Over the last two years major free trade bloc agreements have been successfully negotiated in Asia and Africa. They have the potential to challenge the established western world order.
In 1990s, as the Soviet Union disintegrated, European and American countries combined to create powerful regional trading blocs. These trading zones lowered trade barriers, streamlined regulations, bounded the economies of trading partners together and enabled the free flow of goods. This allowed trading blocs to have bigger negotiation power, enable local corporations to grow into global champions, and create international standards for others to follow.
The major multilateral free-trade blocs formed at that time include Mercosur, also called the Southern Common Market. It is Brazil led 4 country South American trade bloc created in 1991. In 1993, initially 12 European countries ratified a treaty forming the European Union (EU) that today has 28 country members. And in 1994, the North American Free Trade Area (NAFTA, soon to be renamed USMCA) led by United States was established. It expanded US-Canada free trade agreement to include Mexico. EU and NAFTA free trade zones were superior to others with their scale and economic power.
Over the years balance of trade has shifted to developing countries especially in Asia. Following accession to World Trade Organization (WTO) in 2001 China begun to dominate trade. By 2017, China’s share of global manufacturing output rose to 28.22%, while the United States produced 17.23%. China became the leading goods supplier to most of the world. By 2018 it exported more than the US to 174 countries while the US was the larger supplier to just 51.
In early 2010s, at the same time as China begun its One Belt One Road (OBOR) initiative, negotiations began on new trading blocs in Asia and Africa. While, China invested in infrastructure to connect developing countries together by roads, ports, and railroads, agreements to enable free flow of goods between these countries begun to take shape. By 2019, negotiations on two new free trade zones have been concluded. These new trading blocs have the power to rewrite global economic power structure.
The new trading agreements are lead by Regional Comprehensive Economic Partnership (RCEP), which combines 10 countries of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and its 5 major trading partners. They are led by China, which is the largest economy of the trading bloc, and also include Korea, Japan, Australia and New Zealand. This grouping, even without India which has declined to join at this time, is the world’s largest free trade area when measured by both population and GDP. It has population of over 2.2 billion people and combined Gross Domestic Product (GDP) of over 24 trillion dollars. RCEP member countries are expected to ratify and sign the agreement in 2020.
The second major agreement is the African Continental Free Trade Area (AfCFTA). It was finalized in 2018 and today it covers 54 of 55 countries in the whole of Africa. Only Eritrea has not agreed to join yet. It is the single largest Free Trade Zone when measured by number of countries and the area covered. The bloc has a combined population of 1.3 billion people, which is the second largest of all trading blocs, with expectation to grow to 2.5 billion by 2050. Its current combined GDP comes to 2.3 trillion dollars. On May 30, 2019, AfCTA entered into force.
China has played major role in both agreements. It is said to be the broker of the AfCFTA agreement. China is the largest trading partner of all but handful of African countries and prior to the agreement it had signed bilateral trade agreements with more than 40 countries on the African continent. While Southeast Asian countries have benefited from low cost manufacturing that has moved out of China, those nations will soon become too expensive and it is Africa that stands to become the recipient of manufacturing relocation in the future.
Developing countries in Asia and Africa are combining to create trading blocs to rival those established decades earlier in Europe and Americas. The world appears to be dividing into powerful regional free-trade zones. If successful, the new agreements will allow its member countries to have bigger negotiation power, enable local corporations to grow into global champions, and create international standards for others to follow.