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."

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Regional trade pact RCEP to take effect on Jan 1; Australia, New Zealand ratify deal

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BOAO Forum 2016: Asia's New Future - New Dynamics, New Vision

Asia Pacific Economic Leadership Shifting from the US to China for Free Trade framework

All together now: Apec leaders posing for a family picture at the International Convention Center at Yanqi Lake in Beijing. Front row from left, Indonesian President Joko Widodo, US President Barack Obama, Xi, Russian President Vladimir Putin, Philippine President Benigno Aquino III, (backrow from left) Japanese Prime Minister Shinzo Abe, Australian Prime Minister Tony Abbott, Najib and New Zealand Prime Minister John Key. — EPA

The Asia-Pacific Economic Cooperation (APEC) Summit that just concluded in Beijing was no doubt China’s show. Beijing came out looking very much what it is touted to be — the world’s second-largest economy now leading the charge towards a free-trade region known as the Free Trade Area of the Asia-Pacific (FTAAP). For a once-closed economy that was not even part of the global trading system, this is one giant leap. In doing so, China overshadowed and reduced a rival initiative by the United States — the Trans-Pacific Partnership (TPP), which excludes Beijing — to what is a subsidiary platform

Chinese President Xi Jinping has shown that the agenda of liberalising trade in the Asia-Pacific region cannot but take China into account; indeed, this agenda will be dictated by China from now on. To show how serious it is, the Beijing APEC Declaration came complete with a road map towards the realisation of the FTAAP, though a clear deadline was shelved for now.

With the US outmanoeuvred, the economic power game entered a second stage in Myanmar this week, where the Association of South-east Asian Nations (Asean) hosted the East Asia Summit, in which both China and the US are members (with Beijing represented by Prime Minister Li Keqiang).

Interestingly, Beijing saw the revival of APEC as a major platform for regional economic integration — led by China. APEC has actually been the vehicle for trade liberalisation in the Asia-Pacific region since it was formed in 1989. Indeed, the FTAAP is not a Chinese idea, as Singapore Prime Minister Lee Hsien Loong made clear, but an APEC vision conceived in 2004 with its end-goal being a huge Asia-Pacific free-trade area.

But APEC lost its shine over time when no clear big-power champion emerged with the visionary leadership and commitment of then US President Bill Clinton, who hosted the first summit in Seattle in 1993.

During APEC’s downtime years, ASEAN fell back on its own trade liberalisation process, the Asean Free Trade Area (AFTA), and preached the message of trade liberalisation to the wider region. Two major platforms then emerged: One was the TPP, for which the US took leadership, with the exclusion of China. The other was the Regional Comprehensive Economic Partnership (RCEP), an outgrowth of the Asean Plus Three Summit comprising the association’s three North-east Asian trading partners, China, Japan and South Korea, as well as Australia, India and New Zealand.

China easily dominates the RCEP and insists that it be an East Asian platform — meaning it has no room for the US. This is partly the reason the US is eager to have the TPP as the key pathway to reach the FTAAP.

While the RCEP and the TPP evolve as competing platforms, both China and the US have, of late, downplayed this rivalry. This is just as well for Asean, whose members are divided between support for the RCEP and for the TPP. Only four of the 10 Asean members — Brunei, Malaysia, Singapore and Vietnam — are currently involved in the TPP negotiations, which demand a higher standard of trade liberalisation. The RCEP, on the other hand, sits better with many Asean members, virtually all of which benefit from huge trade with China.

The Asean dilemma

But while Asean as a whole values China as a close economic partner, the group is also wary about Beijing as a security threat. This has resulted in a two-dimensional relationship — a duality, as some have called it — that Asean has with China: A growing economic relationship paradoxically matched by increasing political tension caused by Beijing’s aggressive claims to parts of the South China Sea.

How this two-dimensional relationship could be managed provided the backdrop for the Asean Summit this week in Myanmar and the East Asia Summit.

