RCEP and East Asian Regional Economic Cooperation

Shen Minghui

On January 1， 2022， the Regional Comprehensive Economic Partnership （RCEP） formerly entered into force. As the largest global free trade area accounting for about 30 percent of world total in population size， economic scale and trade volume， the RCEP has important bearings on the international economic and trade pattern. Not only did it integrate “fragmented” economic and trade arrangements in the East Asian region， it has also improved comprehensive development environment of the region and facilitated in-depth development of East Asian regional economic integration. With the huge combined impacts on supply chains and international trade and investment from profound changes that the world undergoes unseen for a century， uncertainty of the COVID-19 pandemic situation， uneven global economic development， and downward trend of world economy， it becomes necessary for East Asian regional economic cooperation to make corresponding readjustments. As a major East Asian country， China will， within the RCEP framework， enhance supply of international public goods and functional cooperation， play a more active role in East Asian regional economic cooperation， and inject still more vigor and vitality to sustainable development of East Asian economy and to global economic and trade cooperation at large.

RCEP Promotes In-depth Development of East Asian Economic Integration

The RCEP is an important juncture in the development process of East Asian regional economic cooperation. On the institutional plane， the RCEP has integrated several bilateral or regional trade arrangements， which lays an important foundation for regional peace， opening up and cooperation by achieving geographical coverage and integration for the first time between East Asian cooperation on the institutional plane and East Asian production network on the market integration plane.

I. RCEP Further Improves Regional Comprehensive Development Environment

Historically， it was an important background and cause of the “East Asian Miracle” that East Asian economies adopted an open market policy and development strategy. Ultimately， East Asian regional economic cooperation is regional open institutional regulations and legal protection mechanisms constructed under government auspices， or in another word regional comprehensive development environment. Since the advent of the 21st century， forms of international trade have continued to evolve， from cross-industry trade in the past towards intro-industry trade and intro-product trade， with ever increasing importance of value-chain trade. International trade has become more and more constrained by behind-the-border trade barriers like domestic regulation and policy uncertainty. The RCEP renders high-level regulation to behind-the-border issues like intellectual property， e-commerce， and competition policy. To be concrete， the Intellectual Property Chapter includes 14 sections and 83 articles， being the richest in content and the longest chapter of the RCEP agreement. As the most comprehensive IPR related trade agreement participated by the developing economies of East Asia， it has improved the level of overall IPR protection in the East Asian region， providing institutional guarantee for innovative activities and sustainable development of the region. The RCEP also renders high-level regulation to such important topics as localization of computing facility and electronically cross-border data transfer， creating a convenient and orderly institutional environment for developing digital trade in the East Asia region.

Meanwhile， the RCEP has also put forward a large number of trade and investment facilitation measures. For instance， Chapter 4 requires simplification of customs procedures， pre-arrival processing， and advance rulings. It also requires additional trade facilitation measures related to import， export， or transit formalities and procedures for authorized operators. Chapter 6 encourages enhanced cooperation and reduction of technical trade barriers. Chapter 10 encourages simplification of procedures for investment applications and approvals and extension of the scope of temporary entry permit and time-limit of natural persons. All these measures have improved the regional comprehensive development environment， for the benefit of attracting foreign direct investment （FDI） and developing value chains. Between January and June 2022， global FDI stood at US$872 billion， -7 percent against the same period of 2021. At the same period of time， the East Asian region absorbed an FDI of US$185 billion， registering a 5 percent growth over the same period of 2021. Especially， China， Malaysia and Vietnam saw an increase of 18 percent， 37 percent and 15 percent of FDI respectively in the second quarter of 2022 against the same period of 2021.

II. RCEP Provides Drivers for Regional Trade Recovery and Development

The RCEP provides that within a transition period of 20 years 90 percent of tariffs on goods will be gradually eliminated， the most important among which is immediate elimination of tariffs and elimination of tariffs in ten years. Especially， the RCEP set up China-Japan and China-South Korea free trade areas for the first time. Member states of the RCEP were committed to producing a negative list for trade in services in 6 years after the RCEP agreement entered into force （Myanmar， Laos and Cambodia to do so in 15 years）. They also made improvement on the basis of their commitments to the World Trade Organization （WTO）， reaching a commitment beyond the existing level of opening of the existing “ASEAN+1” free trade agreements. On investment， all member states of the RCEP were committed to adopting the method of negative list for a higher level opening in five industries including manufacturing， agriculture， afforestation， fishery and mining.

