RCEP and regional economic integration

Currently, the Regional Comprehensive Economic Partnership (RCEP) is the world’s largest free trade agreement (FTA) outside of the World Trade Organization (WTO). It is composed of the ten member states of the Association of Southeast Asian Nations (ASEAN) representing Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam as well as ASEAN’s five FTA partners covering Australia, China, Japan, New Zealand and Republic of Korea.

As such, RCEP is viewed be much larger economically and demographically than the European Economic Community (EEC) of the European Union (EU) known to be the trailblazer of regional economic integration in the aftermath of World War II. But now in the post-pandemic world, RCEP has overtaken EEC in terms of population coverage and contribution to the global Gross Domestic Product (GDP).

The World Bank affirms that RCEP encompasses a huge market of 2.31 billion people representing one-third of the global population. Economic activities among RCEP members can contribute to almost US$ 26 trillion or 30 percent of the global GDP compared with the EU contributing only less than 20 percent of the global GDP. The RCEP contribution to global trade in goods and services can even reach around US$13 trillion or 31 percent of global foreign direct investment flows. Thus, the RCEP is a very powerful enabler of global economic shift to the Asia Pacific region, which is currently at the epicenter of regional economic integration in the world.

There is no doubt that the RCEP will benefit its member states. The Philippine Senate ratified the RCEP on 21 February 2023 with the enormous expectation that this regional economic arrangement can contribute to the country’s aspiration for economic prosperity as it recovers from the harsh effects of the COVID-19 pandemic.

According to Philippine Institute for Development Studies (PIDS), a state-run think-tank, the Philippines GDP would increase by 2 percent through its active participation in the RCEP. (2) The Asian Development Bank (ADB), on the other hand, reveals that the RCEP can increase the Philippines’ export by 3.7 percent by 2030 while the Geneva-based International Trade Center discloses that the country has an estimated US$27.8 billion of unrealized export potential to RCEP countries over the next five years.

Though the RCEP offers many economic opportunities for its current members, the World Bank underscores that “spillover effects from RCEP also have the potential to offer benefits for participating and non-participating countries.” Hence, the RCEP can also serve as the key driver of post-pandemic global economic recovery that can benefit the people of the world.

To ensure the attainment of these economic expectations from the RCEP, it is very essential to pay attention to two major issues: supply chain stability and regional security.

There is a view that supply chain stability refers to “the ability for a supply chain to achieve key performance targets on a consistent basis.” It aims to measure “how well a supply chain deals with the ups and downs of market volatility”. Thus, supply chain stability rests heavily on the efficiency and effectiveness of supply chain management, an intricate process of “how raw material becomes a finished product and is moved to the end-user through a network of people and businesses”.

If we do not pay serious attention to supply chain stability, this can disrupt the achievement of the RCEP’s many economic objectives not only for the region but also for the whole world. Regional security and geopolitical issues can also affect the achievement of RCEP noble objectives to pursue regional economic integration. Regional security is inextricably linked with supply chain stability.

One crucial issue is the ongoing major power rivalry between China and the US. The current state and future direction of China-US relations will define not only the security of the RCEP region but also of the international community. The US is currently concerned with the growing economic influence of China in the Asia Pacific region because of the tremendous potential of the RCEP to unleash regional economic prosperity. Hence, the US launched in May 2022 its own brand of regional economic integration through the Indo-Pacific Economic Framework for Prosperity (IPEF).

The main purpose of the IPEF is to strengthen US ties with countries in the Indo-Pacific region in order to respond to China’s growing influence in the region. Interestingly, IPEF participants overlap with countries in the RCEP region. Led by the US, the IPEF region includes Australia, Brunei, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The IPEF represents 40 percent of the global GDP, which is said to be larger than the RCEP.

Apparently, the RCEP and the IPEF mirror the unnecessary but seemingly inevitable China-US major power competition. If the competition develops to be healthy and peaceful, that is good for regional and even international security. But if the competition deteriorates into a military conflict, the situation can disrupt not only the RCEP but also the IPEF arrangements for regional economic integration. It is therefore in the interest of the RCEP members to see China and the US establishing a more peaceful and more cooperative model of great power relationships.

Another regional security issue that can affect the RCEP is the situation in the Taiwan Strait. Maintenance of peace in the Taiwan Strait is very important for supply chain stability in the RCEP region.

Eurasia Review