The Regional Comprehensive Economic Partnership (RCEP) Agreement dubbed as the largest free trade deal in the world is set to take effect on January 1, 2022.
At present, six (6) ASEAN Member States namely, Brunei, Cambodia, Singapore, Lao PDR, Thailand, and Vietnam, and four (4) ASEAN Free Trade Partners namely, Australia, China, Japan, and New Zealand have already deposited their respective Instruments of Ratification.
As the entry into force of the agreement gets closer, the Department of Trade and Industry is asking the Senate for the immediate concurrence of the RCEP agreement.
According to Assistant Secretary Allan B. Gepty, the gains and opportunities that the agreement will create cannot be overemphasized. “The size of the market alone and the extent of economic activities happening in the region demands that the country must be part of this free trade area. This is not to mention that this is an ASEAN led FTA”, Gepty added.
More than being the largest free trade area, RCEP represents 50% of the global manufacturing output; 50% of global automotive output; 70% of electronics; 26% of Global Value Chain (GVC) Trade Volume; 60% GVC for Electrical/Machinery, Petroleum/Chemicals, Textile/Apparel, Metal & Transport Equipment, 35% Contribution to Global Exports of Electronics and Machineries; and the main GVC hubs of big economies such as South Korea, Japan and China.
According to Dr. Francis A. Quimba, Research Fellow at the Philippine Institute for Development Studies (PIDS), amongst RCEP Parties, Philippines and Viet Nam would both reap approximately 2% increase in real GDP growth which may be attributed to lower transaction costs brought by possible wider sourcing of raw materials and inputs for sectors in manufacturing provided in the FTA.
For the Philippines, RCEP is expected to generate 10.47% increase in the country’s exports and 2.02% increase in real GDP. His analysis was measured against the backdrop of rising trade costs brought about by the COVID-19 pandemic and by establishing the impact on trade should the country fail to timely accede or opt out of the mega free trade agreement deal.
On the other hand, by looking into the impact of economies failing to ratify the agreement, the PIDS expert observed that non-participation would result in the highest decline for the Philippines and Viet Nam in terms of exports and GDP. He also noted that the country would not only miss out the forecasted growth but there would also be 0.26% decline in real GDP.
“Economies that fail to ratify the agreement (when the rest of the countries do) will be adversely affected. The Philippines and Vietnam are among the countries that have positive export growths once the RCEP is in effect, and much of the growth is coming from new-product margin where innovations stem,” said the PIDS Research Fellow.
Opportunities for the Philippines under Trade in Services
Acknowledging that his preliminary findings looked into the impact of the country’s participation from the perspective of real GDP and goods trade, Dr. Quimba also cited a similar study on RCEP conducted this year by Dr. John Paolo Rivera and Dr. Tereso Tullao, Jr. of the Asian Institute of
Management and De La Salle University School of Economics, which suggested that the country should use its strengths in business services and professional services to harness market access opportunities in ASEAN FTA Partners such as China.
As mentioned by Dr. Quimba: “Similar findings of PIDS from the perspective of services trade suggests that the RCEP is a marginal regional trading arrangement that encapsulates previous regional trading agreements in ASEAN. Nonetheless, additional commitments made by signatory economies, such as in terms of commercial presence (i.e. Mode 3) and movement of business persons and skilled professionals (i.e. Mode 4) for sectors such as business and professional services would strengthen the trading environment and provide specific opportunities which may be valuable for Filipino businesses and service suppliers alike.”
RCEP sends positive signal to businesses and investors
RCEP is coming into effect at a time where global trade faces many challenges including the current pandemic. With its conclusion and eventual implementation, RCEP Parties commit their unwavering commitment to an open, free, fair, inclusive, and rules-based trading system.
According to Assistant Secretary Gepty, being part of RCEP means that the country is offering a stable and predictable business environment. This means that regardless of any change in leadership in a country trade and investment policies remain certain.
“RCEP aims to create an enabling business environment in the region that is conducive to investment. RCEP will also push for a legal framework that is favorable for e-commerce, especially during a time wherein cross-border activities have increasingly shifted online”, Gepty said.
In the recent ADB Study, Economic Implications of the Regional Comprehensive Economic Partnership for Asia and the Pacific, conducted by Cyn-Young Park, Peter A. Petri, and Michael G. Plummer it was also stated that the RCEP Agreement presents strong potential to mold regional trade and investment patterns and influence the direction of global economic cooperation at a challenging time and that at the sectoral level, exports and imports of nondurable and durable manufactures will experience the most growth. RCEP will strengthen the region’s manufacturing supply chains, increasing wages and employment.