Regional Comprehensive Economic Partnership (RCEP) and ASEAN

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) among 15 Asia-Pacific countries, including 10 members of the Association of Southeast Asian Nations (ASEAN) and five of their FTA partners: Australia, China, Japan, New Zealand, and South Korea. The RCEP was signed in November 2020, after eight years of negotiations, and is expected to take effect in January 2022. It is the largest trade bloc in history, covering about 30% of the world’s population and GDP.

The RCEP aims to boost economic growth and integration in the region by eliminating or reducing tariffs, setting common rules for trade and investment, and enhancing cooperation in various sectors4. The RCEP also offers an opportunity for the participating countries to diversify their trade partners, especially amid the COVID-19 pandemic and the US-China trade tensions. However, the RCEP also faces some challenges, such as the varying levels of development and competitiveness among its members, the potential impact on the environment and labor rights, and the exclusion of India, which withdrew from the negotiations in 2019 over concerns about its trade deficit and domestic industries.

Challenges and Opportunities 

Some of the main challenges and opportunities of the RCEP are:

Challenges:

The RCEP is not a comprehensive or ambitious FTA, as it does not cover some important issues such as environmental protection, labor standards, human rights, and digital trade. Some critics argue that the RCEP is a low-quality agreement that will undermine the existing higher-standard FTAs in the region, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The RCEP may create winners and losers among its members, depending on their comparative advantages, trade patterns, and adjustment costs. Some sectors and industries may face increased competition and pressure from cheaper imports, while others may benefit from greater market access and opportunities. For example, some studies suggest that China, Japan, and Korea will gain the most from the RCEP, while Indonesia, Malaysia, and Thailand will face the largest losses.

The RCEP may exacerbate the existing trade imbalances and dependencies in the region, especially between China and the rest of the members. China is already the largest trading partner for most of the RCEP countries, and the RCEP will further increase its economic influence and leverage in the region. Some countries may be reluctant or unable to diversify their trade partners and may face political and strategic risks from China’s growing dominance.

The RCEP may face implementation and enforcement challenges, as it involves a large and diverse group of countries with different legal systems, regulatory frameworks, and institutional capacities. The RCEP also lacks a strong dispute settlement mechanism, which may limit its effectiveness and credibility. Moreover, the RCEP may face resistance and opposition from some domestic stakeholders, such as businesses, workers, civil society groups, and politicians, who may perceive the RCEP as a threat to their interests or sovereignty.

Opportunities:

The RCEP will create a large and integrated market for trade and investment, which will stimulate economic growth and recovery in the region. The RCEP will eliminate or reduce tariffs on about 90% of the goods traded among its members, and will harmonize the rules of origin, customs procedures, and trade facilitation measures. The RCEP will also liberalize and protect the services and investment sectors and will enhance cooperation in areas such as intellectual property, e-commerce, and SMEs.

The RCEP will foster regional value chains and innovation, which will enhance the competitiveness and productivity of the region. The RCEP will allow the members to source inputs and intermediate goods from any of the other members, which will reduce the costs and increase the efficiency of production. The RCEP will also facilitate the transfer of technology and knowledge and will support the development of new industries and sectors, such as digital economy, green economy, and creative economy.

The RCEP will strengthen regional cooperation and stability, which will improve the political and strategic relations among the members. The RCEP will provide a platform for dialogue and consultation and will foster trust and confidence among the members. The RCEP will also demonstrate the commitment and leadership of the region in promoting open and rules-based trade and will counter the protectionist and unilateral tendencies in the world.

The RCEP will open up new opportunities and markets for the members, especially for the developing and least developed countries. The RCEP will provide preferential access to the large and dynamic markets of China, Japan, and Korea, as well as the emerging markets of ASEAN, Australia, and New Zealand. The RCEP will also enable the members to tap into the potential of the regional and global value chains, and to benefit from the spillover effects of trade and investment.

The RCEP is a landmark achievement for the region, but it is not the end of the road. The RCEP is a living and evolving agreement, which can be improved and expanded in the future. The RCEP also provides a foundation and a catalyst for further regional and global integration, such as the CPTPP, the Asia-Pacific Economic Cooperation (APEC), and the World Trade Organization (WTO). The RCEP is a challenge and an opportunity for the region, and it depends on how the members will implement and utilize it.

Impact on ASEAN agriculture sector

The RCEP is expected to have both benefits and challenges for the ASEAN agriculture sector, such as:

Benefits

The RCEP will reduce or eliminate tariffs on agricultural products, which will lower the prices and increase the demand for ASEAN exports in the region. The RCEP will also harmonize the rules of origin, customs procedures, and trade facilitation measures, which will simplify the trade process and reduce the costs and time for ASEAN exporters.

The RCEP will enhance the competitiveness and innovation of the ASEAN agriculture sector, by facilitating the development of regional value chains, increasing market access, and supporting small and medium enterprises (SMEs), e-commerce, and intellectual property rights. The RCEP will also enable the ASEAN agriculture sector to tap into the potential of the digital economy, green economy, and creative economy.

The RCEP will strengthen the regional cooperation and stability in the ASEAN agriculture sector, by providing a platform for dialogue and consultation, fostering trust and confidence, and addressing common challenges such as food security, climate change, and transboundary animal and plant diseases.

