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New trade agreements in the Asia-Pacific region have declined during COVID-19

Fewer preferential trade agreements (PTAs) have been signed since 2020. A new report by ESCAP finds that the number of new agreements signed annually decreased from 13 and 11 agreements in 2019 and 2020, respectively, to only 4 new agreements in 2021. This may be attributed in part to the COVID-19 crisis, but also to the signing of very large trade agreements in 2019-2020.

Despite the slowdown in new PTAs, 2021 marked a significant development with respect to mega-trade agreements. The Regional Comprehensive Economic Partnership (RCEP) has been ratified by six ASEAN countries and four non-ASEAN members, and is set to take effect from January 1, 2022. For the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), China’s application to join sends a promising signal towards future expansion. Additionally, the participation of the United Kingdom - which  formally applied to join in February 2021 - will make the economic size of CPTPP surpass that of RCEP, reaching 35 per cent of world GDP.

Fig.: Cumulative number of Asia-Pacific region PTAs in force (by geographical scope)

Fig.: Cumulative number of Asia-Pacific region PTAs in force (by geographical scope)
Source: ESCAP, Preferential Trade Agreements in Asia and the Pacific: Trends and Developments 2021/2022, p. 10.

More remarkable than the number of PTAs is the growing array of domestic policy domains that PTAs have come to regulate. Most agreements that have been signed since 2020 go beyond the traditional area of trade in goods. Instead, additional areas - services, e-commerce, and climate action - are new top agenda items for negotiations. Some long-standing PTAs have ”upgraded” to become more comprehensive, frequently to enhance market access and include e-commerce chapters.

Liberalization of the digital trade environment and its related regulations have been embraced in dedicated agreements. Digital trade agreements (DTAs) are increasingly becoming part of new generation PTAs ever since the  signing of the DTA between the United States and Japan in 2019. As of 2021, there are five DTAs, all of which involve countries in Asia and the Pacific, particularly Singapore, which is among the founding members of the Digital Economy Partnership Agreement (DEPA). Due to its ‘open plurilateralism’ principle and modular approach, DEPA paves the way for efforts to further harmonize digital trade rules. Conversely, increasing bilateral discussions for potential North-South DTAs, specifically in the ASEAN subregion, could risk creating divergent digital standards or even a ‘digital noodle-bowl’, a situation of overlapping and different types of rules and standards governing digital trade.

Since the pre-pandemic period, PTAs have also increasingly incorporated environmental provisions. The agreements with the most climate-related articles commonly involve advanced economies of the Asia-Pacific region. RCEP and CPTPP are also among them, however, with varied levels of ambition.

Hence, an important implication of this additional coverage is that the interfaces between PTA commitments and domestic regulations have increased significantly.

Limited capacity to negotiate and implement PTAs may put selected graduating least developed countries (LDCs) at a disadvantage in maintaining export competitiveness after graduation. Approximately half of trade in the Asia-Pacific region today takes place between PTA partners. From only 35 per cent of exports and 45 per cent of imports on average being transacted among PTA partners during 2011-2013, the shares increased to 45 per cent and 51 per cent, respectively, in 2020. However, the shares vary considerably at the country level, reflecting diverse policy interests and negotiating capacities across countries. Advanced economies in the region tend to actively participate in comprehensive trade agreements with major trade partners. As a result, reciprocal trade negotiations rarely involve LDCs and Pacific developing economies (PIDEs). Selected graduating LDCs, such as Bangladesh and Solomon Islands as well as Kiribati and Tuvalu may face significant challenges in sustaining their export growth after losing the non-reciprocal trade preference given to LDCs.

Looking ahead, downward pressures in the post COVID-19 global economy and the need to build back better may raise public expectations for integrating sustainable development provisions in trade agreements. As a result, PTA provisions that potentially address social and environmental issues may emerge among the prioritized items in the post COVID-19 negotiation agenda. Moreover, lessons learned from supply-chain disruptions during the COVID-19 pandemic may call for deeper and more tailored PTAs that could enhance supply-chain and trade resilience during crises. To name a few, PTA provisions regarding Non-tariff measures, trade facilitation and intellectual property rights could play important roles in ensuring essential supplies during future crises.

For more details on trends related to Preferential Trade Agreemnts in Asia and the Pacific, please refer to the Asia-Pacific Trade and Investment Trends Report 2021/22.

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Witada Anukoonwattaka
Economic Affairs Officer
Trade, Investment & Innovation +66 2 288-1234 [email protected]