RCEP poised to accelerate recovery

RCEP poised to accelerate recovery, Illustration photo

Thai Prime Minister Prayut Chan-o-cha told the 38th ASEAN Summit last week that it wants to promote an environment conducive to trade and investment and expand commercial opportunities for entrepreneurs from the regional member states to help them recover from the impact of the pandemic. “To that end, I hope that the Regional Comprehensive Economic Partnership (RCEP) can enter into force as per the intended timeline. Thailand plans to submit the instrument of ratification for the deal to the secretary-general of ASEAN in early November.”

Also addressing the event, Singaporean Prime Minister Lee Hsien Loong called on relevant parties to soon ratify the RCEP to significantly contribute to the region’s post-pandemic economic recovery. According to Loong, the agreement will boost confidence in regional trade and investment. “I look forward to the swift ratification by all ASEAN member states and partners, for the agreement to enter into force by January 2022 as planned,” PM Loong said.

In April, Singapore deposited its instrument of ratification with the secretary-general of ASEAN. Singapore was the first participating country to complete the official process.

Singaporean Minister for Trade and Industry Chan Chun Sing said, “Singapore’s expeditious ratification of the RCEP signals Singapore’s strong commitment to strengthening our trade and economic links with our partners, for the benefit of our businesses and people. We look forward to our fellow participating countries doing likewise, to expedite the entry into force of the agreement.”

Malaysian Prime Minister Ismail Sabri Yaakob also posted on his Twitter account on October 26 that at the 38th and 39th ASEAN Summits and Related Summits, Malaysia reaffirmed its strong commitment to ratify the RCEP in 2021. “It will help accelerate the recovery of the region,” he said.

Malaysia’s Senior Minister and Minister of International Trade and Industry, Azmin Ali, said that the RCEP will help Malaysian enterprises access a large market in 15 countries which contribute up to one-third of global GDP.

South Korea’s government three weeks ago handed in a bill to this nation’s National Assembly to ratify the RCEP, which this market is expected to further diversify its trade portfolio.

Also, on August 25, Indonesia’s Trade Minister Muhammad Lutfi presented his case for the lower house of Indonesia’s legislature to agree on the RCEP. Lutfi argued that it will be beneficial to Indonesia, promising to strengthen its role in regional supply chains and improve its economic performance amid COVID-19.

Vietnam’s National Assembly is also expected to soon adopt the deal, on which it pins hope for new opportunities to expand trade and investment with the deal’s member states.

Last November, the 10 ASEAN member states and the bloc’s partners – China, Japan, South Korea, Australia, and New Zealand – inked the RCEP. Brunei, Cambodia, China, Japan, Singapore, and Thailand have ratified the deal so far.

The agreement will enter into force 60 days after six ASEAN member states and three ASEAN partners have announced acceptance or approval with the secretary-general of the bloc, who has been designated as the depositary for the RCEP. The participating countries are targeting entry into force on January 1, 2022.

The 15 member countries account for about 30 per cent of the world’s population and 30 per cent of global GDP ($26.2 trillion) as of 2020, making it the biggest trade bloc in history. The RCEP seeks to eliminate 90 per cent of import tariffs between member states within 20 years, as well as promote the flow of services and investment while setting out regulations around rules of origin and intellectual property.

The harmonisation of tariffs, rules of origin, and simplifying customs obligations under RCEP present principal benefit to ASEAN economies. As a result, manufacturing is set to gain from relocation of labour-intensive industries to ASEAN countries, particularly those with competitive employment costs such as Vietnam.

“As such, ASEAN countries are expected to benefit from an easing of trading restrictions with the five other members, potentially bolstering goods exports and increasing the supply of high-quality products into their respective domestic markets,” said global data analyst FocusEconomics.

Ma Tieying, economist at Singapore-based DBS Bank, commented that the RCEP would help to further promote Japan, China, and South Korea’s foreign direct investment in ASEAN. The three respectively ranked as the first, third, and fourth-largest foreign investors in ASEAN in the 2015-2019 period on a single country basis.

Chinese businesses have been actively investing in ASEAN in recent years, in the context of trade tensions with the US, as well as China’s push for the Belt and Road Initiative and Digital Silk Road. Japanese enterprises have also been looking for more investment opportunities in ASEAN, as part of their long-term strategy of supply chain diversification.

“The investment chapter under the RCEP is an upgrade and enhancement of the existing provisions under the ASEAN+1 free trade agreements. Therefore, it would help to further facilitate investment flows between ASEAN and North Asian countries in the coming years,” Tieying said.

According to analysis by the Peterson Institute for International Economics based in Washington, Indonesia, Malaysia, Thailand, and Vietnam stand to benefit the most from the trade pact, which will add between $2-4 billion each year to their respective economies by 2030.