Redrawing trade routes

Updated 2018-01-06 12:01:02 China Daily

Initiatives like China-backed RCEP and FTAAP have huge potential to free up commerce and promote globalization

With a leadership committed to more open global trade, China is rapidly emerging as a powerful driver of globalization and championing initiatives that could redraw the international trade map.

Trade globalization has made it possible for more firms in more countries to operate across borders and Asian economies to sustain rapid growth. By the end of 2016, global exports totaled trillion, an eighth of that coming from China.

Despite a recent backlash in some corners of the world, trade growth is likely to continue.

"The positive impact of the spectacular rise of the People's Republic of China has been most tangible in East Asia and ASEAN (the Association of Southeast Asian Nations), that collectively form 'factory Asia', with the PRC at its center," said Lee Minsoo, an economist at the economic research and regional cooperation department of the Asian Development Bank. "The impact was not confined to those economies but reverberated across the whole region."

Lee said China's growing affluence and purchasing power has turned it into a "significant source of demand (for) ASEAN and other subregions of developing Asia".

Along with its growing wealth and influence, China is pushing deals that could redefine and strengthen global trade. Among the key initiatives are an existing but growing free trade deal with ASEAN, the proposed Regional Comprehensive Economic Partnership, or RCEP, and the paradigm-changing Free Trade Area of the Asia-Pacific, or FTAAP.

All of these are linked by the larger and more strategic Belt and Road Initiative, President Xi Jinping's plan to boost connectivity and free trade between China and the rest of the world. It will revive the ancient Silk Road routes through investments in infrastructure across the region.

These initiatives could replace the "noodle bowl" of deals that stretches across Asia and beyond. The Asia Regional Integration Center database lists 147 free trade agreements involving at least one Asian country and another 85 not yet ratified or being negotiated. China is part of 24 FTAs, while ASEAN has seven as a group.

For China, all those deals have helped grow a trade surplus that ballooned from 2 billion to 3 billion in the decade through 2015.

By the end of 2016, the Chinese mainland was the largest goods exporter in the world, with total merchandise exports of .01 trillion — well ahead of the second-placed United States, which exported .46 trillion, and Germany with exports of .34 trillion.

Japan was the second-largest goods exporter in Asia, with exports of 5 billion, and Hong Kong came in third in the region and sixth worldwide with exports of 7 billion — much of that being re-exports from the mainland.

All these goods can move more easily around the world if trade barriers are lowered. A case in point is the growth in trade between China and ASEAN since the FTA between the two took effect in 2005, when ASEAN exports to China topped billion. A decade later, exports to China hit 5 billion.

Continued growth is expected. ASEAN's total trade with China was almost 6 billion in 2015, according to the latest available figures from the ASEAN Secretariat.

Trade between the two sides could hit trillion by 2020, said Lee. China has been the largest trade partner of ASEAN for the last seven years. In turn, ASEAN has been China's third-largest trade partner for the last four years.

An upgraded China-ASEAN Free Trade Area Protocol took effect in July 2016 and calls for zero tariffs on as many as 95 percent of taxed items, improved rules of origin and simplified customs procedures, said Yang Chen, a senior partner at the Chinese law firm of Jincheng Tongda & Neal.

"China already has goods and services FTAs with ASEAN, which are working well," said Amitendu Palit, a senior research fellow and lead for trade and economic policy at the Institute of South Asian Studies in Singapore.

China also has bilateral deals with non-ASEAN members of RCEP like Australia and New Zealand, which have also helped make China an important partner to these countries.

With all of these existing deals in mind, China is now pushing forward with the larger RCEP that would include the 10 ASEAN members, Australia and New Zealand, as well as India, Japan and South Korea. These 16 countries cover roughly half the global population, almost 32 percent of global output and 28.5 percent of global trade.

The original framework for RCEP was first put forward in 2012 based on the ASEAN 1 framework that includes the 10 ASEAN countries and China. The goal of RCEP is to boost trade and investment among the 16 participating Asia-Pacific economies. When it comes online, it could potentially create a unified framework for trade among all the members.

Representatives from RCEP group met in Manila on Nov 12 on the sidelines of the East Asia Summit. A framework for RCEP that covers areas such as trade, rules of origin, customs procedures and trade facilitation was announced in November.

"RCEP will increase employment (opportunities), drive sustainable growth, promote inclusive development, push innovation and will fundamentally enhance people's living standards," said Yang.

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