By stepping on the accelerator towards the FTAAP, China has virtually also quickened the pace of Asean’s own economic and political integration. The goal of an Asean Community — including a fully-integrated Asean Economic Community by December 31 next year — cannot be further delayed. At the moment, 80 per cent of its integration targets have been realised, with the remaining “hard part” set to be tackled after 2015.

But surely, the next lap cannot be only about tackling the unfinished business. If Asean Community 2015 is yet another pathway to the FTAAP, what is the vision of Asean after next year? This is where the group’s leaders must put on their thinking caps and collectively forge a road map to a new Asean that is a global player firmly situated in the 21st century.

This new vision must take into account the rapidly evolving economic and security architecture in the Asia-Pacific region. As displayed in Beijing this week, it will be a future in which China will not be shy to assert its economic leadership — in the same way it has staked its political dominance in the region.

As Asean leaders were convening for their summit in Naypyidaw, US President Barack Obama and Mr Xi in Beijing attempted to reforge the strategic relationship between the US and China, probing each other for a new calculus. Their major bilateral agreement on climate change was achieved in this context. But Mr Obama is a lame-duck President on his way out, while Mr Xi, who is only two years in office, will be around for a full decade to lead a rising superpower.

Asean’s dilemma is this: It appreciates the increasingly prosperous relationship that is blossoming with China under Mr Xi. Yet, Asean knows it is also entering a potentially tense future with Beijing under a leader who is prepared to flex China’s muscles — as seen in the resulting volatility regarding the South China Sea. Curiously, the tensions over the territorial disputes cooled down somewhat during the busy summit period.

Will Asean remain a mere bystander, watching from the wings as the power game continues to unfold between the two giants? Or will Asean do something to secure its pivotal position so it can shape the future regional balance in its favour? This key question must have preoccupied Asean leaders in Naypyidaw. ― Today

By Yang Razali Kassim, a senior fellow at the S Rajaratnam School of International Studies at Nanyang Technological University.

Apec leaders all for free trade framework

BEIJING: The Asia-Pacific Economic Cooperation Economic Leaders’ Meeting hosted by China endorsed the Beijing Roadmap for Apec to promote and realise the Free Trade Area of the Asia-Pacific (FTAAP).

The roadmap details actions to be taken to achieve FTAAP – a trade liberalisation framework that China had pushed for – and includes undertaking a collective strategic study with results to be reported by 2016.

Prime Minister Datuk Seri Najib Tun Razak, during the summit held by the Yanqi Lake in the Huairou district, expressed Malaysia’s support on the roadmap.

“Malaysia sees the FTAAP as a natural progression for an overall trade arrangement across all economies in the region.

“What we have on the table now, such as the Trans-Pacific Partnership, Regional Comprehensive Economic Partnership and Pacific Alliance, are building blocks towards the larger FTAAP,” he said.

Najib also called on Apec members to find a way out of the World Trade Organisation (WTO) impasse and place the Bali decisions back on track.

It was reported that an impasse over a global pact hammered out in Bali last December to streamline Customs procedures had paralysed all negotiations in the WTO.

“If we do not find a way out of the impasse, it means that the WTO can no longer hold sway as a rule-making entity,” said Najib yesterday.

The Apec summit, attended by heads of states from 21 Pacific Rim economies, also adopted a Connec­tivity Blueprint to promote integration through physical, institutional and people-to-people connectivity.

Najib told Malaysian reporters here that Malaysia could play a role in enhancing connectivity in the Asia-Pacific region, citing bilateral projects such as the Malaysia-Singapore high-speed rail project as an example.

Chinese Premier Li Keqiang had reportedly expressed China’s interest to help build the rail link during his meeting with Najib on Monday.

Commenting on this, Najib said it was a bilateral project between Malaysia and Singapore and both countries would call for international tenders.

Najib also said Malaysia welcomed the blueprint on connectivity and commended China for initiating the Asian Infrastructure Investment Bank.

He left Beijing yesterday evening.

