Yoichi Ohira is an EY partner based in Tokyo. As Head of Indirect Taxation at EY Japan, he helps manage EY Customs and Global Trade, Excise Tax and Outbound Value Added Tax/Goods and Services Tax (GST). With the signing of the Regional Comprehensive Economic Partnership (RCEP) on 15 November 2020, the announcement of the EU-China Comprehensive Investment Agreement (CAI) on 30 December and the prospects for an extension of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), trade policy with and within Asia is gaining momentum. In Greater East Asia, consisting of Japan, South Korea, China and the Association of Southeast Asian Nations (ASEAN), economic integration will accelerate through trade, investment, supply chains and digital connectivity. In contrast, regions that are left behind – that is, North America, Europe and India – fear that trade flows will be diverted. At the same time, geopolitics has become a determining factor in trade policy. Each agreement also represents a political positioning in the context of the Sino-American rivalry, or at least insurance against the risks of economic or technological decoupling. What are the economic and political prospects for these trade and investment agreements? What are the objectives and strategies pursued by the actors concerned? And what are the consequences for European trade policy? Figure 1: Selected Regional Trade Agreements by Economic Size (Share of World GDP) RCEP will also accelerate the economic integration of Northeast Asia. A spokesman for Japan`s Foreign Ministry stressed last year that negotiations on the trilateral free trade agreement between China, South Korea and Japan, which has been stalled for many years, will take action ”as soon as they are able to conclude the RCEP negotiations.” In a high-profile speech in early November, President Xi Jinping promised to ”accelerate negotiations on an investment agreement between China and the EU and a free trade agreement between China, Japan and South Korea.” The impact of RCEP is impressive, even though the agreement is not as strict as the CPTPP. It creates incentives for supply chains across the region, but also responds to political sensitivities. Its intellectual property rules contribute little to what many members have, and the agreement says nothing at all about labour, the environment or state-owned enterprises – all key chapters of the CPTPP.

However, ASEAN-centric trade agreements tend to improve over time. Beginning in the mid-1990s, New Delhi successfully pursued a policy of foreign trade liberalization and global economic integration, but a change of course took place under Prime Minister Narendra Modi. As the current economic policy guidelines ”Make in India” and ”Self-Reliant India” show, the development strategy is once again inward-looking. Industrial policy has gained in importance and foreign protection is increasing, especially with regard to China. European trade policy should do two things. First, it should expand Indo-Pacific trade and investment relations beyond China, or at least mitigate existing dependencies in the Chinese market. Bilateral and multilateral agreements can be useful to this end. In particular, negotiations on the EU-Australia and EU-New Zealand free trade agreements, which have been ongoing since mid-2018, are expected to be concluded swiftly. Given global trade disputes and increased trade risks, most companies operating in the Asia-Pacific region benefit from so many free trade agreements in the Asia-Pacific region, as they offer much-needed opportunities to reduce supply chain costs and transparency of trade routes. However, it also poses new operational challenges for businesses, as they have to juggle so many different free trade agreements to ensure favorable outcomes while maintaining compliance with their FTA operations. The transition to geoeconomics is fostered by the gradual erosion of the multilateral framework of the World Trade Organization (WTO). The WTO, founded in 1994, has so far fulfilled only rudimentarily its contractual obligation to liberalize multilateral trade.

The organization`s trade dispute settlement mechanisms have been suspended since December 2019, when the corresponding judicial positions remained vacant for the first time. In addition, China continues to disregard fundamental principles such as non-discrimination, most-favoured-nation treatment and transparency, while the UNITED STATES (under Trump) has repeatedly violated the organization`s treaty. The MISCONDUCT of the two countries has still not been addressed by the WTO and its member states concerned. And if trade law and liberalization are not promoted by the WTO, it is hardly surprising that Asian trading states, which are so dependent on the global economy, conclude their own bilateral and multilateral agreements. Interest in trade and investment, which stimulate development and growth, continues unabated in the region. However, this is now increasingly complemented by elements of geopolitics that form structures. The fourth round, launched in October 2007, was to be completed by the Third Council of Ministers in October 2009. The objective of this round is to extend the scope of preferences to at least 50% of the number of tariff headings of each member and to at least 20 to 25% of the value of bilateral trade.

In addition, a tariff concession of at least 50% (on average) must be granted. Although the agreement commits at least six ASEAN countries and three non-ASEAN countries to complete the national ratification process so that it can enter into force, China, Japan, Singapore and Thailand have already completed the ratification process, with most more expected to follow by 2021. Given the sheer size of the trade pact, RCEP is being promoted as a free trade agreement that will support high levels of growth in the Asia-Pacific region and boost economies in a post-COVID-19 trading environment. Shortly before the end of 2020, the EU and China agreed on a Comprehensive Investment Agreement (CAI), which was preceded by 34 rounds of difficult negotiations over seven years. The prospect of a common Western trade front had forced China to make crucial concessions shortly before the Biden administration took office. As a result, the CAI will significantly improve European companies` access to the Chinese market and make the playing field for investors in China somewhat fairer and more regulated on a most-favoured-nation basis, while leaving the EU`s single market open to Chinese investors. With the CAI, China renounces forced technology transfer and coercion of joint ventures and promises transparency on state subsidies and regulations of state-owned enterprises. In a chapter on sustainability, Beijing also accepts best-effort clauses to comply with environmental and labor standards. He even promised to sign the International Labour Organization (ILO) conventions on forced labour. RCEP will become the world`s largest trade deal, measured by the GDP of its members – nearly a third of global GDP. The impact of the agreement on investment and value chain design is likely to be even greater than its direct impact on trade. The combination of reduced tariffs, facilitated cross-border trade and standardised rules of origin will lead to a reorganisation of supply chains.

This is especially true as China – a major producer – is already under pressure due to US costs and punitive tariffs, while Beijing pursues a policy of economic and technological modernization. This could benefit the poorest countries in Southeast Asia – including Cambodia, Myanmar, Indonesia and the Philippines – as these investment targets must now meet new and harmonized RCEP standards. In the midst of the COVID-19 PANDEMIC, the entry into force of RCEP can also promote trade resilience. Recent UNCTAD research shows that trade under such agreements has been relatively more resilient to the pandemic-related slowdown in global trade. However, as the number of FTA applications skyrocketed as the volume of trade increased and the number of FTA applications was signed, many exporting authorities were quickly overwhelmed by the task of issuing certificates of origin within a reasonable time. While the signing of RCEP is certainly a key development in the Asia-Pacific business environment, it is not the only free trade agreement recently signed. In fact, Asia-Pacific countries have been busy signing many other free trade agreements with major trading partners around the world. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), consisting of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, is one such free trade agreement that entered into force on December 30, 2018 and provided for the elimination of tariffs on more than 98% of items. .