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Malaysian Reserve
19 hours ago
- Business
- Malaysian Reserve
RCEP and the future of ASEAN's economy: Between potential and pitfalls
THE Regional Comprehensive Economic Partnership (RCEP), signed on Nov 15, 2020 and entering into force on Jan 1, 2022, is the world's largest free trade agreement (FTA). It brings together all 10 ASEAN member states with five of their Free Trade Agreement (FTA) partners—China, Japan, South Korea, Australia, and New Zealand—into a comprehensive trade bloc encompassing around 2.2 billion people and 30% of the world's GDP and global trade. RCEP is a landmark ASEAN-led initiative that aims to harmonise and deepen existing ASEAN+1 FTAs under a unified, modern, and inclusive framework. With 20 chapters, including trade in goods, services, investment, intellectual property, e-commerce, competition, small and medium enterprises (SMEs) and dispute settlement, RCEP is expected to catalyse trade flows, strengthen regional value chains (RVCs) and boost post-pandemic economic recovery. But as ASEAN foreign ministers gathered in Kuala Lumpur for the 58th ASEAN Foreign Ministers' Meeting (AMM), urgent questions loom: Does RCEP genuinely empower ASEAN economies? Or does it risk reinforcing asymmetrical benefits that favour larger, more developed partners? What makes RCEP unique? Unlike agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the EU Single Market, RCEP reflects ASEAN's distinct model of 'soft regionalism': voluntary, flexible and consensus-based. It is designed not to impose deep political integration or rigid regulatory convergence but instead to create a pragmatic and inclusive economic partnership adaptable to development diversity among member states. RCEP's key innovations include: Consolidated Rules of Origin (RoO): A single RoO framework that simplifies trade documentation and reduces compliance costs, thus enabling firms to source inputs from across RCEP countries without losing preferential access. Differential Tariff Concessions: These allow flexibility for countries to maintain sensitive sector protections while still advancing gradual liberalisation. Special and Differential Treatment (SDT): Targeted support for Least Developed Countries (LDCs) within ASEAN—especially Cambodia, Laos, Myanmar and Vietnam (CLMV)—to facilitate their integration into regional trade. Living Agreement Structure: RCEP includes institutional mechanisms (for example RCEP Joint Committee, subcommittees) to review and expand the agreement's scope to address emerging challenges like digital trade, climate change and pandemics. However, RCEP remains modest in ambition in areas like labour protections, environmental standards, data flows and state-owned enterprise (SOE) disciplines—areas where the CPTPP sets higher benchmarks. Critics argue that without stronger commitments in these domains, RCEP's long-term contribution to sustainable development may be limited. Benefits and risks for ASEAN: Strategic leverage or unequal promise? In principle, RCEP offers numerous strategic advantages to ASEAN: Enhanced economic centrality: ASEAN remains at the centre of the agreement's architecture, reinforcing its convening power and diplomatic relevance in the Indo-Pacific. Trade and investment gains: According to CGE simulations (Itakura, 2022), ASEAN countries stand to experience notable gains in GDP, exports and welfare by 2035, especially under scenarios that include tariff reductions, trade facilitation and services liberalisation. SME and GVC participation: The agreement promotes inclusive integration by helping SMEs join RVCs through simplified customs procedures and regional trade facilitation. Yet, the benefits will be asymmetrical. Countries such as Singapore, Malaysia and Vietnam, already integrated into global value chains (GVCs) and possessing strong digital infrastructure, are well-positioned to benefit early and significantly. Conversely, CLMV countries with weaker institutional capacity, infrastructure deficits and limited trade readiness may struggle to fully leverage RCEP without capacity-building support. Moreover, the pandemic and the US-China trade war have exposed ASEAN's dependency on external markets. There is growing concern that RCEP could entrench such dependencies further, particularly on China, unless balanced by internal ASEAN Economic Community (AEC) integration. Key enablers of success for ASEAN To transform RCEP from a legal agreement into a transformative engine for inclusive growth, ASEAN must prioritise the following policy enablers. Domestic readiness and reform Upgrade trade infrastructure (ports, logistics) and adopt paperless trade systems. Strengthen digital and human capital, particularly for SMEs and underserved populations. Encourage private sector engagement and public-private partnerships (PPPs). 2. Deepening ASEAN Economic Community (AEC) Integration Eliminate non-tariff barriers (NTBs), harmonise standards and streamline customs procedures. Strengthen intra-ASEAN connectivity and production networks. Develop unified digital and green standards to align ASEAN with future trade demands. 