Commenting on the visit, Tan Sri Ong Ka Ting, who is the Prime Minister’s Special Envoy to China, said mutual trust between China and Malaysia was growing stronger, judging from Najib’s bilateral meetings with Chinese President Xi Jinping and Li in the Chinese capital.

“Najib was given special treatment. At China’s initiatives, he met both Xi and Li on the sidelines of the Apec summit,” Ong noted. He added that Xi called for mutual support as China strived to realise the Chinese Dream and Malaysia the goal of becoming a high-income nation by 2020.

By Tho Xin Yin The Star/Asia News Network

ASEAN SUMMIT: China pushes for code at South China Sea

Standing united: Najib (fifth from right) posing for photographs with Thein Sein (centre) and other Asean leaders during the closing of the 25th Asean Summit at the Myanmar International Convention Centre.

Beijing pledges US$20b in loans to boost Southeast Asian connectivity

China will push for the implementation of a code of conduct for the South China Sea - a document that will lessen the risk of escalating tensions in the area-but experts said such an agreement faces obstacles, at least in the short term.

Chinese Premier Li Keqiang reaffirmed China's resolve to safeguard territorial sovereignty at a series of three regional meetings in Nay Pyi Taw, Myanmar, on Thursday, saying the country is willing to adhere to the code, which has been under discussion for more than a decade.

Leaders from the Philippines and Vietnam, countries that have seen maritime tensions with China rise, also attended the meetings.

"China and Southeast Asian countries are close neighbours with common interests and diversified concerns. It is inevitable-not strange at all-that differences emerge among us, but those differences will not affect the general stability in the South China Sea," Li said at the East Asia summit.

"I believe that as long as we treat each other with sincerity and seek common ground while acknowledging differences, there will be no insurmountable obstacles that will stand in our way," Li said.

Li said China's policy of building partnerships with its neighbours is sincere and consistent, and the situation in the South China Sea has been stable as freedom and safety of navigation is ensured.

Foreign Minister Wang Yi said last year that the code should reflect "consensus through negotiations" and "elimination of interference", indicating that maritime issues should be left to the parties directly involved to sort out through dialogue.

The declaration on the Conduct of Parties in the South China Sea was signed in 2002, in which all signatories agreed to work out a code of conduct to guide future activities in the region. But limited progress has been made in drafting the code since then.

In a bid to reach long-lasting peace in the region, Li pledged to speed up negotiations on a cooperation treaty.

China also agreed to establish a hotline for joint search and rescue efforts at sea as well as a hotline for senior officials.

Wu Shicun, president of the National Institute for South China Sea Studies, said the negotiation of the code has gone on for more than 10 years because of different opinions regarding how the document will be drafted and whether it will allow third-party intervention.

Lu Jianren, the chief researcher of Sino-Asean relations at Guangxi University, said the importance of the code lies in the fact that it rules out the use of military force as a means to resolve issues and that no party is allowed to take further action to escalate tension.

Economic ties

Also at Thursday's summit, China promised more loans and economic aid to Southeast Asia.

China will provide $10 billion in preferential loans to Asean countries and another development loan of $10 billion specifically for infrastructure.

China also started on projects for the second phase of the China-Asean Investment Cooperation Fund, which totals $3 billion.

Engineers have begun preliminary work on a rail network, which will start in Kunming, Yunnan province, and connect Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia and Singapore.

Kavi Chongkittavorn, senior fellow at the Institute of Security and International Study in Thailand, said China and Asean were forging ever closer ties and despite differences there are areas of growing cooperation.

"Economic opportunities exist for each party," he said.

By Zhao Yinan and Zhao Yanron, China Daily/Asia News Network

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China's peaceful rise is not forever

China’s dilemmas in domestic and foreign policy

CHINA is already the second biggest economy in the world, on the cusp of becoming the largest in the not too distant future. With the world’s largest population and formidable military capability, it is more powerful than the Soviet Union ever was against the United States.

