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RCEP game changer in ASEAN economic recovery?

21/09/2022    27

A series of economic woes, including the Covid-19 pandemic, the Russia-Ukraine war, inflation, strengthening dollar, hawkish Fed stance, equity markets’ mayhem, supply chain disruptions, fluctuating energy prices and several other geopolitical issues have been forcing various countries to adopt new strategies for survival and recovery.

Several leaders from ASEAN, who were in Cambodia last week to attend the 54th ASEAN Economic Ministers’ meeting and the ASEAN Leadership and Partnership forum, discussed measures to tackle various issues plaguing the region.

Economic experts from ASEAN, a political and economic union of 10 member states in Southeast Asia, observed that they needed to stay united for a change in their economic fortunes in the challenging post-Covid period. They also discussed the potential role of the Regional Comprehensive Economic Partnership (RCEP) in reviving the economic aspirations of the region.

RCEP, the world’s largest free trade agreement, covers roughly 30 percent of the world’s gross domestic product and population. RCEP was signed by 15 countries, including Australia, Brunei, Cambodia, China, Indonesia, Japan, the Lao People’s Democratic Republic, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, the Republic of Korea, Thailand, and Vietnam. Ten countries were part of the ASEAN, while seven were members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Sustainable Recovery

While opening the 2022 ASEAN Leadership and Partnership Forum in Phnom Penh last week, Prime Minister Hun Sen said the RCEP has been contributing to a sustainable and inclusive post-Covid-19 economic recovery.

“The ASEAN must take full advantage of free trade agreements, especially the RCEP agreement, which is the largest free trade agreement in global history,” he said.

Inaugurating the ASEAN Economic Club during the function, he said: “The Club will play a key role in promoting a more cohesive ASEAN economic integration through contribution in monitoring, evaluating and advising, in an independent and professional manner, on the implementation of agreements reached by ASEAN leaders, particularly on free trade agreements, the RCEP agreement and other agreements related to the economic pillar.”

In May last week, addressing an international conference on the future of Asia, Mr Hun Sen said, “The RCEP is the best example of an open, inclusive and rules-based trading system that reflects a true aspiration and commitment of participating countries to enhancing regional cooperation.”

“In this regard, we need to continue and make greater efforts to promote other regional initiatives and cooperation aimed at leveraging the potential of Asia’s development to its maximum,” he added.

Supporting Prime Minister Hun Sen’s proposal for the establishment of RCEP secretariat in Cambodia, Dr Chheang Vannarith, president, Asian Vision Institute, Cambodia, said: “We are already ready, and we need to seek the support from all ASEAN member states and dialogue partners, especially those signatories to RCEP to have the general secretariat of RCEP here in Phnom Penh.”

Last month, the Cambodian government proposed the establishment of a standalone secretariat for coordinating the implementation of RCEP.

Pointing out that RCEP negotiations started in Phnom Penh ten years ago, he told the ASEAN Leadership and Partnership Forum: “Ten years later we started enforcing RCEP. So, Cambodia deserves this kind of role to play, and it can work with the ASEAN Economic Club to support RCEP implementation that would bring more impact to the region.”

RCEP has already made an impact on the trade figures of several countries, including the Kingdom.

Impressive Exports

The latest export figures showed that Cambodia benefited from the RCEP deal.

The Ministry of Commerce’s undersecretary of state and spokesman Penn Sovicheat told Xinhua that the RCEP had created a huge market for ASEAN and all participating countries have benefited from it.

Noting that Cambodia is a practical example, he said that the Kingdom’s total export to the RCEP member countries had significantly risen to $3.28 billion in the first half of 2022.

“Cambodia’s export to RCEP increased about nine percent in the first semester of 2022 compared to the same semester last year. The RCEP has contributed a lot to the ASEAN economy.”

Assessing the possible benefits of countries, including Cambodia, from RCEP, a World Bank report said, “Considering the full scenario, with reductions in tariffs, non-tariff measures, and trade costs, Lao PDR, Thailand, Cambodia, Vietnam, and Malaysia benefit the most. These positive gains are magnified when a productivity kick is assumed. Under this scenario, the real income in Vietnam and Malaysia increases by almost five percent.

“In Japan, the country that gains less under this scenario, the real income increases by 0.5 percent. Interestingly for Japan, the impact of the four RCEP scenarios is similar, which suggests that most gains are associated with a fall in tariffs, in contrast to the rest of the countries, where the fall in tariffs leads to very small impacts or even a negative impact as in Cambodia and Vietnam.

“The negative impact in those countries is associated with a fall in tariff revenue and negative terms of trade with prices of exports dropping faster than import prices. In most countries, there is a significant welfare gain when trade costs are reduced. In Lao PDR, significant gains result from a fall in non-tariff measures.”

As per the World Bank report, the top expanding sectors in Cambodia under RCEP include chemicals, rubber and plastics (14.3 percent), wood and paper products (13.8 percent), and textiles (six percent).

China Plus One Strategy

Meanwhile, evaluating the prospects of RCEP and potential ASEAN benefits, Lennon Tan, president, Singapore Manufacturing Federation, said: “Sustainability is also important because even though you have RCEP, CPTPP, if your products don’t meet the requirement, there’s no point.”

