China’s Strategic Commercial Diplomacy By Dr Mehmood-ul-Hassan Khan

CHINA has once again showed the “strategic” importance of its global “commercial” diplomacy by signing the Regional Comprehensive Economic Partnership (RCEP) which consists of 10 Southeast Asian countries, as well as South Korea, China, Japan, Australia and New Zealand. The deal excludes the US, which withdrew from a rival Asia-Pacific trade pact in 2017. Participating countries have formed the world’s largest trading bloc, covering nearly a third of the global economy. It covers 2.2 billion people which has further enhanced China’s image as the “dominant” economic power in its neighbourhood. It accounts for 29 percent of global gross domestic product (GDP). The new free trade bloc will be bigger than both the US-Mexico-Canada Agreement and the European Union. It is expected to eliminate a range of tariffs on imports within 20 years.

The RCEP has multiplier socio-economic, geopolitical and geostrategic implications. It gears up greater “commercial” ties among its member countries. It promotes true spirits of “equitable” and “befitting” propositions of “tariffs” mainly for goods that already qualify for duty-free treatment under existing free trade agreements. It permits countries to keep tariffs for imports in sectors they regard as especially important or sensitive. The RCEP provides foreign companies greater “flexibility” in navigating between the USA and China. Moreover, lower tariffs within the region will increase the value of operating within the Asian region, while the “uniform” rules of origin make it easier to pull production away from the Chinese mainland while retaining that access.

It will set common standards of “production” cycle, potential, “operationalization” and “channelization” within the region for the final product to qualify for duty-free treatment. It hopes that these common rules would create an easy and smooth supply chains that span several countries for the regional companies. Interesting and encouraging aspect of the RCEP is that it has little impact on legal work, accounting or other services that cross borders, and does not venture far into the often-divisive issue of ensuring greater intellectual property protections. The RCEP will promote spirits of “valuation” addition, job security, protection of climate change, beneficial role of labour unions, and restraining government subsidies to state-owned enterprises. It hopes that it will certainly contribute to world free trade and shun national economic “protectionism”. Lowering of trade barriers would encourage global companies trying to avoid USA tariffs on Chinese-made goods to keep work in Asia rather than shift it to North America which shows its strategic importance too. Negotiations over the new RCEP deal began in 2012 and it was finally signed on November 15, 2020 on the sidelines of a meeting of the Association of Southeast Asian Nations (ASEAN). It showcases Beijing’s growing economic dominance and growing influence of commercial diplomacy which is indeed based on the noble concept of shared prosperity in Southeast Asia. The RCEP is a “political” “game changer” which shows that the rest of the world will not wait around for the United States. The European Union (EU) has also pursued trade negotiations at an aggressive pace. As other countries sign new deals, American exporters may gradually lose ground.
The RCEP is an “economic” “fate-changer” too because it does not cut tariffs as deeply as the US Trans-Pacific Partnership (TPP). Moreover, its market size makes it more significant. China already has a number of bilateral trade agreements, this is the first time it has signed up to a regional multilateral trade pact. Critical analysis of the RCEP upholds that it will help “spur” recovery from coronavirus pandemic. It brings a ray of light and hope for a better world to live in. It is indeed a victory of “multilateralism” and “free trade”. Initially, India was also part of negotiations, but it pulled during 2019 over concerns that lower tariffs could hurt local producers.

The RCEP also includes provisions on intellectual property, telecommunications, financial services, e-commerce and professional services. Most of its member states have free trade agreements (FTA) with each other, but there are limitations. Under RCEP, parts from any member nation would be treated equally, which might give companies in RCEP countries an incentive to look within the trade region for suppliers. The Peterson Institute for International Economics (November 18, 2020) estimates it could increase global national income by $186bn annually by 2030 and add 0.2 percent to the economy of its member states. However, the trade deal may have different economic benefits in South East Asia and North East Asia.

Responding to a question, the US President-elect Joe Biden said his country needs to be aligned with other democracies so that “we can set the rules of the road instead of having China and others dictate outcomes. It seems that India has missed out on the opportunity to a new round of regional industrial reconstruction and fast lane of economic recovery by opting out of the RCEP undoubtedly offers a driving force for the involved economies to regain growth momentum to struggle out of the COVID-19 mire and win advantages during the post-pandemic era. It estimates that the RCEP offers fresh momentum for regional and global cooperation in trade and investment. It fears that ongoing US-China trade war would create some doubts among many regional countries and global cooperation initiatives about further promotion and cooperation of the RCEP.

Being a prominent regional expert of China, I term the RCEP a geopolitical victory of China in the region, especially after President Donald Trump in 2017 pulled the U.S. out of a competing mega trade pact called the Trans-Pacific Partnership (TPP). It has widened the scope of multiculturalism and commercial diplomacy. It has further brightened the chances of more reliable and sustainable international cooperation to counter protectionism and unilateralism. It seems that world keeps on changing. Economic dominance has discarded old notions of geopolitical supremacy and geostrategic importance. Economic cooperation, rigorous commercial diplomacy having shared prosperity aims would be a way forward for speedy recovery from the COVID-19. Moreover, institutionalization of lower tariffs system would stimulate trade and commerce activities among the member countries. The RCEP stands for free trade which is indeed anti-protectionism and economic nationalism. It caters nature, human capital, production cycle, investment, trade activities and, above all, regional divergent policies. It fosters regional befitting socio-economic integration and global beneficial propositions creating win-win situation for all the participating countries.

—The writer is Director, Geopolitics/Economics Member Board of Experts, CGSS.

Source: https://pakobserver.net/chinas-strategic-commercial-diplomacy/

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