Australia just signed the world’s biggest trade deal. How will it work?

Australia signed the world’s largest free-trade deal on Sunday, which aims to boost imports and exports with lower tariffs across 15 Asia-Pacific countries. But how will the deal work, and which nations signed on?

At last week’s virtual ASEAN Summit, ministers from 15 countries signed a mega-trade agreement after eight years of negotiations, which started in 2012.

Known as the Regional Comprehensive Economic Partnership (RCEP) Agreement, once ratified, it will form the largest-ever regional free-trade bloc. RCEP will implement tariff reductions and a host of other new measures designed to boost trade and diversify Australia’s trade relationships away from China and toward other regional neighbours.

Prime Minister Scott Morrison and Trade Minister Simon Birmingham signed the agreement on Sunday, alongside China, Japan, South Korea, New Zealand, and 10 members of the Association of Southeast Asian Nations (ASEAN), including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Representing 30% of global GDP and 30% of the world’s population, it is the largest free-trade deal to date.

What does the deal cover? 

The 15,000-page agreement outlines tariff reductions of about 90% on traded goods and services.

On top of goods and services, the agreement covers investment, economic and technical cooperation, new rules for e-commerce, intellectual property and more. When finalised, the government says the main benefits for Australian businesses will be:

• One set of rules for accessing lower tariffs in any of the 15 RCEP markets;
• New trade opportunities in telecommunications, professional and financial services;
• Improved processes for tackling non-tariff barriers such as customs procedures;
• Greater investment certainty;
• New rules on e-commerce to make it easier for businesses to trade online;
• A common set of intellectual property rules; and
• A new rules of origin agreement to boost Australian inputs in production chains.

These new measures will only come into effect once the majority of participating countries ratify the deal over the next two years.

What the government says

Prime Minister Scott Morrison announced the agreement, saying the pact will be important to Australia’s recovery from the COVID-19 recession.

“With one-in-five Australian jobs reliant on trade, the RCEP Agreement will be crucial as Australia and the region begin to rebuild from the COVID‑19 pandemic,” Morrison said.

“Our trade policy is all about supporting Australian jobs, boosting export opportunities and ensuring an open region with even stronger supply chains.”

Trade Minister Simon Birmingham highlighted that Australian farmers will be among the sectors to benefit from “better export opportunities” under the RCEP pact in a statement on Sunday.

“We see the opportunity for huge economic growth and trade growth between Australia and the nations of ASEAN, but also for integration of supply chains that can give Australian businesses easier and better access and greater diversification over time amongst those countries,” Birmingham said.

Given China’s disruptive trading strategy this year, there are doubts whether China will play fairly under the new agreement.

This year, China has increased tariffs on Australian barley imports, alleged Australian winemakers sold products below cost, complained of pests in timber exports, and delayed shipments of live seafood at customs.

Birmingham called on Beijing to honour the RCEP Agreement, highlighting wine was among the areas of concern.

“I am deeply concerned by the fact in a number of areas, Chinese regulatory actions have disrupted trade flows,” Birmingham said.

“Australia is clear that winemakers are not subsidised by government and they do not dump their product in overseas markets.”

Under the ambitious agreement, governments seek to curb China’s growing influence in the Asia-Pacific by bringing together regional neighbours under a comprehensive plan.