NEW AVENUE FOR ASIA-PACIFIC ECONOMIC GROWTH

By Lin Duo, Zhang Tengjun

RCEP serves the interests of all members and fosters regional prosperity

On November 2， the ASEAN Secretariat announced that six ASEAN members （Brunei， Cambodia， Laos， Singapore， Thailand， and Vietnam） and four non-ASEAN members （China， Japan， New Zealand， and Australia） had submitted Instruments of Ratification/ Acceptance （IOR/A） of the Regional Comprehensive Economic Partnership （RCEP） agreement， thus reaching the minimum number of IOR/A for the entry into force of the free trade agreement （FTA）. According to the agreement， the RCEP will take effect forthose 10 countries on January 1， 2022. The announcement marked implementation of the multilateral trade agreement with the largest geographical and population coverage in the world being right around the corner.

Trade Rule Optimizer

Before the conclusion of the RCEP agreement， multiple FTAs among the signatory countries had already been implemented including those between ASEAN and China， Japan， the Republic of Korea （ROC）， Australia， and New Zealand， respectively， as well as those between China and the ROC， between China and Australia， between Japan and Australia， and among the ROC， Australia and NewZealand. These existing FTAs to some extent made a unified system of trade rules difficult to establish.

Implementation of the RCEP agreement can help remove institutional barriers to AsiaPacific regional economic integration. First， through integrating existing FTAs among RCEP members， the agreement will substantially reduce the institutional costs of enterprises in utilizing the FTA， improve the overall business environment， and add new impetus for regional trade and investment. Second， the mega-intergovernmental FTA will provide an institutional framework for effective coordination among countries with varied population sizeand levels of development. The agreement is designed to narrow development gaps and bring mutual benefits for all members through differential treatment and economic and technical cooperation. For example， two tax concession modes— immediate tariff reductions to zero and tariff reduction to zero within 10 years—are provided with the aim of applying zero-tariff treatment to over 90 percent of the goods traded within the bloc， which makes a single market for RCEP members possible.

Implementation of rules of origin and other unified rules in the RCEP agreement will bring intra-regional trade costs and product prices down through the price leveraging， benefiting companies and consumers in member countries. Compared with existing FTAs between ASEAN and non-ASEAN countries， RCEP membershave increased commitments on investment， service trade， and movement of natural persons.

Among them， China raised the commitment level for 37 sectors including finance， law， and shipping while opening 22 new service sectors such as research and development， management consulting， and air transport on the basis of the businesses it allows to engage in foreign investment as a member of the World Trade Organization （WTO）. The country will for the first time create a negative investment list under an FTA that specifies business fields open for foreign investment， which will pave the way for greater market access for foreign investors.

Industrial Chain Stabilizer

The outbreak of COVID-19 has provided impetus to RCEPs entry into force. The global health crisis posed a serious threat to regional and global industrial chains， supply chains， and value chains while cross-border trade and investment and free flow of personnel were hampered. Stabilizing production， supply， and circulation became a top priority for economies around the world.

Once it comes into force， the RCEP will serve as a stabilizer for the industrial chain， supply chain， and value chain in the Asia-Pacific region as well as providing strong support for regional economic growth. Members of the trade bloc enjoy tremendous potential for post-epidemic rebound thanks to highly-complementary economic structures and abundant capital and labor.

The RCEP agreement contains specific provisions covering rules on market access， technical regulations， customs procedures， and sanitary and phytosanitary measures. The trade pacts emphasis on movementof factors of production and division of labor on the industrial chain willhelp facilitate greater integration ofvalue chains of the member countries and accelerate regional economicrecovery. More than half of RCEPmembers ratified the agreementwithin a year after it was concluded，showing general recognition of themutually-beneficial FTA as well aseconomic integration in the Asia-Pacific region.

Economic Openness Booster

China has long been an activeparticipant， key coordinator， andimportant promoter of the RCEPagreement. China provided strongsupport for ASEANs lead role innegotiations and maintained closecommunication with relevant parties， contributing to the signing andimplementation of the long-awaitedtrade pact. China also took the lead in making commitments to higher-level economic openness and concessions to other developing economies in the bloc.

The RCEP offers China solidopportunities for comprehensivedeepening of its opening-up.Implementation of the agreementwill advance economic integrationin East Asia and unlock huge marketpotential， which will be beneficial for China in terms of increasing foreigntrade and investment. Chinas tradewith 14 other RCEP members accounts for one third of its total foreigntrade. An integrated market built bythe trade bloc will help the countryfurther expand its domestic marketwhile boosting the export sector.