At present， the RCEP has already played a positive role in promoting regional trade development. For instance， on the micro plane， according to the figures of China customs， Chinese enterprises applied for RCEP certificates of origin and were issued 266，000 certificate-of-origin statements between January and June 2022 for an export value of 97.9 billion RMB， for which they were given 710 million RMB in tariff rebates by importing countries. During the same period of time， an import value of 23.86 billion RMB came under RCEP preferential tariff treatment with a total tariff rebate of 520 million RMB. On the macro plane， the RCEP made breakthroughs in putting in place China-Japan and China-South Korea free trade ties， further increasing China-Japan and China-South Korea bilateral trade. Between January and October 2022， China-Japan trade volume totaled 36.2 trillion yen， an increase of 16.2 percent year on year whereas Japan-South Korea trade volume totaled 9.5 trillion yen， an increase of 26.8 percent year on year.

III. RCEP Upholds and Enhances East Asian Economic Integration

As the only regional economic cooperation mechanism that has a relatively comprehensive coverage of East Asian production network， the RCEP has enhanced East Asian integration on both planes of institutional integration and market integration. On the plane of institutional integration， the RCEP insisted on the “centrality” of the ASEAN， not only enabling the ASEAN to join the RCEP as a whole， but also fully applying the “ASEAN method” in RCEP negotiations. More important， by achieving unified tariff commitment， rules of originality and other trade rules， not only did the RCEP integrate 4 “ASEAN+1” free trade agreements， it has also in theory integrated 27 trade arrangements and 44 investment agreements signed between the 15 member economies， effectively overcoming the Asian “Noodle Bowl” effect. On the plane of market integration， over a long time， there have been three regional production networks of Asia， North America and Europe. Although under the joint impacts of China-US trade friction and the COVID-19 pandemic， the internal trade between the RCEP member countries has accounted for 45 percent of the total more or less， which illustrates that the RCEP helps maintain internal economic link in the East Asian region， consolidates the East Asian economic integration and reflects the internal trade and economic resilience of the region.

East Asian Regional Economic Link Faces Readjustment

The internal driving force of the East Asian regional economic cooperation rests with regional economic link， or in another word the East Asian production network. Similar to the “flying geese paradigm”， there is gradient division of labor， which has come down to inner-product or link of production， and given rise to a new triangular trade structure. Over a long period of time in the past， the form of regional division of labor of the East Asian production network has been based on an open market environment brought about by economic globalization， supported and promoted by governments policy， being inseparable from transnational production and operation by multinational corporations. The East Asian regional economic cooperation has moved along with the above evolution， providing institutional support for the East Asian regional international division of labor and linkage development. At present， as the COVID-19 pandemic， the uneven global development and the downward trend of world economy cause huge impact， the regional economic link is in face of readjustment and even restructuring.

I. Asias External Economic Link Is More Vulnerable to Shocks

In recent years， the global value chains have been increasingly affected by non-economic factors. On the international plane， the multilateral trading system is subject to question， some of its functions even being paralyzed. New trade rules have failed to become consensus on the global plane， the open market dividend of economic globalization being depressed continuously. On the national plane， “generalization of security” becomes an increasingly salient feature of government policy of quite a few developed countries. In the name of security， those governments have adopted more and more discriminatory industrial policies， and placed other countries under unilateral trade sanctions and even resorted to decoupling， bringing about serious artificial interference and effect on the industrial and supply chains that are based on market operation. On the corporate plane， the decision making of multinational corporations on international division of labor has turned from efficiency first to parallel priority on efficiency and resilience， they no longer purely consider in terms of cost-benefit analysis but placing more emphasis on resilience of supply chains for investment decision making and distribution， with greater effect on the East Asian production network that is known for efficiency. According to the statistics of the Asian Development Bank （ADB）， Asian participation in global value chains in 2021 fell to 65.7 percent of that in 2020， which shows that Asias economic link with the outside world has failed to overcome the shocks of non-economic factors， with less than sufficient resilience.

II. Asian Economies Still Depend on Final Demand of External Market

Be it “triangular trade” based on the “flying geese paradigm” or a “new triangular trade” based on the East Asian production network， ultimately it is necessary for East Asia to export its end products to developed countries of North America and Europe to make complete the so-called full production-consumption circle， that is East Asian economies lack final consumer market. The ADB decomposed Asias export products and discovered that the final demand of traditional developed markets of North America and Europe accounted for 46.4 percent of Asian exports， the final demand of other regions accounted for 24.7 percent， and the final demand of the Asian region only accounted for 28.9 percent of its exports. It illustrates that although internal trade of Asia accounts for over 50 percent of the total， about two thirds of Asian trade is intermediate trade， not comprising final demand， and that Asian economies remain dependent on external markets for final demand.

