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East Asia & Pacific-wide free trade area: the RCEP

CROSSROADS TOWARD PHILIPPINE ECONOMIC AND SOCIAL PROGRESS - Gerardo P. Sicat (The Philippine Star) - November 18, 2020 - 12:00am

The Regional Comprehensive Economic Partnership agreement, or RCEP, was signed by fifteen country signatories, in Vietnam on Nov. 15.

The free trade agreement will have the largest impact based on population and on region-wide GDP of any other trade grouping among all free trade areas!

East Asia and Pacific-wide free trade area. Geographically, it is important to place it as an East “Asia and Pacific”-wide area.

The RCEP links 15 different countries – 10 ASEAN member nations with China, Japan, South Korea and two Pacific countries (Australia and New Zealand) – in an area comprising 2.3 billion people, all with a combined GDP of $23.5 trillion.

This is a big grouping of countries. It binds the major populous countries of the world and the most outward-looking trading nations. The region also is host to the world’s highest-performing growing countries that compose a major driving force of future productive growth.

Uniquely, too, it binds China into a multi-country free trade region for the first time. Also, two of East Asia’s largest economies – China and Japan – are bound together within a trade deal. Moreover, two Pacific countries – Australia and New Zealand – are conjoined within the ASEAN countries, and within the mainstream of the Asian continent.

The emphasis is on the adjective “East” of the Asia and Pacific-region of the world. It is composed of all the East Asian countries – China, Japan, South Korea (except North Korea), all the 10 ASEAN member countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam), and Australia and New Zealand. These countries are all on the Asian Pacific side of the great ocean. India, which was part of the negotiation for RCEP, is, for the moment, not part of the agreement, but there is a quick pathway for its membership when it changes its mind.

Taiwan, which considers itself as independent of China, is a highly open-trading nation whose industrial supply and investment chains are highly linked to the RCEP region’s members. Hong Kong, which since 1997, has been returned to China, is also part of RCEP.

(This geographical nomenclature is still Europe-centered. Remember who wrote the history books? Europe was the center, the Americas were in the west of it, and Asia east of it. Some decades ago, East Asia was still called “the Far East” and today’s Middle East, “the Near East.” East Asia was “far” and the Middle East “near” Europe.)

A behemoth free trade region. In a nutshell, the RCEP is a comprehensive trade agreement that covers trade in goods and services, investments, economic and technical cooperation, and specific rules concerning intellectual property, government procurement, competition, and e-commerce.

The members of the RCEP refer to the agreement as “modern, comprehensive, high quality, and mutually beneficial.” A joint statement issued by RCEP signatories emphasized that “it demonstrates our strong commitment … economic recovery [from the Covid-19 pandemic], inclusive development, job creation and strengthening regional supply chains….”

All countries have a specific perspective on how they came into membership and involvement in the RCEP framework. Below is a narrative using ASEAN as the central focus of the story.

RCEP evolution through ASEAN perspectives. ASEAN was founded in 1966 as a political regional grouping of five original countries – Indonesia, Malaysia, Philippines, Singapore, and Thailand.

After the ASEAN Summit meeting of its leaders in Bali in 1976, ASEAN’s economic cooperation began rolling off in various directions. The world’s political and regional leading nations took notice.

ASEAN meetings soon blossomed further into ASEAN plus other powers. In 1978, for instance, the US, Japan, and Australia met with the ASEAN leaders. These initial efforts began to flourish into separate trade dialogues with external economies, even as the world was coming into full focus, even as the world entered a phase in which trade barriers began to fall, especially with the creation of the World Trade Organization (WTO) during the 1990s.

Also, ASEAN members went into deeper free trade framework (AFTA) and expanded this further into a larger economic grouping of countries (by 1990s, with its current 10 member-countries).

Within the framework of expanding trade and reduction of trade barriers, competing models of agreements were being suggested. ASEAN and its member countries were getting enticed into two separate pulls-and-pushes of trading agreements’

One sponsored by China, the RCEP concept, which in 2011 was proposed to ASEAN as a group, including other trading East Asian and Pacific countries.

The other was the culmination of various efforts of Asian and Pacific countries to forge a competing order, involving at the heart of it a cooperative framework of trading countries led by the United States, Japan and Australia.

This competing idea had its origin in part with Japan’s earlier Co-Prosperity Asian sphere and the Pacific Basin groups sponsored by Australasia. The broader regional implications was co-driven by American trade and industrial policy in the Asia and Pacific region.

This latter effort culminated into what became the Trans-Pacific Partnership (TPP) grouping that the United States tried to develop. This was designed strongly to cover trade and services, including agreements on intellectual property and trademarks. This aspect of trade has become one of the most difficult and contentious issues that had tripped progress on further liberalization in trade on services under the WTO.

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For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

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