According to the Merriam-Webster dictionary, the word of the year is "pandemic". We will remember 2020 as the year of the COVID-19 pandemic which diverted our attention from our priorities. Together with many other multilateral undertakings, the pandemic has also adversely affected some projects of the Belt and Road Initiative (BRI), which is one of the most ambitious infrastructure investment efforts in history.
On the bright side, however, 2020 witnessed more promising developments as well, such as the signing of the Regional Comprehensive Economic Partnership (RCEP) and finalizing the Comprehensive Agreement on Investment (CAI). According to World Bank statistics of 2019, RCEP members make up 30 percent of the world's population and account for 29 percent of global GDP. According to the statistics mentioned above, CAI would cover 24 percent of the world's population and account for 34 percent of the global GDP.
Although CAI covers only bilateral investments, it still can be instrumental in setting the groundwork for FTA negotiations between the EU and China, as is stated in the detailed report named Tomorrow's Silk Road: Assessing an EU-China Free Trade Agreement by the Centre for European Policy Studies (CEPS) in Brussels.
RCEP and CAI together would cover more than 35 percent of the world's population and 47 percent of the global GDP, according to World Bank statistics of 2019. It would mean the deeper engagement of the different parts of the globe through multilateral mechanisms. It may also lead to formulating a set of high-standard trade rules and regulations, thus promoting reform of the existing system.
It may then be worthwhile to search for how these endeavors would be compatible and complementary to each other. The FTA between China and the EU and to some extent, RCEP has the potential to evolve into setting the standards for fair and equitable treatment, taxation, and transparency. The BRI would help further ease the ability of members to do day-to-day trading, primarily through increasing connectivity.
There are numerous studies indicating that transport infrastructure is a crucial facilitator of economic growth above all by improving connectivity and attracting foreign direct investment. Martin Raiser, the World Bank country director for China, summarizes the findings of the research as follows: "China has built the largest high-speed rail network in the world. The impacts go well beyond the railway sector and include changed patterns of urban development, increases in tourism, and promotion of regional economic growth."
So, if we take the Chinese experience as an example, we can assume that increased infrastructure will facilitate economic growth in different parts of the world. Furthermore, according to the study from Chao Wang and coauthors titled Railway and Road Infrastructure in the Belt and Road Initiative Countries: Estimating the Impact of Transport Infrastructure on Economic Growth, transport infrastructure plays a positive role in promoting economic growth in the BRI countries.
Therefore, it would be fair to state that the FTAs would lay the groundwork for improving the rules and regulations of global trade and investment. The BRI would complement these FTAs in a way that would help facilitate trade by improving the physical conditions on the ground.
The way in which big economies contribute to the construction of rules-based multilateral treaties and platforms would be essential to understand better the future of the compatibility of RCEP, CAI with a focus on the FTA and BRI. It may eventually lead to the improvement of trading practices that would give smaller economies the means to benefit more from global trade.
Reaching the goals of RCEP, CAI and BRI by working in tandem, however, would not be easy since there are considerable challenges to be overcome. Those challenges include but are not limited to the large gaps in economic development, the difference in political systems and existing disputes in trade and investment. Active engagement of all parties will be the key to overcome challenges.
Although in 2020 the pandemic may divert our focus from our priorities, when the pandemic is over, the countries will spend more efforts on mitigating the negative impacts of the pandemic on their economies. In that sense, RCEP and CAI can eventually lead to a China-EU FTA, and the BRI would help to facilitate the global trade, not just by improving the rules and regulations but also by also increasing connectivity in the long run.
Umut Ergunsü is a faculty member at the Guangxi University of Science and Technology's School of Economy and Management.
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