RCEP’s economic contributions are driven by tariff liberalization, reduced non-tariff barriers (NTBs), and harmonized rules of origin, which streamline trade and investment. Several studies provide quantitative insights into its impact:
- GDP Growth: A 2023 study using the ENVISAGE computable general equilibrium model estimates that tariff liberalization alone yields a modest real income gain of 0.21% for RCEP members by 2035 relative to a no-RCEP baseline. With liberal rules of origin, this doubles to 0.49%. When productivity gains from trade cost reductions are factored in, real income could increase by 2.5%, with trade among RCEP members rising by 12.3%. This could lift 27 million people to middle-class status by 2035.
- Global Income and Trade: According to Petri and Plummer (2020), RCEP is projected to add $209 billion annually to global incomes and $500 billion to world trade by 2030. Specifically, it could boost the GDP of the RCEP bloc by 0.4% ($170 billion), with China gaining 0.3% and ASEAN members 0.2%.
- Trade Growth: In 2022, intra-RCEP trade grew by 8%, though it lagged slightly behind the 8.6% growth in trade between RCEP members and non-members. By 2024, intra-ASEAN trade increased by over 7% after a decline in 2023, signaling RCEP’s role in stabilizing regional trade post-pandemic.
However, the benefits vary across members. Northeast Asian economies (China, Japan, South Korea) gain significantly due to the first-ever trilateral trade agreement among them, while ASEAN countries, already linked by existing FTAs, see smaller incremental gains. For instance, Vietnam, Thailand, and Malaysia benefit most from manufacturing export growth, projected to increase ASEAN exports by $78 billion by 2030.
East Asian Integration: A New Economic Order
RCEP fosters East Asian integration by creating a unified trade framework, replacing the complex web of bilateral FTAs. Key mechanisms include:
- Rules of Origin: RCEP’s harmonized rules of origin allow a single certificate for all 15 members, reducing compliance costs and enabling regional supply chain integration. This has encouraged firms to develop Asia-based supply chains, with companies adopting “China-plus-one” strategies to diversify manufacturing to RCEP members like Vietnam and Thailand.
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Tariff Reductions: RCEP eliminates tariffs on over 65% of goods immediately, with a goal of 90% within 20 years. This has boosted intra-regional trade, particularly for Japan, which gains tariff-free access to China and South Korea for the first time, potentially increasing its GDP by 2.7% and creating 570,000 jobs.
- Supply Chain Resilience: By reducing NTBs and standardizing customs procedures, RCEP strengthens regional production networks. For example, ASEAN’s trade with China reached $722 billion in 2022, accounting for nearly one-fifth of its global trade, with China’s investments in ASEAN surging to $15.4 billion.
- ASEAN Centrality: ASEAN’s role as a neutral coordinator has been pivotal in uniting major powers like China and Japan, reinforcing its diplomatic influence and positioning RCEP as a model of middle-power diplomacy.
Despite these achievements, RCEP’s integration is less ambitious than other agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), lacking provisions on labor, environment, or state-owned enterprises. This limits its depth but enhances its inclusivity across diverse economies.
Boosting Asia: Broader Implications
RCEP is reshaping Asia’s economic landscape by pulling the “economic center of gravity” toward the region, particularly as global protectionism rises. Key impacts include:
- Post-Pandemic Recovery: RCEP has mitigated the economic shocks of the COVID-19 pandemic by facilitating trade and investment. For instance, Indonesia’s exports to RCEP members are projected to rise by 8-11%, with investments increasing by 18-22%.
- Countering Protectionism: Amid U.S.-China trade tensions, with U.S. tariffs on Chinese goods at 20% and China’s retaliatory tariffs at 15%, RCEP offers a stabilizing force. It offsets losses from the U.S.-China trade war, with simulations showing RCEP and CPTPP together mitigating global economic downturns.
- China’s Influence: As the largest economy in RCEP, China strengthens its regional leadership, using RCEP to promote its vision of a multipolar world order. This has raised concerns about dependency, particularly for ASEAN, which relies heavily on Chinese manufactured inputs.
