On January 1st, 2022, RCEP came into effect in 10 countries including Brunei, Cambodia, China, Japan, and New Zealand. This agreement not only reduces the tariff cost of cross-border trade among members but also deepens the deep integration of regional industrial chains through the principle of "accumulation of origin". Some researchers believe that it will become an important engine of trade and investment, and promote a more inclusive economic recovery of ASEAN in 2022 and beyond.
Q1.On January 1st this year, RCEP came into effect. It deepened regional economic cooperation and was a good practice of multilateralism, but it also faced some challenges. Its rules of origin accumulation will deepen the deep integration of regional industrial chains, and may also accelerate the transfer of labor-intensive industries to ASEAN countries with lower land and labor costs. How should the developed countries deal with the changes of domestic economic structure brought about by the hollowing out of the manufacturing industry? Will the economic dividend brought by RCEP affect the China-Japan-Korea FTA negotiations?
The weight and importance that Asia now has in the multilateral system recommends that leadership to preserve and strengthen that global system must come from within the region. No one country can lead in Asia, which has several large powers with divergent interests. But Asian collective leadership is critical to global economic policy outcomes now and ASEAN is at its core.
RCEP, East Asia’s economic agreement, embeds structures for dialogue and cooperation at the highest level that have the potential to make collective Asian leadership in reinvigorating the global economic system a practical proposition. RCEP’s institutionalisation can help in managing these dangers. The nature of its structure and rules means that RCEP will further encourage the development of Asia-wide positions and strategies and strengthen their impact on the direction of global trade and commercial policy.
ASEAN centrality has been an organising framework for Asian economic policy cooperation over the past half century. The retreat of the United States under President Trump from its leadership of the global economic order; the rise of China with its assertive stance on the South China Sea and its strategically challenging BRI; a ‘Quad’ configuration of Indo-Pacific powers around the United States, India, Japan and Australia; and the continuing North Korea crisis all present significant difficulties for ASEAN’s central role in the region. But RCEP helps restore the core role of economic integration to securing regional prosperity and political stability.
The trade gain within the region is conservatively estimated to be in the order of US$438 billion through to 2030 (Plummer and Petri, 2020). It is likely to be much higher. For countries not in the arrangement, the loss through trade diversion is estimated at US$48 billion. Overall, that is a significant net global benefit from RCEP, but there are some countries and some industries outside the region from which trade will be diverted.
Within the region, lower value-add producers in China will suffer as a consequence of the shift of production to lower labour-cost countries in Southeast Asia. But more sophisticated manufacturing and higher value-add exports from China should expand under the arrangement. There will be some big adjustments over time, which will tend to follow where comparative advantage lies across the region and that will boost incomes and economic growth.
The big strategic economic problem that RCEP will address in the years ahead is the trade and industrial transformation required by China’s growing labour scarcity as Southeast Asia’s and South Asia’s labour force continues to grow. RCEP provides the policy framework within which the potential of these emerging regional complementaries can be effectively realised.
The three features that distinguish RCEP reflect its ASEAN origins and diplomatic philosophic strategy: its inclusiveness and openness to new membership; its whole-of-region approach to integration; its ongoing economic cooperation agenda that marks it as a ‘living agreement’ able to address issues of shared interest and priority as they evolve.
This will not happen automatically without significant regional political will.
Buttressing the multilateral economic order to create space for China, the United States and other large rising countries in South and Southeast Asia is a priority. But that is unlikely to succeed without strengthening and also building a security architecture around the alliance frameworks that embed mutual assurances about the use of political power across the region.
The idea of such a comprehensive security framework that incorporates all three pillars has inspired constructive and active Asian diplomacy in the past, not only in Southeast Asia through the development of the understandings on which ASEAN was constructed. It is also an idea that has also occurred to leading strategic thinkers in Indonesia, a crucial player in any effort to build stronger regional architecture.
No one country, however big, ought to dominate East Asia, the Asia Pacific or Indo-Pacific regions and multilateral principles can set terms of engagement that help to constrain the exercise of raw political power.
A comprehensive security arrangement that affirms commitment to multilateral economic rules and cross-regional sign-on to ASEAN Treaty of Amity and Cooperation (TAC) principles can help secure a free, open, inclusive, prosperous and politically stable region. It frames a vision in which the region could shape a future that references the principles of crucial importance to prosperity and security.
The arrival of RCEP now makes that more possible.
Peter Drysdale is Emeritus Professor, Head of the East Asian Bureau of Economic Research and Editor-in-Chief of East Asia Forum in the Crawford School of Public Policy at The Australian National University, Canberra. He is widely acknowledged as the intellectual architect of APEC.