China and 14 other countries agreed on Sunday to set up the world’s largest trading bloc, encompassing nearly a third of all economic activities, AP reported. The Regional Comprehensive Economic Partnership, or RCEP, was signed virtually on the sidelines of the annual summit of the 10-country Association of Southeast Asian Nations.

The pact aims to drop tariffs and duties between the members so that goods and services can flow freely between them. It will account for 30% of the global economy, 30% of the global population, and reach 2.2 billion consumers, according to Vietnam, which hosted the ceremony as chair of ASEAN.

Apart from the 10-member Association of Southeast Asian Nations, it includes China, Japan, South Korea, Australia and New Zealand, but not the United States.

India was another notable absentee during the signing, which pulled out of the agreement last year over concerns about cheap Chinese goods entering the country. But officials said the accord leaves the door open for India to rejoin the bloc. The deal comes at a significant time of heightened military tensions between India and China in eastern Ladakh.

Vietnam said the accord will further lower trade tariffs between member countries, over time, and is less comprehensive than an 11-nation trans-Pacific trade deal that President Donald Trump pulled out of shortly after taking office.

“RCEP will soon be ratified by signatory countries and take effect, contributing to the post-COVID pandemic economic recovery,” said Nguyen Xuan Phuc, prime minister of Vietnam on Sunday.

Besides trade, the agreement also deals with intellectual property. But environmental protections and labour rights are not part of the pact, according to AFP.

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RCEP and China

While the RCEP is administratively built around ASEAN, the main mover is actually China. It was pushed by Beijing in 2012 in order to counter another free trade agreement that was in the works at the time, the Trans Pacific Partnership. The United States-led Trans Pacific Partnership initiated under then President Barack Obama had excluded China. However, in 2016, when Donald Trump took control of the US federal government, the country withdrew from the partnership.

Experts see RCEP as a major tool for Beijing to counter the United States’ efforts to stymie trade with China. Under protectionist policies of the Trump administration, the US has since 2018 began setting tariffs and trade barriers for movement of Chinese goods, an economic conflict that has been called the China-US trade war.

RCEP could help Beijing reduce its dependence on overseas markets and technology, a shift accelerated by a deepening rift with Washington, Iris Pang, chief economist for Greater China, told Reuters.

Gareth Leather, senior Asian economist for Capital Economics, told AP that the deal allows Beijing to cast itself as a “champion of globalization and multilateral cooperation” and giving it greater influence over rules governing regional trade.

Tensions between China and the United States have reached acute levels, with the American government’s ordering that China close its Houston consulate being the latest example. From coronavirus, to actions on trade, technology, human rights and defence, reprisals by both sides have escalated sharply under Trump.

Now that Trump’s opponent Joe Biden is set to take over as the American president, the region is watching to see how US policy on trade and other issues will evolve.

Chinese government-run Xinhua News Agency quoted Premier Li Keqiang hailing the agreement as a victory against protectionism. “The signing of the RCEP is not only a landmark achievement of East Asian regional cooperation, but also a victory of multilateralism and free trade,” Li said.

China’s finance ministry, meanwhile, said the new bloc’s promises include eliminating some tariffs within the group, including some immediately and others over 10 years. There were no details on which products, and which countries would see an immediate reduction in tariffs.

“For the first time, China and Japan reached a bilateral tariff reduction arrangement, achieving a historic breakthrough,” the ministry said in a statement, without giving further details.