RCEP

In his speech before leaders of the ASEAN, President Duterte pushed for a “substantial conclusion” of negotiations for establishing the Regional Comprehensive Economic Partnership (RCEP) by next year. The initial working deadline was the end of this year.

Although the initial deadline will not be met, work on the projected economic partnership has been moving briskly. RCEP envisions an encompassing free trade arrangement between the ASEAN economies and key economic partners. Duterte described this free trade project as the “centerpiece of ASEAN’s external economic relations.”

At the core of the envisioned RCEP will be the ASEAN Free Trade Area (AFTA). Much progress has been made by the ASEAN toward building a functioning regional economy. This includes harmonization of customs and trade policies, a financial stability fund and uniform rules on e-commerce. The idea is to make intra-regional trade as seamless as possible. Most of the region’s economies plan their development on the assumption of deepening regionalization.

Although AFTA provides an ideal starting point for the much wider free trade arrangement, RCEP is generally understood as an initiative pushed by China. Beijing has poured in funds to rapidly improve interconnectivity among the region’s economies through its ambitious Belt and Road program.   

The idea to build RCEP gained traction after the Trump administration withdrew from the Trans Pacific Partnership (TPP) – the first initiative toward creating a Pacific-wide free trade area. TPP was an American initiative and has been criticized for not including all the economies in the region.

With Trump’s withdrawal from the TPP, the initiative basically lost steam even as Australia and New Zealand were eager to continue the project. In the void created by the American withdrawal, Beijng quickly stepped in with its proposed RCEP. This proposal fits in with China’s other institutional initiatives such as the Asian Infrastructure Investment Bank (AIIB) and the Belt and Road program.

RCEP underscores America’s diminishing role in global economic affairs. That diminished role is magnified this year by Donald Trump’s decision to skip this year’s ASEAN summit that features discussions with the region’s principal partners such as Russia, China, Australia and Japan.

After his disastrous trip to Paris for the commemoration of a hundred years since the end of the First World War, Trump decided to send Vice President Mike Pence to Asia in his stead. Pence, however, brings no important message for America’s partners in this vital section of the world. He does not have the political gravitas to reverse large trend of American withdrawal from this part of the world.

What is happening in Europe is also happening in Asia: in the face of increasing American isolationism, the regional institutions in both parts of the world are moving ahead to shape their future without the US significantly in the equation. Nothing could be more emblematic of this than the common European Army endorsed by Emmanuel Macron and Angela Merkel.

China ascendant

For better or for worse, the vacuum created by US isolationism will be filled, in this part of the world, by China.

China, the world’s second largest economy and its most populous, has not been remiss if seizing the opportunities opened by the moment. Beijing’s economic diplomacy in the region has been bold, imaginative and relentless.

This year, Beijing has taken steps to repair its relations with India and Japan. The former is the world’s second most populous country and currently enjoys an enviable rate of economic expansion. Japan, notwithstanding its domestic economic problems remains a global technology leader and financial powerhouse.

Add to this the much closer partnership between China and Russia. This year, the two countries joined forces for a massive military exercise intended to impress the other powers.

Beijing has maintained a discreet and benevolent posture as the two Koreas work out their issues and attempt to bring a workable peace to the peninsula. In Southeast Asia, Beijing enjoys ardent support from Cambodia and Laos. In the two years of Duterte’s presidency, the Philippines emerged as a staunch supporter of Beijing’s strategic initiatives.

Slowly but surely, China is projecting both soft and hard power in this part of the world. She rapidly modernized her military capabilities and laid claim to a large swathe of the South China Sea. She has carefully built a network of alliances that now support her international policies.

Against that backdrop, RCEP might seem a problematic proposition for many nations wary of China’s rising role as regional hegemon. But such concerns will have to be weighed against the very real advantages a large free trade community might bring to the emerging economies of Asia.

The Philippines is precisely caught in this type of dilemma. On the one hand, we are wary of China’s expansionist designs in the South China Sea involving areas we claim. On the other hand, the country is firmly committed to help evolve a free trade community – beginning with the AFTA, to which we are deeply invested.

RCEP will bring much benefit to our effort to build rapid and sustainable economic growth. It will make us part of a regional single market much larger than AFTA. That will be a boon to our enterprises. It will help boost our effort to build a competitive and inclusive economy.

For China, RCEP will offset the effects of the tariff war the US has mounted. It will open a large playing field for Chinese investments and solidify the country’s sphere of influence.

In our case, we are hoping the medium term benefits will offset the long-term peril of this project.