Challenges

The RCEP may create winners and losers among the ASEAN agriculture sector, depending on their comparative advantages, trade patterns, and adjustment costs. Some sectors and industries may face increased competition and pressure from cheaper imports, especially from China, which is a major producer and exporter of agricultural products in the region.

The RCEP may exacerbate the existing trade imbalances and dependencies in the ASEAN agriculture sector, especially between China and the rest of the members. China is already the largest trading partner for most of the ASEAN agriculture sector, and the RCEP will further increase its economic influence and leverage in the region. Some countries may be reluctant or unable to diversify their trade partners and may face political and strategic risks from China’s growing dominance.

The RCEP may face implementation and enforcement challenges in the ASEAN agriculture sector, as it involves a large and diverse group of countries with different legal systems, regulatory frameworks, and institutional capacities. The RCEP also lacks a strong dispute settlement mechanism, which may limit its effectiveness and credibility. Moreover, the RCEP may face resistance and opposition from some domestic stakeholders, such as farmers, workers, civil society groups, and politicians, who may perceive the RCEP as a threat to their interests or sovereignty.

The RCEP is a challenge and an opportunity for the ASEAN agriculture sector, and it depends on how the members will implement and utilize it.

Overall Impact of RCEP

The RCEP also offers an opportunity for the participating countries to diversify their trade partners, especially amid the COVID-19 pandemic and the US-China trade tensions. However, the RCEP also faces some challenges, such as the varying levels of development and competitiveness among its members, the potential impact on the environment and labor rights, and the exclusion of India, which withdrew from the negotiations in 2019 over concerns about its trade deficit and domestic industries.

The overall impact of the RCEP can be summarized as follows:

• The RCEP could add $209 billion annually to world incomes and $500 billion to world trade by 20301. China, Japan, and Korea will benefit the most, with likely gains of $85 billion for China, $48 billion for Japan, and $23 billion for Korea.
• The RCEP will create a large and integrated market for trade and investment, which will stimulate economic growth and recovery in the region. The RCEP will eliminate or reduce tariffs on about 90% of the goods traded among its members, and will harmonize the rules of origin, customs procedures, and trade facilitation measures. The RCEP will also liberalize and protect the services and investment sectors, and will enhance cooperation in areas such as intellectual property, e-commerce, and SMEs.
• The RCEP will foster regional value chains and innovation, which will enhance the competitiveness and productivity of the region. The RCEP will allow the members to source inputs and intermediate goods from any of the other members, which will reduce the costs and increase the efficiency of production. The RCEP will also facilitate the transfer of technology and knowledge, and will support the development of new industries and sectors, such as digital economy, green economy, and creative economy.
• The RCEP will strengthen regional cooperation and stability, which will improve the political and strategic relations among the members. The RCEP will provide a platform for dialogue and consultation, and will foster trust and confidence among the members. The RCEP will also demonstrate the commitment and leadership of the region in promoting open and rules-based trade, and will counter the protectionist and unilateral tendencies in the world.
• The RCEP will open up new opportunities and markets for the members, especially for the developing and least developed countries. The RCEP will provide preferential access to the large and dynamic markets of China, Japan, and Korea, as well as the emerging markets of ASEAN, Australia, and New Zealand. The RCEP will also enable the members to tap into the potential of the regional and global value chains, and to benefit from the spillover effects of trade and investment.
• The RCEP is not a comprehensive or ambitious FTA, as it does not cover some important issues such as environmental protection, labor standards, human rights, and digital trade. Some critics argue that the RCEP is a low-quality agreement that will undermine the existing higher-standard FTAs in the region, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
• The RCEP may create winners and losers among its members, depending on their comparative advantages, trade patterns, and adjustment costs. Some sectors and industries may face increased competition and pressure from cheaper imports, while others may benefit from greater market access and opportunities. For example, some studies suggest that Indonesia, Malaysia, and Thailand will face the largest losses.
• The RCEP may exacerbate the existing trade imbalances and dependencies in the region, especially between China and the rest of the members. China is already the largest trading partner for most of the RCEP countries, and the RCEP will further increase its economic influence and leverage in the region. Some countries may be reluctant or unable to diversify their trade partners, and may face political and strategic risks from China’s growing dominance.
• The RCEP may face implementation and enforcement challenges, as it involves a large and diverse group of countries with different legal systems, regulatory frameworks, and institutional capacities. The RCEP also lacks a strong dispute settlement mechanism, which may limit its effectiveness and credibility. Moreover, the RCEP may face resistance and opposition from some domestic stakeholders, such as businesses, workers, civil society groups, and politicians, who may perceive the RCEP as a threat to their interests or sovereignty.
• The RCEP is a landmark achievement for the region, but it is not the end of the road. The RCEP is a living and evolving agreement, which can be improved and expanded in the future. The RCEP also provides a foundation and a catalyst for further regional and global integration, such as the CPTPP, the Asia-Pacific Economic Cooperation (APEC), and the World Trade Organization (WTO). The RCEP is a challenge and an opportunity for the region, and it depends on how the members will implement and utilize it.

Thanks for Reading. 🙏

Connect with Author on LinkedIn 

Follow FinGlimpse on Twitter, Instagram, LinkedIn, Flipboard, WhatsApp, Telegram