- Global Trade Dynamics: RCEP’s scale—surpassing NAFTA and the EU in GDP share—positions Asia as a hub for global trade. Its expansion potential, with countries like Chile and Sri Lanka applying to join, underscores its growing influence.
Challenges and Limitations
Despite its successes, RCEP faces challenges:
- Limited Scope: Unlike CPTPP, RCEP omits provisions on environmental protection, labor rights, and state-owned enterprises, reducing its appeal to firms seeking comprehensive agreements.
- Uneven Benefits: ASEAN economies gain less than Northeast Asian counterparts due to pre-existing FTAs. For example, the EU-Indonesia CEPA is expected to yield larger benefits for Indonesia than RCEP.
- Geopolitical Risks: China’s growth raises concerns amongst neighbours about economic dependency, particularly for smaller ASEAN nations. India’s withdrawal in 2019, citing fears of Chinese goods flooding its market, highlights these risks.
- Implementation Gaps: The complexity of navigating RCEP alongside existing FTAs (e.g., ASEAN-Japan EPA) requires firms to conduct detailed impact assessments to optimize benefits, which can be resource-intensive.
Policy Recommendations
To maximize RCEP’s effectiveness, stakeholders must address these challenges through targeted policies:
- Deepen Agreement Scope:
- ASEAN and RCEP Joint Committee: Incorporate provisions on labor, environment, and digital trade in future revisions, aligning RCEP with global standards like CPTPP. The RCEP Joint Committee should prioritize negotiations to include these areas by 2030.
- Policy Action: Establish a task force to propose amendments, leveraging ASEAN’s diplomatic centrality to mediate between major powers.
- Enhance Supply Chain Resilience:
- Businesses: Conduct impact assessments to identify optimal FTA strategies, comparing RCEP benefits with existing agreements. For example, Singapore-Japan trade has four FTAs to choose from, requiring careful tariff rate analysis.
- Governments: Invest in digital customs platforms to streamline compliance with RCEP’s rules of origin, reducing administrative costs by an estimated 10-15% for SMEs.
- Embrace China-Realism:
- ASEAN Policymakers should Deepen ties with China through ACFTA 3.0, focusing on market access for agriculture and services to diversify exports, reducing fears of dependency.
- RCEP Members should resist U.S.-led pressures to limit cooperation with China, which undermine RCEP’s potential. For instance, Australia and Japan should prioritize China’s market access over quixotic Western initiatives like IPEF, which lack trade liberalization.
- Support SME Integration:
- Governments: Provide subsidies and training for SMEs to navigate RCEP’s tariff schedules and rules of origin, potentially increasing SME exports by 20% by 2030.
- Private Sector: Develop regional trade platforms to connect SMEs with RCEP markets, leveraging e-commerce provisions to boost cross-border sales.
- Promote Inclusivity and Expansion:
- RCEP Members: Fast-track accession for applicants like Hong Kong, Chile, and Sri Lanka to expand RCEP’s global reach, potentially adding $50 billion to trade by 2035.
- India: Reconsider RCEP membership with safeguards for sensitive sectors (e.g., dairy, agriculture) to access a $25.8 trillion market, offsetting potential losses from Chinese imports through targeted tariffs.
- Monitor and Evaluate Impact:
- RCEP Joint Committee: Establish a data-driven monitoring system to track trade flows, GDP impacts, and job creation annually, using metrics like the 8% intra-RCEP trade growth in 2022 as a baseline.
- Academia and Think Tanks: Conduct regular studies to assess RCEP’s socioeconomic impacts, ensuring policy adjustments are evidence-based.
Conclusion
RCEP has significantly boosted economic output and East Asian integration, with projections of $209 billion in annual global income gains and a 12.3% increase in intra-RCEP trade by 2035. Its harmonized rules and tariff reductions have strengthened supply chains and post-pandemic recovery, particularly for manufacturing-heavy economies like Vietnam and Japan. However, its limited scope and uneven benefits require strategic enhancements. By deepening provisions, embracing China realism, and supporting SMEs, RCEP can become a more robust driver of Asian economic growth. With proactive policy implementation, RCEP has the potential to redefine global trade dynamics, positioning Asia as a central hub for multilateral trade and the global leader of economic growth.