Yet, China is reticent about its success at home and role in the world. It would rather be left alone to continue with its “peaceful rise” to attend to many domestic challenges and to develop relations abroad without undue disturbance. But no power and economy its size can hope just to carry on the way it has these past three decades.

Although millions have been brought out of a-dollar-a-day poverty, over 100 million of its people still live on less than that. China’s per capita income is still less than those of nine African countries, according to LSE economist Danny Quah.

Its Gini coefficient, the measure of income inequality, has for the past decade been consistently above 0.4, the UN determined danger point for social stability (A score of one spells absolute inequality, so the lower the number the better it is). Development with equitable distribution is not taking place efficiently, whether among individuals or regions, the western parts of the country being still far behind the east and coastal areas.

Corruption is extensive which the high profile Bo Xilai trial only highlights. The ills of economic growth with disproportionate gain for some are becoming a plague on China. To add to this, environmental degradation has become a serious problem. The pollution level in 74 Chinese cities, including the capital Beijing, is over three times above the danger point set by WHO. It has been estimated life expectancy at birth in China is shortened by between seven and 12 years because of environmental deterioration.

And, against all these challenges of economic success, economic growth is slowing, a conundrum Chinese authorities have to further manage. Western authorities and economists now seem to move from fear of China to fear for China. Paul Krugman sees a crash into the Great Wall of the Chinese model of development. Having over-extended credit, the economy’s debt-fuelled asset bubble is about to burst, exposing large non-performing loans. Yet others see what economist Arthur Lewis described as the inexhaustible supply of cheap labour drying up which he claimed was behind the economic miracle of China and other emerging economies. Of course there is the usual call for China to restructure its economy, to switch from an investment-driven growth to a consumption-driven one, from export-led to domestically-charged expansion – if China is to avoid being caught in the middle income trap.

Ageing population

To boot, the population is ageing as a result of the one-child policy; so China will not reap the demographic dividend, a virile young population driving further growth and not a dependent, unproductive old one. All the time it is intoned that China’s underlying socio-political stability will be undermined if economic reforms are not put in place, together with reform of the political system.

The advice is not disinterested, even if China’s domestic challenges are truly huge. China must find a way out for itself and not be in denial because some the criticisms and cures offered by the West are not honest or consistent. If China is ageing, then the mantra of having to have at least 8% annual economic growth to absorb the work force coming onto the market does not hold true. Then, at least on this count, China’s slowing economy is not a catastrophe.

Those that will be hurt are other emerging and even Western economies as China has become an engine of global growth. Indeed many Western economies themselves are ageing. Then again, if China is to divert resources away from investment to consumption, how about those in the far west still on less than one-dollar-a-day who need to be linked to become part of a larger consumer base? What about bridging the wealth and income gap by providing the investment essentials to them of a better quality of life?

Thus, there is more than meets the eye on the advice proffered. But, there is also truth in some of them which should not be denied. China must make the balancing choices, an essential part of the management of any political economy. The new leadership is struggling to come up with a new national ethic. This is nowadays a difficult process in the globally democratised age of the IT revolution. Every netizen seems to have an opinion. It is not going to be as straightforward as Deng Xiaoping’s Four Modernisations or the Central Party School’s Peaceful Development, then to Rise and now back to Development, I think.

No.2 and growing

Even as China grapples with these momentous issues, the impact of its size on the world is not something that can be, shall we say, postponed. China is No.2 and growing. It could become Sparta to America’s Athens, rising Germany to stable old Europe, a challenging Japan denied status in the Pacific world, or a hostile Soviet Union seeking to overturn the established world order.

While most, not everything depends on the United States. China has a global role to play. How it is played will define how China is perceived as well as the outlines of the new global and regional order.

China cannot any longer avoid the role it must play by seeking to be left alone in its peaceful rise. Or by being insular and petulant in its foreign policy. Self-righteousness will be a defeatist strategy. It certainly cannot be a policy. Already, its nationalistic impulses have had negative ramifications, as can be seen from its territorial sea disputes in East and South-East Asia. China cannot be seen as attempting to assuage domestic pressures and challenges with international assertion and adventure.

