91% of items traded among the 15 participating countries overall. As for industrial products, the proportion of tariff-free items among Japan's exports to China will rise from 8% to 86%, while the proportion among Japan's exports to South Korea will increase from 19% to 92%.
Japan is expected to benefit most from tariffs on auto parts. Tariffs on about 90% of auto parts exported from Japan to China, such as battery materials for electric vehicles, are likely to gradually drop to zero.
However, the level of liberalization is low compared with the TPP, which will achieve tariff elimination rates of nearly 100% for industrial products.
It will take about 10 to 20 years to eliminate tariffs on many auto parts exported from Japan to China and South Korea. Completed vehicles are not covered. The Japanese government is urged to make efforts to improve the effectiveness of the system, while closely examining results that the accord will bring about.
In the agreement, the participating countries have also reached a consensus on trade and investment rules. In addition to banning countries from requiring foreign companies to place servers or other equipment on their home soil to corral information to their own advantage in electronic commerce, the rules also prohibit them from forcing foreign firms to transfer technology to them.
Since China was reluctant to negotiate such rules, it is significant that the participating countries have agreed on them.
Unlike the TPP, however, there are no provisions on electronic commerce in the RCEP that ban the participating countries from demanding that overseas companies reveal their source codes, which are essentially blueprints for their software. Japan should call for stricter rule-making. After the RCEP takes effect, it must monitor the implementation of the accord.
In autumn last year, India withdrew from the RCEP negotiations because it was concerned about a possible influx of cheap products from China. This development has increased fear of China's growing influence.
Japan's strategy was to keep China in check by cooperating with India. India is also an important partner in the "free and open Indo-Pacific" vision that the administration of Prime Minister Yoshihide Suga aims for.
India, which is strong in the information technology field, will benefit from joining the RCEP. Japan needs to cooperate with India in strengthening its industrial competitiveness and should persistently encourage its participation.
-- The original Japanese article appeared in The Yomiuri Shimbun on Nov. 17, 2020.
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