(220101) -- NANNING, Jan. 1, 2022 (Xinhua) -- A gantry crane loads containers onto a freight train in Nanning international railway port in south China's Guangxi Zhuang Autonomous Region, Dec. 31, 2021. (Xinhua)

OPINION – RCEP and Regional Economic Integration and Interdependence

On January 1, the Regional Comprehensive Economic Partnership (RCEP) began to operate, and its inception can stimulate the performance of China’s economy, especially at a time when the Chinese government has emphasized the importance of dual – internal and external – circulations. 

After 32 rounds of negotiations and discussion within eight years, RCEP composed of 15 member states was signed on November 15, 2020. On January 1, 2022, RCEP became effective for 10 signatory states, including Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, New Zealand and Australia. South Korea will join soon on February 1. Other states like Malaysia, Indonesia, the Philippines and Myanmar will complete their domestic approval first prior to their full participation in the trade organization.

RCEP is described as the largest trade bloc occupying 30 percent of the GDP in the world, benefiting exports and imports that amount to US$42 billion. All the countries involved in RCEP have a total population of 2.27 billion people. Ninety percent or above of the trade products involving all the member states are going to enjoy zero tariffs.

The customs statistics of the Chinese government have shown that, in the first eleven months in 2021, China’s imports and exports involving all the other 14 RCEP member states accounted for 31 percent of the mainland’s external trade. 

ASEAN has remained very important to China’s trade relations; both sides have been expanding eighty-five times in their total trade volumes. From China’s perspective, ASEAN is playing a crucial role in its Belt and Road Initiative, especially as the China-Laos railway was completed in December 2021. Even the ASEAN secretariat admitted that RCEP is going to boost regional trade and investment, propelling economic development, recovery and growth amid the spread of the new variant of Covid-19. 

RCEP is particularly important to small and medium enterprises in the region, stimulating e-commerce and promoting their participation in international trade. RCEP can stimulate member states to elevate the standards of their industrial production. For instance, the electronic industry in Southeast Asia is going to be more high-tech rather than relying on labor intensive mode, while the service trade and innovative technological sectors will have to modernize further in the process of regional economic integration.

Japan, South Korea and China as the three East Asian states are participating in a regional trade organization in the Asia-Pacific region for the first time. The liberalization push in free trade development benefits the three East Asian states collectively and individually. Since China and South Korea are Japan’s number 1 and number 3 trade partner respectively, the participation of the three East Asian states in RCEP can and will stimulate mutual economic recovery amid the new spread of Omicron. The Japanese media estimated that RCEP can and will help Japan boost its exports by 5.5 percent in the short run. Japan’s automobile industry, which has been deeply affected by the emergence of Covid-19, can and will benefit from RCEP as its supply chain and the demand can be consolidated and boosted respectively.

South Korea’s exports to RCEP member states are occupying half of its exports. The South Korean automobile industry, the spare parts of vehicles, and its steel industry can and will benefit from zero tariffs, especially in the areas of the safety belts and safety bags produced by the Korean automobile industry. As Indonesia, Thailand and the Philippines are going to have zero tariffs on these safety devises, South Korea is expected to benefit economically from RCEP quickly.

At this moment, North Korea remains a relatively closed economy in terms of regional economic integration; nevertheless, if North Korea is going to liberalize its economy and international trade, its consideration of participating in RCEP will be a likelihood. After all, RCEP embraces other Asian socialist states such as China, Vietnam, Laos and Myanmar. If socialist states can join RCEP in the era of economic interdependence and mutual benefits, any further economic modernization in North Korea would perhaps propel Pyongyang to consider its eventual participation in RCEP. Economic pragmatism may eventually and hopefully prevail over the ideology of economic self-sufficiency and cautiousness.

