Rightways to Success: global growth

Sunday 2 January 2022

RCEP trade pact which takes effect Jan 1, set to boost regional, global growth

The Asean secretary-general and leaders of the 15 RCEP member countries with their trade ministers after the pact was signed on 15 Nov 2020. PHOTO: MINISTRY OF COMMUNICATIONS AND INFORMATION (MCI)

` SAN FRANCISCO (CHINA DAILY/ASIA NEWS NETWORK, REUTERS) - The Regional Comprehensive Economic Partnership (RCEP) agreement, which will take effect on Saturday (Jan 1), is expected to significantly boost the regional and global economies and offer lessons for international cooperation.

` "The RCEP is a huge, potentially powerful agreement among rich and poor countries that complements each other's strengths," Professor Peter Petri, who specialises in international finance at Brandeis University in the United States, told China Daily.

` "For example, it has favourable rules for parts and components trade, and these could help developing members benefit from partnering with more advanced countries, making the region a haven for some of the world's most efficient supply chains," he said.

` "If its potential is realised, the RCEP would create larger markets and innovative, affordable products for the world economy," he added.

` Signed in November last year by 15 Asia-Pacific economies - all 10 member states of Asean, China, Japan, South Korea, Australia and New Zealand - the agreement has created the world's largest free trade bloc that accounts for about one-third of the global population and gross domestic product.

` It will take effect in 10 member states - Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, Australia and New Zealand - on Jan 1, and for the other five members 60 days after official deposition of ratification, acceptance or approval.

South Korea will see it take effect on Feb 1.

Indonesia's chief economic minister Airlangga Hartarto said on Friday (Dec 31) that Indonesia, South-east Asia’s largest economy, will likely ratify its RCEP membership in early 2022.

` A parliamentary commission overseeing trade rules had approved the ratification and its endorsement will be brought to a wider parliamentary vote in the first quarter of 2022, he said.

` President Joko Widodo will sign off on the ratification after parliamentary approval, he added.

` According to a recent study by Prof Petri and Prof Michael Plummer, an international economics expert at Johns Hopkins University in the US, the RCEP is estimated to increase world trade by nearly US$500 billion (S$675 billion) annually by 2030 and raise world incomes by US$263 billion annually.

` "There are several aspects of the agreement that will lead to significant economic effects, even if the RCEP is not as ambitious in scope as, say, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership," Prof Plummer told China Daily.

` "For example, it will create harmonised, cumulative rules of origin for intra-RCEP trade, which should give a significant boost to regional supply chains, at a time when supply chains are facing headwinds," he said.

` The agreement will lower tariffs on about 90 per cent of traded commodities and reduce some non-tariff barriers to trade in goods and services, according to Prof Plummer.

` "Importantly, it will create a free trade area among the North-east Asian economies of China, Japan and South Korea, giving a particularly strong boost to trade and production in the area of advanced manufacturers," he added.

` The study by the two economists, published by the East Asian Economic Review, estimates that the RCEP should increase regional incomes by US$245 billion on a permanent basis and create 2.8 million jobs in the region, which Prof Plummer described as "a significant boost".

` "In addition to its salutary effects on global incomes and trade, the RCEP offers an important boost to opening international markets, with very little negative effects on outside economies in the form of trade diversion," said Dr Plummer.

` Moreover, the RCEP shows how developed and developing countries can work together to include the interests of countries at all levels of economic development, he said.
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` "This could hold some important lessons for the WTO (World Trade Organisation), which reached an impasse at the Doha Development Agenda to a large extent because it was unable to accommodate the interests of developed and developing economies sufficiently," said Prof Plummer.

` Prof Petri also noted that the RCEP's success will depend on how well countries with different systems will work together to make the agreement successful.

` "If benefits are widely shared and relations are positive, members will implement the agreement fully and may even expand its scope," he said. "The RCEP could become a model for cooperation in an unusually diverse economic region."