As the largest free trade area alongthe Belt and Road， the RCEP willhelp with Chinas implementationof the Belt and Road Initiative （BRI）and the“dualcirculation”economicdevelopment strategy with domesticand international markets reinforcing each other. Chinese firms will benefit from the duty-free market accesscreated by the RCEP agreement andimprove competitiveness in overseas markets while Chinese consumersget access to a greater selection ofimported goods at lower prices.

OPINION

The RCEP will also facilitateflow of capital, technology, and personnel within the trade bloc and thus significantly improveregional connectivity. Sincethe establishment of dialoguerelations between Chinaand ASEAN in 1991, the twosides have made remarkableachievements in economic and trade cooperation. With two-way trade volume climbingdespite the global health crisis, China and ASEAN becameeach others largest tradingpartners in 2020, which wasalso a fruit of their cooperation within the BRI framework. Theentry into force of the RCEPagreement will create a morefavorable institutional, policy,and legal environment for theBRI projects to benefit moreneighboring countries of China.

FTA participants usually seek to expand both exports andimports in order to enhancecompetitiveness and securean advantageous position inthe regional industrial chain.Implementation of the RCEPwill spur Chinese enterprisesto improve technology, reduceproduction costs, and enhance product quality.

The RCEP will in generalfacilitate greater participationby Chinese industries in market competition and enhancetheir capacity for resourceallocation in both international and domestic markets. A risein imports, a higher levelof trade commitments, andhigher examination standardsunder the RCEP agreement will also help Chinese companiesimprove their performance inthe regional industrial chain.

Multilateralism Upholder

Large internationalorganizations like theUnited Nations and regionalintergovernmental cooperationframeworks like the RCEPare two typical examples ofmultilateralism. With the riseof nationalism and populism in the international community,economic globalization and free trade have suffered setbacksin recent years. The globalgovernance mechanismsrepresented by the WTO havebeen challenged by unilateralism and trade protectionism, whichhas added to the complexityand uncertainty of thecurrent economic situationand frustrated internationalefforts towards sustainabledevelopment. For the shortterm, a significant rebound inglobal trade looks gloomy, thus highlighting the importance of supporting multilateralism and free trade.

Ready for implementation,the RCEP agreement hasdemonstrated the determination of a majority ofAsia-Pacificcountries to oppose unilateralism and uphold free trade andmultilateralism while boostingthe countriesconfidence inpromoting development through opening-up and cooperation. The frameworks and mechanismsestablished by the RCEPagreement will write a newchapter ofwin-win cooperationin the Asia-Pacific region.Despite some disagreementsamong member countries,pragmatic cooperation in theRCEP context is still feasible, and mutual trust can be fostered bycloser economic and culturalexchanges.

Inclusiveness is one of theprominent features of the RCEP. The unprecedented trade pactbrings together countries withdiverse levels of development. Unlike exclusive trade blocs,RCEP emphasizes commondevelopment and strives for abalance between high standards and flexibility of rules throughmeasures such as special anddifferential treatment fordeveloping economies, longerdomestic transition period,and economic and technicalcooperation. By 2035, thecumulative real gross domesticproduct (GDP) ofASEAN member states is predicted to increase by 4.47 percent thanks to the RCEP,and the real GDP growth shouldexceed 6.3 percent in Cambodia,the Philippines, Thailand, andVietnam.

The RCEP is a development- oriented multilateralcooperation mechanism. Twochapters of the agreement arededicated to small and medium- sized enterprises (SMEs)and economic and technicalcooperation, respectively,with an aim to help SMEs fullyparticipate in RCEP projects and better integrate into the regional industrial chain. According tothe chapter on economic andtechnical cooperation, prioritywill be given to activities thatprovide capacity building andbenefit the least-developedmembers so as to narrow thedevelopment gaps.

Addressing the generaldebate of the 76th session ofthe United Nations GeneralAssembly in September,Chinese President Xi Jinpingproposed a Global Development Initiative calling fordevelopment as a priority andbenefits for all. Implementation of the RCEP is one step in thatdirection. The regional tradepact serving the interests ofall members will lay a solidfoundation for the development and prosperity of the Asia-Pacific region.