India’s reluctance to join RCEP in 2019 was due to its strategic calculations and concerns about the possible shocks to the Indian agricultural sector. There were also concerns in the Indian political arena that, by joining RCEP, the Indian relations with China would be economically and politically enhanced. Still, India will be an observer participating in RCEP meetings. Hopefully, the trade policymakers and political leaders in India would reconsider the benefits of joining RCEP in the long run. Arguably, in the era of economic interdependence and liberalization in the Asia-Pacific region, those states that do not join RCEP are missing the golden opportunity of expanding their exports through the zero-tariff arrangement. 

Although Hong Kong is not a member state of RCEP, its re-exports are estimated to benefit from China’s participation in the regional trade bloc. It is expected that Hong Kong’s exports will be boosted by 8 percent – a predicted boost benefiting directly or indirectly from China’s participation in RCEP. 

China is still seeing Hong Kong as a main platform for its Renminbi internationalization (RCEP can accelerate the process of Renminbi internationalization), apart from the city’s role as an international financial and monetary center. As such, the motherland will likely help Hong Kong to join RCEP in the coming years. In fact, the Hong Kong government is trying to liaise with the member states of RCEP, attempting to start negotiations in the process of joining the huge trade bloc. The tremendous size of the trade volumes involving RCEP member states, the extensive content coverage of RCEP (ranging from traditional trade products to intellectual property rights and e-commerce), and the degree of economic openness (embracing customs tax and government procurement) would benefit Hong Kong tremendously if the city’s participation in RCEP would be a realistic possibility. Hong Kong has already signed free trade agreements with 13 member states that are affiliated with RCEP; in 2020, Hong Kong’s trade volume with them amounted to US$770 billion, occupying 73 percent of the city’s total trade amount.

(211201) — HONG KONG, Dec. 1, 2021 (Xinhua) — Guests attend the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) conference in Hong Kong, south China, Nov. 30, 2021. TO GO WITH “RCEP helps boost HK role as key trade, services hub: officials” (Xinhua)

Immediately after RCEP’s inception, mainland cities have already produced the first batch of certificates on various products’ manufacturing origins. On January 1, the Chinese trade promotion authorities issued 158 certificates, involving 69 enterprises in 12 provinces and cities. The Guangzhou trade authorities helped the local enterprises to prepare all administrative documents, including informational registration, product documentation and the certification of products’ manufacturing origins. Other trade authorities in mainland provinces and cities are busy in dealing with the certificates of manufacturing origins, including Zhejiang, Xuzhou and Shenzhen. 

All these administrative procedures are necessary and can stimulate all provinces and cities to internationalize their products in accordance with the RCEP rules and regulations. 

Regional economic integration and interdependence can obviously trigger the member states’ domestic administrative and economic modernization, creating a win-win situation for all of them.

One important East Asian tiger, namely Taiwan, cannot join RCEP due to the special political circumstances between Taipei and Beijing. Some mainland observers have pointed out that the Taiwan authorities must improve cross-Strait relations, for RCEP’s inception and operation have already “challenged” Taiwan’s economy. At present, about 70 percent of Taiwan’s exports to the member states affiliated with RCEP are exempted from tax, but still 30 percent of its products have to face higher customs tax. However, Taiwan’s economy remains buoyant, resilient and adaptative amid the era of intense regional competition and regional economic integration. Perhaps the first stage of Taiwan’s economic recovery amid the persistence of Covid-19 is to consolidate its existing trade partnerships with Southeast Asian states, while gradually and ideally improving its relations with mainland China. In fact, the Economic Cooperation Framework Agreement signed between mainland China and Taiwan in September 2010 has benefited Taiwan economically by reducing customs tax that amount to US$6.3 billion. If so, Taiwan would surely benefit economically if it could join RCEP. Yet, political obstacles persist.

In conclusion, the inception of RCEP signals the beginning of a new era of economic integration and economic interdependence in the Asia-Pacific region. Ideally, all other Asian states can and will join the huge economic bloc regardless of ideological and political differences, including North Korea and India. Hong Kong would surely benefit by joining RCEP, so as Taiwan. However, while the participation of Hong Kong in RCEP will easily get the blessing of its motherland, mainland China, the Taiwan case would remain far more difficult politically due to the ongoing tensions between the two Straits.