China is not always in the wrong of course, but the way it conducts its foreign policy makes it appear not to be in the right. In South-East Asia, the benefits of its policy of economic cooperation since the 1997-98 financial crisis are not sufficiently underlined as the positive plank of foreign policy. Rather China retreats in hurt pride and spurned affection – and then comes out in anger. Beijing does not quite know how to turn swords into ploughshares. There is too much angst and emotion. This could be observed in the Scarborough Shoals stand-off with the Philippines last year, when the Philippines was not exactly innocent, but China came out as the bullying party. It could be seen even in the failure of Asean foreign ministers to issue a joint communiqué in July last year, widely observed as a consequence of Chinese mischief in tandem with their Cambodian ally.

But, what would have happened to Asean-China relations if an anti-Chinese communiqué had been issued? This is a point that has not been sufficiently advertised, with every commentator tearing his hair out about this first ever Asean failure because of Chinese machination.

Communication issue

It is often said China lacks soft power communication skills. Actually, soft power should be left out as an analytical tool here. China simply has to understand it has to communicate effectively, not intone. It has to develop the skills of subtle diplomacy as well as the ability to make foreign policy with a strategy to achieve its end. With that clarity and ability, China can avoid being wrong-footed, as in the South China Sea disputes, and being undermined after having invested so much economic goodwill.

The American pivot or rebalance to Asia-Pacific drew China into the purely political-security aspect of the US reassertion. China began to act as of it had some kind of Monroe Doctrine right over South-East Asia, just as the Americans claimed in Latin America. This was great power stuff, whereas China has always contended it does not have any such pretensions. President Xi Jinping had discussed with Barack Obama last June in Sunnylands about a “new type of great power relations.” Since then there has been much speculation on what that is all about. It is just G2? What about other relationships in any new world order?

The genius, perhaps unintended, of the US pivot and subsequent American initiatives is in their economic content while highlighting political and security matters in Asia-Pacific relations. In the sweep, previous Chinese economic advantages could be contained. After announcement of the pivot, former US Secretary of State Hillary Clinton led or participated in a number of business meetings in the region involving senior American corporate leaders, an association not often the case in US diplomacy. More senior American corporate leaders are actually represented in visits of the US-Asean Business Council to the region than previously.

Very importantly, American initiatives such as the Trans Pacific Partnership (TPP) and also, on the other side of the world, the Trans Atlantic Trade and Investment Partnership (TATIP), underline the basis of economic relations in significant and dominant blocs of the world. They represent the strengthening of the Washington consensus, if one examines the trade and investment rules being espoused.

Indeed they also seek to repair rules that have been violated to protect interests such as intellectual property, investment rights and financial flows. Fundamentally, these initiatives have significant geopolitical consequence. As I have written previously, the Americans are not about to roll over and die against a rising China. Their palms are still wrapped around the globe.

When I asked a senior Chinese official during a visit to Beijing earlier this month why China has chosen not to participate in the TPP, the answer was: It would only benefit the big countries and their big companies. When I suggested it would be better to participate to shape the rules that will govern trade and investment relations of the future, the answer was China’s Free Trade Agreements had worked well to the benefit of the member countries. The proposed Regional Comprehensive Economic Partnership (RCEP), which is a massive multilateral expression of such free trade agreements, is of course China’s preferred route.

Wrong turns

It would appear therefore that in terms of strategy in international politics, China would rather let the Americans make the running. Let the United States expend its “American exceptionalism” while China has the absorptive capacity of the Middle Kingdom. However, time may not always be on China’s side as it had been in the past. China has serious domestic problems with a discerning and demanding populace linked to the global democratic marketplace.

China has made a number of wrong turns in the conduct of its foreign policy which may make the Americans a more attractive strategic proposition. This is not the world where China will be left alone to get on with it. Better that China participates more actively in the making of that world even if it does not wish to upset it.

COMMENT BY TAN SRI DR MUNIR MAJID