III. Some of the Economies Are Yet to Be integrated into East Asian Production Network

Global value chain trade is essential for broad developing countries. It is owing to the existence of value chain trade that broad developing countries are able to become exporting nations of manufactured goods in a short period of time by embedding in one or several links in the product producing process with limited resources rather than being reduced to exporting nations of single product of resource type like materials and semi-products. Based on input-output data， the ADB discovered that in 2018， Asias regional value chain participation was 48.9 percent， its complex regional value chain participation being 26.2 percent， whereas during the same period the RCEP member countries regional value chain participation was 46.8 percent， their complex regional value chain participation being 15.8 percent. It shows that in perspective of value chain trade or in that of complex value chain trade level， the average of the RCEP countries is lower than the average of Asia， illustrating the complexity and diversify of the RCEP countries. Especially complex value chain participation of economies like Laos， Indonesia and Thailand is lower than Asias average， their participation in the East Asian production network being yet to deepen and to achieve economic development through making use of complex value chains.

China Can Play a More Active Role in East Asian Regional Economic Cooperation

Internal driving force of the East Asian regional economic cooperation comes from regional economic link and regional value chains. At present， just as the East Asian model of regional division of labor and global value chains in the Asian region are in face of readjustment and reshaping， so too the East Asian regional economic cooperation needs corresponding readjustment.

First， build the RCEP into a main platform for the East Asian regional economic cooperation. The RCEP is the only deep and comprehensive free trade agreement that basically overlaps geographically with the East Asia production network. It is necessary to build the RCEP into a main platform for the East Asian regional economic cooperation， promote high-quality implementation of the RCEP， maintain internal and external economic links of the East Asian region， and guarantee the stable operation of the East Asian production network. In the future， China can enhance communication with other RCEP member countries， promoting earliest possible establishment of the RCEP secretariat， and providing the RCEP Joint Committee and its affiliated bodies with secretarial and technical support. China can facilitate the RCEP secretariat to conduct cooperative research on RCEP supply chains， set up information sharing mechanism， explore measures to stabilize supply chains， establish standard for supply chain cooperation， and build open supply chain cooperation. China can strengthen international cooperation， accelerating mutual certification of “authorized economic operators （AEO）” cooperation with other RCEP countries， putting in place country-of-origin electronic networking， equivalent accreditation for animal and plant quarantine measures， and rules of country-of-origin regional accumulation， and leading collective action by unilateral action. At appropriate time， China can unite with regional economic and trade partners in promoting negotiations for accelerated implementing and upgrading the RCEP， especially further deepening economic and trade rules on digital trade， intellectual property， and trade in services， and guaranteeing lasting vitality of the RCEP. According to the Article 20 of the RCEP agreement， China can actively promote expansion of the RCEP， welcoming India back to the RCEP so as to expand the market size and influence of the RCEP with still greater economic volume and factors of production.

Second， expand opening and provide more international public goods to East Asia. Increasing internal final consumption of the region and reducing lopsided dependence on the North American and European markets is not only a necessary condition for building a full production-consumption circle in the East Asian region， but also a fundamental method to reduce vulnerability to shocks of external demand. For this， China can consider making differential arrangements， for instance to explore non-mutually beneficial trade arrangements with under-developed economics in the region， promoting their further integration into regional division of labor system. Referring to its successful experience of using “early harvest” to promote China-ASEAN free trade area， China can explore a new round of “early harvest” in transferring benefit to the ASEAN to facilitate talks for China-ASEAN free trade area 3.0， improving the level of goods trade liberalization， substantially expanding sectors open to trade in services， and filling in rules of digital trade. Referring to China-EU Comprehensive Agreement on Investment （CAI）， China can explore opening trade in services and investment at a higher level， promoting talks for China-Japan-South Korea free trade area.

Third， vigorously advancing pragmatic， effective and functional cooperation. First of all， China can cooperate with developed economies including Japan， South Korea， Australia and New Zealand in actively providing under-developed economies of East Asia with capacity-building and economic and technical cooperation so as to improve their capacity of participating in international economic and trade cooperation. Second， enhance international cooperation in connectivity， especially strengthen hardware infrastructure cooperation in transport， energy and telecommunication with Southeast Asian countries， and software infrastructure cooperation in mutual accreditation of laws， rules and standards. It can also explore visa facilitation for persons， further reducing transaction cost， enhancing economic link among East Asian economies， and enlarge opportunities for less-advanced countries to participate in complex value chain trade. Third， continue to advance cooperation on non-traditional security issues like public health， enhance less-advanced countries capacity to deal with emergencies， ensuring stability of supply chains， and enhancing people-to-people bond. Last but not least， enhance international development cooperation， promoting joint consultation， co-construction and shared benefit and dovetailing of development strategies between both governments， combining assistance with mutually beneficial cooperation， and raising the level of economic development of the recipient countries of development cooperation.

Shen Minghui is Senior Research Fellow and Vice-President of Institute of Asia-Pacific and Global Strategic Studies， Chinese Academy of Social Sciences