On Sunday, Australia joined 14 other countries in signing what’s touted as the world’s largest trade agreement in history.
Known as the Regional Comprehensive Economic Partnership (RCEP), the Asia-Pacific free trade agreement has been eight years in the making and will establish a common set of rules for digital trade and intellectual property rules across all fifteen countries.
The signatories include Australia, China, New Zealand, Japan, Korea, as well as Singapore, Thailand, Vietnam, the Philippines, Cambodia, Indonesia, Malaysia, Myanmar, Laos and Brunei. India is not a signatory.
Altogether, the trade agreement – which will be ratified next year – covers about 30 per cent of the world’s population, and it’s hoped it will open up markets for Australia to deliver more exports.
“Our trade policy is all about supporting Australian jobs, boosting export opportunities and ensuring an open region with even stronger supply chains,” Prime Minister Morrison has said. “RCEP builds on our trade successes and is good news for Australian businesses.”
According to Trade Minister Simon Birmingham, the industries that stand to gain the most are the financial services sector, education, health, engineering and other professional services.
“This agreement may have taken eight years to negotiate but it could not have come at a more important time given the scale of global economic and trade uncertainty,” he said.
But just how big of a deal is this agreement? What will it actually mean for Australia? Yahoo Finance asked the experts.
‘Positive’ – but ‘won’t be a huge impact’
CommSec chief economist Craig James said anything that improves the free flow of trade between countries was a positive, especially because Australia was a resource exporter.
“Australia already maintains free trade agreements with many countries but the RCEP agreement provides more certainty for exporters and importers,” he said.
The benefits of RCEP stretch into the medium-long term, too, he added. “But there always remains the risk of non-tariff trade barriers that can impede the free flow of trade.”
The deal demonstrates Australia as an “important middle player”, and indicates trade in Asia isn’t all about China, believes Tim Harcourt, J.W. Nevile Fellow in economics at the UNSW Business School.
“China, Vietnam and Japan were also important players,” he said.
AMP Capital Chief Economist Shane Oliver said the trade agreement was “certainly positive” for local exporters, as well as service providers in healthcare, education, accounting, and legal.
But other sectors won’t see much of the benefit, he warned.
“There won’t be a huge impact on farmers, miners and manufacturers as tariffs are unchanged,” he told Yahoo Finance.
As a result of the agreement, Aussie consumers might start to see service providers from other countries setting up in Australia. However, the impact will be minor, he said.
And while the agreement is positive, it adds less than a 0.1 per cent to GDP. “It’s not as big a deal as the Trans Pacific Partnership was.”
Meanwhile, independent economist Stephen Koukoulas, who was formerly the senior economic adviser to Julia Gillard, said the agreement was being “talked up” by politicians.
“Alas, they are not a knockout for us – recall that we have to give up some trade issues to get the concessions on the other side,” he said.
“It is better to have them but it is important to note they are also an offset to troubling trade links with China. This is clearly a bigger issue for Australia right now and outside iron ore, there are genuine concerns for trade in other items at a time when the economy needs all the help it can get.”
As further proof that the agreement isn’t as significant as it seems, Koukoulas said market reaction to the news had been “next to nothing”.
“With many things – markets are quick to move and forward looking. The fact the Aussie dollar is little changed post announcement says a lot,” he told Yahoo Finance.
What does RCEP mean for the China-Australia relationship?
Trade tensions between Australia and China have been steadily escalating since Australia first proposed the WHO inquiry into the origins of the coronavirus.
Earlier this month, China blocked exports from Australia including Australian sugar, lobster, copper, copper concentrates and some timber.
But Birmingham is hopeful that the agreement will help repair relations.
"The ball is very much in China's court to come to the table for that dialogue," Birmingham told The Age.
“It is crucial that partners like China, as they enter into new agreements like this, deliver not only on the detail of such agreements, but act true to the spirit of them.”
The agreement is a sign of Australia’s willingness to cooperate on economic partnership, he also said.
“There are difficulties at present and I am deeply concerned by the fact that in a number of areas Chinese regulatory actions have disrupted trade flow.”
But Labor MP Jason Clare said the agreement won’t fix Australia’s trade spat with China.
“We've got big problems with China at the moment, problems getting goods into China,” he said.
"It strikes me that it's pretty extraordinary that after being in government for seven years, this Government can't get anyone in Beijing to answer the phone.”
Australia will have to put in effort and explore ways to improve its relationship with China, said CommSec’s James. “It is uncertain what it would take in the short term to get the two sides talking again.”
The trade agreement might “put pressure” for the two countries to resolve their differences, Oliver believes.
Harcourt said being at the table with China would help to settle the relationship.
“We may have lost our shirt but RCEP saves our pants,” he added.
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