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Trade

China's RCEP tariff concessions still guard growth sectors

Beijing's plans for new megadeal shed light on industrial priorities

China appears intent on protection its EV sector by keeping protective tariff longer under the newly agreed RCEP trade deal.   © Reuters

TOKYO -- China's plans for phasing out tariffs under the Regional Comprehensive Economic Partnership have shed light on Beijing's strategic thinking on nurturing industries, with electric-vehicle technologies positioned as a top priority that will enjoy long-term tariff protection.

Under the new massive trade deal signed on Sunday, China is set to scrap tariffs immediately on a large portion of items that are currently subject to a roughly 2% to 6% tariff, mostly in areas where China already is a competitive player.

But it secured a longer grace period on many items that are protected under steep tariffs, or that are expected to face intense global competition in coming years.

By mixing immediate tariff repeals with long phase-out periods, Beijing managed to create an industry road map that will shield growth sectors, such as eco-friendly vehicles, from foreign competitors for the long term. 

For example, China will not scrap its tariffs on certain electrodes and materials for electric car batteries until the 16th year of the agreement. China considers electric vehicles a priority area, and has quickly bolstered output of battery components. A Chinese company is now the world's top producer of insulators.

"Given the cutthroat competition on price, an end to tariffs alone won't give us an edge," a Japanese rival company said.

Meanwhile, China will immediately scrap tariffs on high-performance steel such as alloy steel, an area where Japanese producers already have an edge. But tariffs will be eliminated at different times for various hot-rolled steel products.

"It's a big step forward, but it will still take a long time for tariffs to go away," said an executive at Japan-based Ahresty, which makes components for electric vehicle motors.

The Trans-Pacific Partnership, another major trade deal in the area, immediately eliminated tariffs on 86.6% of industrial products by category, and will eventually do so for 99.9% of products. RCEP is expected to have a smaller immediate impact, and will also only eliminate tariffs on 86.6% of products over time.

The Japanese government is now calculating RCEP's potential contributions to trade. Japanese exports to China came to about 14 trillion yen ($134 billion) in 2019. Sources predict a major boost from cathode copper, which is used in automobiles and batteries. The material accounts for roughly 170 billion yen in annual exports to China and currently carries a 2% tariff that will be eliminated once RCEP takes effect.

RCEP will also reduce Japan's trade barriers with other members -- South Korea, Australia and members of the Association of Southeast Asian Nations. For example, Cambodia and Laos will eliminate tariffs on Japanese passenger vehicles. "It's one of our achievements," said Japan's Ministry of Economy, Trade and Industry.

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