The global economy and trade already appear to be undergoing major changes at the start of the year despite the repercussions from the latest pandemic variant. One of the most prominent outcomes is the Regional Comprehensive Economic Partnership deal, which has come into force, making it the world’s biggest free trade pact.
Driven by its economic strength and trade volumes, China leads the Asian-Pacific group, which also includes Japan, Australia, New Zealand and South Korea. The RCEP also incorporates 10 members of the Association of Southeast Asian Nations (ASEAN), a bloc that comprises Singapore, Indonesia, Malaysia and the Philippines. The new deal’s 15 members account for 30 per cent of the world’s GDP and the same proportion of the global trade.
The RCEP brings the proportion of zero-tariff products to 90 per cent of goods traded between its signatory nations. With such a high tariff exemption, the trade among member-states will increase significantly thanks to the high degree of competitiveness in the products from these countries.
This group also includes countries that have disputes over maritime boundaries and border islands. Another matter relates to other alliances some of the member countries have entered into, such as the one Australia has with the US and the UK to counter China’s ambitions and power in the strategically vital region. Japan too has its own set of parallel alliances.
These disputes have not stood in the way of these countries’ trade deal, which will push economic co-operation to new heights. This clearly indicates that they weighted their economic interests over other contradictions. For example, China, with its thirst for energy sources, is becoming increasingly reliant on Australian gas, while the Australian market is dependent for its needs on Chinese goods.
The implementation of the RCEP agreement will have consequences on international trade, due to the clout enjoyed by the signatories. This includes the manufacture of petroleum materials that are dependent on natural gas as raw material as well metals, given that Australia has turned into a strong competitor to the Gulf states in the trade of these goods. It will give its goods advantages in major markets such as China, Japan and South Korea.
There are other global FTAs, in addition to Britain’s pursuit of trade deals with many countries after its exit from the European Union. There is an increasing need to reshape and rebuild trade ties between countries, including with the GCC.
Accelerate the deal-making
These require the search for ever bigger markets for their commodities, especially petrochemicals, fertilizers and aluminium. In this respect, the GCC nations should work in two directions. First, they need to accelerate the signing of free trade agreements with the world’s economic heavyweights, such as China, the US, the European Union, India and the UK, some of whom have been seeking such agreements for some time.
Yet, things are going slowly in this direction, although one such agreement was put together between the GCC countries and Pakistan. These developments clearly indicate that global trade will witness even stiffer competition and which will have many consequences. Trade deals should help member countries to benefit from its advantages and avoid some of negatives.
The GCC countries can prepare through higher levels of cooperation among themselves and, at the same time, forge far-reaching partnerships with other countries.
-- The writer is a specialist in energy and Gulf economic affairs.