Speaking at the ASEAN Leadership and Partnership Forum in Phnom Penh last week, Tan also pointed out the action plan of SMF members to overcome the post-Covid-19 scenario.

“Our members are looking at the China plus one manufacturing approach considering the geopolitical situation. China for the Chinese market and the plus one involves ASEAN. We are encouraging our manufacturing partners as well as manufacturers to go into ASEAN to look for suitable sites for them to do their plus one. Obviously, Cambodia is one such destination that many of our manufacturers would like to explore.

“As manufacturers, we welcome especially RCEP. We see that the FTA is planning to become a comprehensive one and simplify the processes instead of multiple ASEAN FTAs.”

However, he pointed out some of the issues faced by manufacturers from the region.

“For most manufacturers, especially smaller-sized manufacturers, they don’t know how to proceed. The larger ones also face issues like country of origin and have been subject to audit, especially from China and South Korea. This forces some manufacturers to fall back on the previous FTAs. So, I would encourage the members of RCEP to streamline the process and make it easier for companies to adopt some of the requirements.”

Speaking at the same function, Tan Sri Dato’ Dr Mohd Munir Abdul Majid, chairman, ASEAN Business Advisory Council Malaysia and chairman, CARI ASEAN Research and Advocacy, said: “I suggest we continue to work for the betterment of these partnerships. People should take advantage of the growth potential of the RCEP, CPTPP and other such agreements.”

RCEP vs TPP

Meanwhile an Asian Development Bank (ADB) study observed that the RCEP is likely to have a greater impact on incomes than the Trans-Pacific Partnership (TPP).

It said the RCEP implementation adds $263 billion to global income, based on 2030 baseline projections.

RCEP adds $496 billion to world exports, while the CPTPP adds $312 billion, the report pointed out.

The CPTPP is expected to add $188 billion, ADB said. The CPTPP is a trade deal among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Talking about the roles of RCEP and CPTTP in the post-pandemic recovery in the region, Prof Suthiphand Chirathivat, executive director, ASEAN Studies Center, Chulalongkorn University, Thailand, said: “I believe very much RCEP and CPTPP that would be a broader regional integrational framework to support our ASEAN economic community.”

According to computer simulations published by Brookings, RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030. Southeast Asia will benefit significantly from RCEP ($19 billion annually by 2030) but less so than Northeast Asia because it already has free trade agreements with RCEP partners, it said.

Reduce Complexity

On the potential of RCEP and CPTPP, Dr Rupa Chanda, director, Trade, Investment and Innovation Division, United Nations Economic and Social Commission for Asia and the Pacific, Thailand, told the forum: “The potential that RCEP and CPTPP provide in terms of reorganising supply chains or rebuilding supply chains, keeping markets open and predictable in terms of trade and investment assuming that countries do follow through on their commitments, implement them on time is essential.”

While pointing out that countries should not deny the huge market access opportunities from trade liberalisation, she urged for a reduction in the complexity of trade.

“One thing that is very important when you look at the development of sectors, like electronics and automobiles, the parts and components have to move across different countries. This kind of reorganisation, predictability and utilisation of tariff preferences can play a very important role,” she said.

According to a World Bank report published in February, trade within RCEP countries represents only 20 percent of the total trade of RCEP member states. So, there is considerable potential for increasing trade flows within the region. It said intra RCEP trade takes place mostly in manufactures and minerals: Electrical equipment and machinery; chemicals, rubber and plastic; metals; fossil fuels, and Other extraction products. These four sectors represent the highest share of trade in the region. Between 30 and 40 percent of total RCEP trade in fossil fuels and extraction products are traded within the region. On the other hand, agriculture and services trade takes place mostly outside RCEP. Less than 10 percent of services trade in the region takes place between RCEP countries, the study pointed out.

RCEP Gains

While mentioning the RCEP advantages for ASEAN, Chang Chak-yan, the dean of Taima Journalism and Information Academy, Malaysia, wrote in China Daily: “The RCEP gives ASEAN various advantages, too, including greater access to China’s market of 1.4 billion people, and more trade and investment opportunities, which could increase employment and help ASEAN economies to expedite their industrial upgrading.

“The RCEP has also created a common market system by eliminating many customs limitations, lifting many import and export trade barriers, and securing improved market access for goods and services for businesses. A free market is created when 90 percent of goods being traded by countries are exempted from tax, and natural resources and human resources are better tapped.”

Meanwhile, Joseph Matthews, a senior professor at the BELTEI International University in Phnom Penh, told Xinhua that the RCEP has been giving a big boost to ASEAN’s economic recovery in the post-COVID-19 pandemic era and has also played a crucial role in helping narrow the development gap between the rich and poor ASEAN countries.

All the signatories’ countries have access to the Chinese market equally and enjoy tariff concessions stipulated in the pact, he pointed out.

“This free trade agreement holds huge potential for all participating countries to boost their trade and investment ties and to quicken their economic recovery from the pandemic. All member countries have reaped and will continue to reap the benefits of the RCEP, especially the four least developed ASEAN countries,” Matthews was quoted as saying in the report.

China’s trade with RCEP countries accounted for 30.4 percent of China’s total foreign trade value, reaching around $448.6 billion) in 2022, according to the General Administration of Customs (GAC).The report said exports and imports between China and RCEP members grew steadily and reached about $203 billion and $218 billion, respectively.

Source: Khmer Times