United States shuns, Asia signs FTAs

As the US-China tariff war rumbles on, it has been a great year so far for free trade agreements (FTAs) involving Asian countries. In a remarkable reversal of trends, the East is responding to the West’s protectionist barriers by championing seamless flow of goods, services and investment. This process could only get better in the future.

At least five examples illustrate this assertion.

First, Japan led the charge by activating the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after President Donald Trump withdrew the United States from the Trans-Pacific Partnership (TPP).

During his presidential campaign, Trump referred to the TPP as the “greatest danger yet” to the US economy, and declared a preference for bilateral trade agreements. This was a reversal of President Barack Obama’s preferred policy that such deals would let the United States, not China, “lead the way on global trade.”

Despite the US withdrawal, the other countries in the deal remained undeterred and met for the first time in Tokyo in January. The 11 member countries represent 500 million people and account for about 13% of the world’s GDP — approximately $13.5 trillion. The pact is, therefore, the third largest multilateral trade deal after the North American Free Trade Agreement and the European Single Market.

Interestingly, China — which the United States wanted to isolate when the TPP was conceived — is actively considering joining the CPTPP. The Beijing-based Centre for China and Globalisation has recommended that the US’s absence from the new trade bloc gives China a “time window” to expand its “circle of friends”.

Second, the Japan-EU Economic Partnership Agreement came into effect in February. The two economies combined account for a third of the global GDP. Along with the Strategic Partnership Agreement, this deal is the European Union’s largest bilateral trade deal ever. It has been pointed out that Trump’s ‘America First’ policy and the decision to withdraw from the TPP gave renewed impetus to the Japan-EU deal which was being negotiated since 2013.

A value-added component is that the agreement promotes measures to combat climate change and commits both sides to implement the Paris Agreement, which the United States exited in 2017.

In both deals mentioned above, Japan’s attempt to reinvent itself as an economic and political power is obvious in its support for open and mutually-beneficial global trade rather than protectionist policies. For a country that is historically unfamiliar with trade deals, these agreements are remarkable achievements for Prime Minister Shinzo Abe, who has led from the front in the clever interplay of Abenomics and Abe-politics.

The next two deals that are likely to become effective in the near future focus on similar non-protectionist sentiments, but led by the challenger to America’s global hegemony — China.

A 2018 agreement on trade and economic cooperation between China and the Eurasia Economic Union (EAEU) is expected to become effective soon. The EAEU — comprising Russia, Armenia, Belarus, Kazakhstan, and Kygryzstan — has a population of over 180 million and a GDP of about $5 trillion.

This economic agreement, driven by Russian and Chinese common political agenda of serving as a counterforce to the United States, is also a crucial tool to integrate the Belt and Road Initiative with the EAEU framework.

Another noteworthy FTA in the making is the Regional Comprehensive Economic Partnership (RCEP). Led by China, it is a trade pact that includes the Association of Southeast Asian Nations (ASEAN) countries, Japan, South Korea, Australia, New Zealand and India. This was a subject of major discussion at the ASEAN leaders meeting in Bangkok in June. Since all these countries combined host half the world’s population, the RCEP could become the biggest trade pact ever.

Finally, lending strength to the principal argument of this article is the African example. Following the Asian-driven FTA mantra, 54 of 55 African Union members (barring Eritrea) also agreed to a deal in March, which the International Monetary Fund referred to as an “economic gamechanger”.

Dubbed the African Continental Free Trade Area, which will become operational in 2020, it unites 1.3 billion people and creates a $3.4 trillion economic bloc. It encourages African countries to boost their intra-regional trade, which is just 16% at present, and prepares the ground for the anticipated demographic explosion in Africa that could double the continent’s population by 2050.

Underling the rationale behind the new FTA vision, Japanese diplomat Jun Yamazaki said: “Our country does not produce natural resources. Our strength is that we have a well-educated population that is fairly diligent in doing things…And in order to utilise that asset, we need to have interaction with the outside world, and that definitely means free trade, and creating a more liberalised investment climate.”

Wonder if the United States could pull a leaf out of this?