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Secretary-General, Pacific Economic Cooperation Council (PECC)
Australian Pacific Economic Cooperation Committee (AUSPECC)
Honorary Professor, The Crawford School of Public Policy, Australian National University (ANU)
The signing of the Regional Comprehensive Economic Partnership (RCEP) on Sunday provided a much needed boost to the global trading system. It will create the largest single economic area in the history of the global economy, led by the ten ASEAN members plus its FTA trading partners it will cover a market of over 2.2 billion people, with a combined GDP of around US$26 trillion. Estimates suggest that benefits for RCEP members of around US$174 billion by 2030 according to numbers cited in PECC’s State of the Region Report this year.
The agreement has been 8 years in the making since ASEAN members agreed to the Framework for Regional Comprehensive Economic Partnership in 2012. The agreement will consolidate ASEAN’s existing trade agreements with partners: Australia and New Zealand; China, Korea, and Japan. India which had previously been part of the negotiations left last year.
The agreement marks an important milestone for the broader Asia-Pacific region as it has been identified along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which entered into force in 2018 as one of pathways towards a broader more inclusive Free Trade Area of the Asia-Pacific by APEC. Bringing these pathways together would create enormous potential for trade. The CPTPP had originally included the United States which withdrew its membership under the Trump administration while the RCEP includes China. However, this year China has indicated, along with a number of other Asia-Pacific economies their interest in the CPTPP.
PECC’s State of the Region Report 2020 underscores the need for growth boosting initiatives after the Covid-19 crisis and suggests taking a fresh look at the role that trade integration can play in boosting growth. While the macroeconomic gains from deeper trade integration are clear, more needs to be done to address the distributive impacts that come with the reforms In 2017 PECC looked into the likely labor market adjustments that would come with these trade initiatives. Estimates suggest that in terms of the share of the labor force that needs to shift to more productive sectors are highly correlated with the level of overall gains that come from the agreement. The conclusion of that work was that further work is needed in this area, which APEC should facilitate to make further progress on its goal.
Furthermore, that analysis that was undertaken by Japanese economist Kenichi Kawsaki breaks down where the benefits of integration come from – his findings suggest that most of the macroeconomic benefits come from the reduction of an economy’s own tariffs and non-tariff measures rather than from improved access to the market of trade partners.
This points to another important area of work moving ahead. The challenge for RCEP, as with any trade agreement is going to be in implementation. APEC has a track record in sharing of experiences of how its members implement reforms – even though not all RCEP members are APEC members, ASEAN along with PECC are official observers of APEC. There is a lot that can be done over the coming months to help the implementation process.
Last year PECC surveyed the regional policy community on their preferred way to achieve a Free Trade Area of the Asia-Pacific, the preferred option was convergence in terms of product coverage and level of liberalization in various regional agreements. How to do so, and to how to maintain engagement with trading partners in the rest of the world, is another topic that APEC might usefully examine in the coming years. As RCEP and CPTPP move into implementation given the overlap in membership, particularly through their joint APEC members, initiatives that build implementing capacity would be timely.
It’s still very early to really know and understand the details of the agreement We know what the ambitions were – to build on and improve on the ASEAN Plus One agreements – initial indications are of considerable success in that area. It seems as though all RCEP members have come to the table with open minds, and given concessions in the interests of not only seeing the deal through to completion but because they know that it’s important for long-term growth and jobs.”
As questions have been asked about the value of economic integration, this agreement is testament to the continuing commitment by the member economies in this region to striving by that channel for the benefits of growth and development. The agreement also helps consolidate opportunities for the more efficient operation of global value chains in the region, again in a time where their resilience is being questioned. The structure of the agreement offers scope for dealing with important impediments to GVC operations, such as regulatory divergence. These consequences will also resonate in the US, as the new administration considers its options for engagement with the region.
One element of the agreement that’s critical is how the agreement leads to more inclusive trade gets used by SMEs – the CPTPP was a pioneer in having an SME chapter, now it seems it has set the tone for others. RCEP will have it and the WTO is trying to come to a multilateral agreement. This a good example of how smaller groups of economies can come together, get agreement and lead the way for the multilateral trading system.
*The views expressed here are those of the authors are not necessarily those of the institutions they work for.
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