RCEP: A FootholdFor Southeast AsianEnterprises to Reach theWorld Stage

KiyoyukiSeguchi

On January 1, 2022, the Regional Comprehensive Economic Partnership (RCEP) will enter into force. The world’s largest trade agreement will not only bring huge benefits to the member states and boost the sluggish world economy struggling with COVID-19, but will also safeguard the free and open trade system.

Multiplying Effect with Win-Win Results

The Southeast Asian, Chinese, and Japanese markets have already become interdependent, with Southeast Asian countries maintaining close trade and investment relations with Japan while China acting as the manufacturing center of Asia. The RCEP and the substantial tariff reduction will facilitate international division of labor. To be more specific, many enterprises have chosen to complete final production in Japan, China, and South Korea while having spare parts made in Southeast Asian countries. A drop in transnational supply costs alone will bring great benefits to the companies of member states that invest in the Southeast Asian market.

At the same time, Southeast Asian enterprises can make full use of spare parts and materials produced by investing enterprises. Although Southeast Asian countries have already become accustomed to smaller economic circles within the region, the RCEP will bring more opportunities for Southeast Asian enterprises to integrate their development with Japan, China, and South Korea. Alongside opportunities, some enterprises will be faced with fiercer competition. However, from a long-term perspective, less competitive enterprises will not survive, while competitive enterprises that have survived will find broader space for development. The RCEP will become a take-off platform for ASEAN enterprises to integrate with Asia and the world. Growth of enterprises in Southeast Asian countries will help improve the overall income level and technology level in the region, and as a result, consumers are able to buy high value-added goods and the enterprises will increasingly embrace hightech. Meanwhile, the rapid growth of consumers and enterprises in Southeast Asia also represents a huge business opportunity for Japan, China, and South Korea, leading producers of goods and technologies in Asia. The RCEP will produce a multiplying effect with winwin results for Japan, China, South Korea, and Southeast Asian countries.

The Chinese economy has the strongest growth momentum in the world today, but Southeast Asia is expected to be the next major driver of economic growth. Southeast Asia has a large population and a good foundation for economic development. A look back at the history of Asia’s economic development clearly shows the trajectory of Japan and South Korea taking the lead before China caught up. Now is the time for Southeast Asian countries to catch up. Southeast Asia will become the center of world economic growth in the next 10 to 20 years. As the platform for Southeast Asia’s economic take-off, the RCEPis highly significant for the world economy.

Toward Higher-Level EconomicAgreements

Alongside its influence on the world economy, the RCEP is also highlysignificant in terms of maintaininga free and open trade system. Recentreform of the World Trade Organization (WTO) has faced myriad problems.Changes have taken a long time andbeen meager, mostly due to the negativeattitude of the United States. In suchcircumstances, the Comprehensiveand Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement hailed for its high standards, could play a key role in solving thecurrent problems of sluggish WTOreform.

In particular, China has already filed applications to join the CPTPP, SouthKorea will also do so in a few months,and the United Kingdom has startednegotiations on its accession. In thefuture, if China and South Korea meetthe bar required for CPTPP accessionand the European Union also join theagreement after the United Kingdom,CPTPP will cover areas beyond thePacific Rim region. It is very likelyto be an ideal post-WTO world tradeorganization.

The RCEP is indeed an importantstep towards the ideal situation. TheRCEP is not as demanding as the CPTPP in depth and breadth. For SoutheastAsian countries, the requirementof the RCEP is a height that they canreach with minimal effort. The lowerrequirements of the RCEP have madeit easier for more developing countriesto join the agreement. It will exertpressure on acceding states to promote domestic reform and keep up withhigher standards. Perhaps we can expect integration between the RCEP and theCPTPP, which would inject positiveenergy into a sustained free and opentrade system.