3. Digital and Services Integration Expand the scope of digital trade rules within RCEP by advocating for stronger provisions on cross-border data flows, cybersecurity and digital inclusion. Enhance services liberalisation through a negative-list approach and stronger regulatory frameworks. Support skills upgrading for workers in ICT-enabled and high-value services sectors. 4. Institutional Governance and Implementation Monitoring Empower the RCEP Joint Committee and subcommittees to carry out robust implementation reviews. Create inclusive, transparent and participatory mechanisms to monitor RCEP's impact on SMEs, women, informal workers and rural communities. Provide technical assistance and dispute resolution access for smaller and less developed member states. ASEAN leadership at 58th AMM: What must be done As ASEAN Foreign Ministers gather at the 58th AMM in Kuala Lumpur, strong political direction is needed to steer RCEP implementation toward equitable outcomes. Recommended actions include: Establish a Regional RCEP Implementation Taskforce under the ASEAN Secretariat to assess commitments, facilitate peer learning, and enhance transparency. Create an ASEAN RCEP Transition Fund, contributed by more advanced economies, to support institutional capacity-building, regulatory reform, and infrastructure enhancement in CLMV countries. Reaffirm ASEAN Centrality in RCEP Governance, ensuring the ASEAN Secretariat works closely with RCEP institutional bodies to steer policy alignment and manage tensions between large partners. Mainstream Sustainability and Inclusivity, embedding Sustainable Development Goals (SDGs), gender equality, labour safeguards, and environmental sustainability into RCEP's evolving work programme. Between opportunity and test RCEP is a reflection of ASEAN's ability to lead regional integration in an era of fractured globalisation. It offers a unique opportunity to bridge development gaps, modernise economies and reassert ASEAN's relevance in global economic governance. But it also poses a test of political will and institutional coherence. Without urgent reforms, the agreement may inadvertently deepen regional inequalities and reinforce asymmetric dependencies. The success of RCEP, therefore, depends on ASEAN's commitment to leadership, solidarity, and shared prosperity. The message from Kuala Lumpur must then be bold and clear: ASEAN does not merely seek a seat at the table but it aims to lead, shape and humanise the future of regional economic integration. Nurul Amellya Azhar is a doctorate student in International Political Economy at Universiti Kebangsaan Malaysia.
New Straits Times
a day ago
- Business
- New Straits Times
RCEP and the future of Asean's economy: Between potential and pitfalls
The Regional Comprehensive Economic Partnership (RCEP), signed on Nov 15, 2020 and entering into force on Jan 1, 2022, is the world's largest free trade agreement (FTA). It brings together all 10 Asea member states with five of their FTA partners — China, Japan, South Korea, Australia and New Zealand — into a comprehensive trade bloc encompassing around 2.2 billion people and 30 per cent of the world's gross domestic product (GDP) and global trade. RCEP is a landmark Asean-led initiative that aims to harmonise and deepen existing Asean+1 FTAs under a unified, modern, and inclusive framework. With 20 chapters, including trade in goods, services, investment, intellectual property, e-commerce, competition, SMEs and dispute settlement, RCEP is expected to catalyse trade flows, strengthen regional value chains (RVCs) and boost post-pandemic economic recovery. Does RCEP genuinely empower Asean economies? Or does it risk reinforcing asymmetrical benefits that favour larger, more developed partners? WHAT MAKES RCEP UNIQUE? Unlike agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the EU Single Market, RCEP reflects Asean's distinct model of "soft regionalism": voluntary, flexible and consensus-based. It is designed not to impose deep political integration or rigid regulatory convergence but instead to create a pragmatic and inclusive economic partnership adaptable to development diversity among member states. RCEP's key innovations include: (1) Consolidated Rules of Origin (RoO): A single RoO framework that simplifies trade documentation and reduces compliance costs, thus enabling firms to source inputs from across RCEP countries without losing preferential access. (2) Differential Tariff Concessions: These allow flexibility for countries to maintain sensitive sector protections while still advancing gradual liberalisation. (3) Special and Differential Treatment (SDT): Targeted support for Least Developed Countries (LDCs) within Asean—especially Cambodia, Laos, Myanmar and Vietnam (CLMV)—to facilitate their integration into regional trade. (4) Living Agreement Structure: RCEP includes institutional mechanisms (e.g., RCEP Joint Committee, subcommittees) to review and expand the agreement's scope to address emerging challenges