On November 15, 2020, member states of the Association of Southeast Asian Nations (ASEAN) and its dialogue partners signed the Regional Comprehensive Economic Partnership (RCEP) agreement which is considered the largest free trade agreement in the world.
The agreement is an economic treaty brokered by ASEAN, of which the Philippines is a member, and its dialogue partners – Australia, China, Japan, New Zealand and South Korea.
The mega free trade agreement contains specific provisions covering trade in goods, including rules of origin; customs procedures and trade facilitation; sanitary and phytosanitary measures; standards, technical regulations and conformity assessment procedures; and trade remedies.
It also covers trade in services, including specific provisions on financial services; telecommunications services; and professional services, as well as the temporary movement of natural persons. Additionally, there are chapters on investing; intellectual property; e-commerce; competetion; small and medium-sized enterprises (SMEs); economic and technical cooperation; public markets; and legal and institutional areas, including dispute resolution.
In terms of market access, the agreement achieves the liberalization of trade in goods and services and has extended its coverage to investment.
RCEP covers 2.3 billion people, or about 30% of the world’s population, and is expected to contribute $25.8 trillion, or about 30% of global gross domestic product (GDP).
It also accounts for 50% of global manufacturing output; 50% of global automobile production; 70% of electronic production; 26% of global value chain (GVC) trade volume; 60% VCM for electricity/machinery, petroleum/chemicals, textiles/clothing, metallurgy and transport equipment; 35% contribution to world exports of electronics and machinery; and major GVC centers in major economies such as South Korea, Japan and China.
The agreement entered into force on January 1, 2022 for 10 signatory states, namely Brunei Darussalam, Cambodia, Lao People’s Democratic Republic, Singapore, Thailand, Vietnam, Australia, China, Japan and New Zealand.
The agreement entered into force in Korea earlier this month and will enter into force in Malaysia next month.
Earnings seen from RCEP
For the Philippines, a study published by Dr. Francis Quimba, a researcher at the Philippine Institute of Development Studies (PIDS), showed that RCEP is expected to add about 2% to real GDP growth.
A separate study by Dr. Caesar Cororaton showed that RCEP would improve the country’s trade balance by up to $128.2 million, increase overall welfare by $541.2 million, and reduce the incidence of poverty. poverty of 3.62% in 2030.
While the deal appears to offer several opportunities and has received support from trade organizations and industry groups, several lawmakers and farmer groups have expressed concern over the country’s participation.
The Free Farmers’ Federation, for example, has warned that major economic sectors, particularly agriculture, are not yet ready in terms of competition in the international market.
Assistant Secretary of Commerce Allan Gepty, however, explained that competition is already present since the Philippines is a member of the World Trade Organization (WTO) and other free trade agreements.
“In other words, in terms of competition, it’s not entirely new. If there’s anything new at RCEP, it’s more coverage of the free trade area and rules and disciplines,” Gepty said.
Gepty said RCEP has mechanisms for adjustments to commitments under the agreement, noting that the agreement attempts to accommodate the circumstances of RCEP parties, who are at different levels of development.
“There may be instances where the commitments made in the RCEP agreement need to be adjusted or addressed due to exceptional circumstances that affect our economy and our industries as well as our farmers. RCEP negotiators have recognized this possibility and have therefore incorporated various mechanisms in the FTA (free trade agreement) that act as safety nets so that RCEP countries are able to deal with these circumstances.These are in addition to the measures available to the Philippines under the WTO agreements,” he said.
While the deal was ratified by President Rodrigo Duterte in September 2021, the Senate closed its session earlier this month without the necessary ratification.
This means that the country’s ratification and participation in the agreement will be left in the hands of the next administration.
Economists say the Philippines’ participation in the deal should be among the administration’s long-term priorities.
Moody’s Analytics Associate Economist Sonia Zhu pointed out that while things will likely be business as usual because implementing trade clauses under RCEP takes time, failure to ratify may affect the investor sentiment.
“In the long term, failure to ratify RCEP could impact the attractiveness of the Philippines to foreign investors; long-term investments may be reduced despite recent changes to the foreign investment law,” Zhu said.
A chief economist at Rizal Commercial Banking Corp. (RCBC) also warned that a delay in the country joining RCEP would lead to the loss of opportunities, such as the potential increase in exports and imports, which are badly needed for the economic recovery program.
Michael Ricafort said another missed opportunity is the potential increase in foreign direct investment, particularly from multinational companies that are attracted to setting up in an RCEP member country to access the larger export markets of others. member countries.
“Thus, joining RCEP would be among the country’s priority measures to support faster economic recovery prospects for the country, complementing other reform measures such as the Creation Act, the Trade Liberalization Act retail, public utilities law, foreign investment law, which are aimed at attracting more international investment to the country, creating more jobs and other economic opportunities in the country,” he said. he declared.