Both in size and significance, the recently signed Regional Comprehensive Economic Partnership (RCEP) is big for the Association of South East Asian Nations (ASEAN). The new trade deal was signed on November 15th, 2020 after almost a decade of negotiations and brings together all 10 members of the Association of South East Asian Nations (ASEAN) along with Australia, Japan, Korea, and New Zealand. This effectively makes it a free trade zone larger than both the United States-Canada-Mexico agreement, and the European Union. Despite India’s action to pull out of the emerging partnership in 2019, the deal connects approximately 30% of global output and 30% of the world’s population.
Apart from the sheer size of the agreement, RCEP is a big deal for ASEAN because it finds itself at the forefront of trade-centred global recovery solutions amidst the context of the COVID-19 pandemic and associated recession. Economic forecasts by the Peterson Institute for International Economics project that RCEP could add US$209 billion annually to global income levels, and US$500 billion to world trade by 2030. The same forecasts estimate ASEAN to benefit US$19 billion annually by 2030.
Simply put, the agreement aims to lower tariffs, expand trade to include services, and promote investment opportunities especially with the goal in mind of supporting emerging ASEAN economies to catch up with the rest of the world. The terms of RCEP eliminate tariffs and quotas in more than 65% of traded goods within 20 years. Firms are expected to be more attracted to investment opportunities in the region, focus on building regional supply chains, and subsequently generate more employment opportunities. In the context of COVID-19, China, South Korea, and Vietnam, have shown significantly quicker recoveries after the second quarter of 2020, while the remaining Asian economies continued to demonstrate contractions through the third quarter of the year. As such, the signing of RCEP sheds a renewed and more sustainable potential for growth upon the horizon of recovery for those nations who are struggling with the reliance on domestic recovery initiatives.
ACI research provides a forward-looking perspective on how RCEP will facilitate trade in the digital era. RCEP’s strong China focus aids emerging economies with regards to global value chains. The high integration of global value chains between ASEAN and China has shown increasing signs of synchronised economic activity. The economic interconnectivity via evolving production linkages and trade patterns brings out spillover effects that could potentially bolster the recovery of ASEAN economies. At a time where the United States is unconcerned with partaking in global trade deals, and the European Union and United Kingdom are at a forked road with Brexit trade deals, China’s role in the signing of RCEP is crucial.
The highest potential for growth and recovery stemming from RCEP is linked to e-commerce and digital trade. Particularly for small and medium-sized enterprises (SMEs), the digital economy is a symbol for rapid and accessible opportunities to connect with suppliers, consumers, and partner firms. The terms outlined aim to promote wider use of e-commerce between the nations and increased cooperation on e-commerce development and monitoring. The key legal issues to focus on in coming years are the protection of personal information of e-commerce users, data-related matters revolving around the provision of computing facilities, and cross-border transfer of information via electronic means.
For ASEAN to truly maintain this “big deal”, it is important for policymakers to balance the delicate needs of its diverse member nations amid the ever-evolving contexts of COVID-19 and the digitalisation of the global economy.
by Sunena GUPTA
Researchers: Wen Chong CHEAH, Ammu GEORGE, Sunena GUPTA, Taojun XIE