like digital trade, climate change and pandemics. However, RCEP remains modest in ambition in areas like labour protections, environmental standards, data flows and state-owned enterprise (SOE) disciplines—areas where the CPTPP sets higher benchmarks. Critics argue that without stronger commitments in these domains, RCEP's long-term contribution to sustainable development may be limited. BENEFITS AND RISKS FOR ASEAN: STRATEGIC LEVERAGE OR UNEQUAL PROMISE? In principle, RCEP offers numerous strategic advantages to Asean: (1) Enhanced Economic Centrality: Asean remains at the centre of the agreement's architecture, reinforcing its convening power and diplomatic relevance in the Indo-Pacific. (2) Trade and Investment Gains: According to CGE simulations (Itakura, 2022), Asean countries stand to experience notable gains in GDP, exports and welfare by 2035, especially under scenarios that include tariff reductions, trade facilitation and services liberalisation. (3) SME and GVC Participation: The agreement promotes inclusive integration by helping SMEs join RVCs through simplified customs procedures and regional trade facilitation. Yet, benefits will be asymmetrical. Countries such as Singapore, Malaysia and Vietnam, already integrated into global value chains (GVCs) and possessing strong digital infrastructure, are well-positioned to benefit early and significantly. Conversely, CLMV countries with weaker institutional capacity, infrastructure deficits and limited trade readiness may struggle to fully leverage RCEP without capacity-building support. Moreover, the pandemic and the US-China trade war have exposed Asean's dependency on external markets. There is growing concern that RCEP could entrench such dependencies further, particularly on China, unless balanced by internal Asean Economic Community (AEC) integration. KEY ENABLERS OF SUCCESS FOR ASEAN To transform RCEP from a legal agreement into a transformative engine for inclusive growth, Asean must prioritise the following policy enablers. 1. Domestic Readiness and Reform (a) Upgrade trade infrastructure and adopt paperless trade systems. (b) Strengthen digital and human capital, particularly for SMEs and underserved populations. (c) Encourage private sector engagement and public-private partnerships (PPPs). 2. Deepening Asean Economic Community (AEC) Integration (a) Eliminate non-tariff barriers (NTBs), harmonise standards and streamline customs procedures. (b) Strengthen intra-Asean connectivity and production networks. (c) Develop unified digital and green standards to align Asean with future trade demands. 3. Digital and Services Integration (a) Expand the scope of digital trade rules within RCEP by advocating for stronger provisions on cross-border data flows, cybersecurity and digital inclusion. (b) Enhance services liberalisation through a negative-list approach and stronger regulatory frameworks. (c) Support skills upgrading for workers in ICT-enabled and high-value services sectors. 4. Institutional Governance and Implementation Monitoring (a) Empower the RCEP Joint Committee and subcommittees to carry out robust implementation reviews. (b) Create inclusive, transparent and participatory mechanisms to monitor RCEP's impact on SMEs, women, informal workers and rural communities. (c) Provide technical assistance and dispute resolution access for smaller and less developed member states. ASEAN LEADERSHIP AT AMM 58: WHAT MUST BE DONE Strong political direction is needed to steer RCEP implementation toward equitable outcomes. Recommended actions include: (1) Establish a Regional RCEP Implementation Taskforce under the Asean Secretariat to assess commitments, facilitate peer learning, and enhance transparency. (2) Create an Asean RCEP Transition Fund, contributed by more advanced economies, to support institutional capacity-building, regulatory reform, and infrastructure enhancement in CLMV countries. (3) Reaffirm Asean Centrality in RCEP Governance, ensuring the Asean Secretariat works closely with RCEP institutional bodies to steer policy alignment and manage tensions between large partners. (4) Mainstream Sustainability and Inclusivity, embedding Sustainable Development Goals (SDGs), gender equality, labour safeguards, and environmental sustainability into RCEP's evolving work programme. BETWEEN OPPORTUNITY AND TEST RCEP is a reflection of Asean's ability to lead regional integration in an era of fractured globalisation. It offers a unique opportunity to bridge development gaps, modernise economies and reassert Asean's relevance in global economic governance. But it also poses a test of political will and institutional coherence. Without urgent reforms, the agreement may inadvertently deepen regional inequalities and reinforce asymmetric dependencies. The success of RCEP, therefore, depends on Asean's commitment to leadership, solidarity, and shared prosperity. The message from Kuala Lumpur must then be bold and clear: Asean does not merely seek a seat at the table but it aims to lead, shape and humanise the future of regional economic integration.
