On this issue, we have invited Dr. Cyn-Young Park to have an exclusive interview on the impact of RCEP on the Asia Pacific region. Cyn-Young Park is an Assistant Chief Economist in the Asian Development Bank. Her research interests focus on Asian affairs, including the integration of the regions in Asia, the economy, finance and natural resources of Asian countries, etc. Her recent research achievements are: “International Transmission of Food Price and Volatilities: A Panel Anaylisis”, “Financial Development and Integration in Asia: Features and Limitations”, etc.
Cyn-Young Park: RCEP Will Make East Asia a More Formidable Global Competitor
On January 1 this year, RCEP officially came into force, which means the launch of the world's largest free trade area which includes China. There’s no doubt that the participant countries will become the investment destination of Chinese enterprises. However, there would still be some economic security risks that we may face, including policy risks related to currency and taxation, the debt crisis and the financial market volatility. To answer these problems, we have conducted an interview with Dr. Cyn-Young Park, hoping to know that if RCEP and the economic capacity gap between members increase or hinder the bargaining power of the economies in the region, and what specific long-term benefits RCEP can bring to China.
RCEP represents the largest free-trade area (FTA) ever in size ($26 trillion) and population (2.3 billion). It offers strong potential to generate significant gains in trade, income, trade, and employment by molding regional trade and investment patterns.
The effects on trade and therefore production links across East Asia, will be larger. Among RCEP members, ASEAN economies already have FTAs with each other. They also have an ambitious economic integration program known as the ASEAN Economic Community, which went into effect in December 2015. Moreover, all RCEP members have an FTA in place with ASEAN (a condition to join negotiations), called “ASEAN+1” agreements. Therefore, the RCEP is not expected to generate significantly large gains from lower tariff barriers among these economies. However, RCEP is the first regional FTA that binds the People’s Republic of China (PRC), Japan, and the Republic of Korea (Korea) together. Most of the net benefits in absolute terms will be reaped by these three economies, whose trade and production capacities will be strengthened, particularly in advanced manufactures.
Changes in trade tend to be 2–3 times changes in income, underscoring the importance of trade in intermediate goods. For a majority of East Asian economies, the benefits from RCEP will draw from favorable rules of origin that lower the costs of operating regional manufacturing supply chains. These connections will be especially important for PRC, Japan and Korea, which will have a greater ability to put their specialized production advantages to use in supply chains throughout the RCEP region.
Substantial gains from RCEP would be also from liberalization of nontariff barriers in goods and services. Our recent study also shows these gains will be the most important driver of benefits, accounting for approximately two-thirds of the total effect of the RCEP on global income. (https://www.adb.org/sites/default/files/publication/740991/ewp-639-regional-comprehensive-economic-partnership.pdf)
RCEP will facilitate regional integration among its members, especially by strengthening the region’s manufacturing supply chains. Diversity among the RCEP members present strong potential for trade complementarity to intensify the gains from regional supply chains. Therefore RCEP will make East Asia a more formidable global competitor, raising productivity and also increasing wages and employment.
RCEP is the first regional trade agreement that encompasses the PRC, Japan, and Korea together. Their trade and production capacities will be strengthened, particularly in advanced manufactures. The PRC is expected to reap the largest net benefits from RCEP in absolute terms.
The PRC has endured large adverse effects from trade tension with the US. RCEP helps offset such adverse effects on exports of manufacturing. RCEP will increase the PRC income by $127 billion, while the US-PRC trade tension reduced PRC income by $515 billion. The PRC will also be able to recoup almost half ($234 billion) of the trade losses ($506 billion) from the trade conflict with the US through RCEP.
Without RCEP, the PRC would have suffered from greater trade diversion, as ASEAN would have solidified its gains from both US-China trade tension and RCEP agreement. While the effects are evenly distributed, ASEAN economies gain marginally from the US-China trade conflict.
By joining RCEP, the PRC is incorporated in the bigger regional supply chain and therefore benefiting the trade and income gains from this large production network. For example, the PRC can also benefit from cheap labor from ASEAN members of RCEP, rather than competing for cheap labor in the global supply chain.
Interviewer: Xu Houkun
Interview time: February 7, 2022
Collator: Zhang Jingyue