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China and regional economic partnership
Publication Date : 14-01-2013
In November talks kicked off for the Regional Comprehensive Economic Partnership Programme, a free-trade agreement of Asean plus China, Japan, South Korea, India, Australia and New Zealand.
The agreement was formally endorsed at the Asean Summit in Phnom Penh by all countries involved. If implemented it would be the biggest free trade zone and integrated market in the world, spanning 16 countries with a combined population of more than 3 billion people and GDP of about US$20 trillion.
This regional grouping, which is effectively Asean+6, would account for more than half of the global market and about a third of global economic output.
China is an important driving force for the RCEP, which supports the leading role of Asean in regional cooperation. Both China and the US wish to strengthen their influence in this dynamic region and in the same month as the RCEP was formally endorsed, Thailand agreed to consider joining negotiations for the Trans-Pacific Partnership (TPP), which is being led by America and excludes China.
There are substantive differences between the two agreements. While the RCEP is quite flexible, the TPP requires much deeper liberalisation from its members and includes provisions to protect labour rights and environmental standards, reform state-owned enterprises, strictly protect intellectual property and boldly eliminate tariffs.
Asean's central role in the RCEP is also starkly different from what its role would be in the TPP, whose partners are individual countries and technically expected to be equal - although most assume that America will play the dominant role.
So what would be the benefits of the RCEP and TPP for the export-driven economies of Asean? With the RCEP they would gain greater access to the markets in China, Japan, South Korea and India. There would also be greater investment flows from more-developed countries to less-developed ones, which would help them become better integrated into regional economic activity. However not all members of Asean are parties to the TPP, and its terms seem to exclude the region's smaller economies such as the CLMV countries (Cambodia, Laos, Myanmar and Vietnam).
While the TPP would offer members greater access to North and South American markets, it does not include China, India, South Korea and Japan - at least not at this stage.
The major strength of the RCEP, apart from its focus on the booming Asian economies, is its flexibility regarding the vast development gaps within Asean. For example, the RCEP's guiding principles acknowledge the diverse circumstances of developing countries such as the CLMV, which could possibly receive special treatment. The RCEP also mandates economic and technological cooperation to reduce development gaps.
Of the proposed RCEP members, Australia, New Zealand, Brunei, Singapore, Malaysia and Vietnam are also members of the TPP. Even though the recent Japanese election is likely to increase tensions between China and Japan, Japan's victorious Liberal Democratic Party said it was opposed to the TPP during the election campaign. In fact Japan has been heavily involved in the planning for the RCEP and was instrumental in expanding its scope to India, Australia and New Zealand.
Theoretically there should be no conflict between the two agreements, with various countries choosing to be members of both. At this stage Thailand has endorsed the RCEP but is sitting on the fence regarding the TPP - agreeing only to "study the pros and cons" of entering TPP talks.
Formal negotiations on the RCEP are expected to begin early this year with the initial goal of removing trade barriers within member countries in 2015. Meanwhile, the US and 10 other TPP countries are scheduled to meet in March and May with the goal of concluding their negotiations by the end of next year.
Whether Thailand proceeds with the TPP or not, it will certainly receive major benefits from the RCEP, covering as it does the fastest-growing economic region in the world as well as Thailand's own neighbourhood.
The author is the CEO of Bangkok Bank (China).