Philippine trade

EXPLAINER: What RCEP means for Philippines

Ralf Rivas

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EXPLAINER: What RCEP means for Philippines

DEAL SIGNING. Trade Secretary Ramon Lopez signs the Regional Comprehensive Economic Partnership on behalf of the Philippines on November 15, 2020. Behind him is Foreign Secretary Teodoro Locsin Jr.

Photo from Department of Trade and Industry

Philippine Trade Secretary Ramon Lopez says the RCEP trade pact will help the region's economy recover from the coronavirus crisis. But experts note that obligations may put smaller countries at a disadvantage.

The Philippines, along with 14 countries in the Asia-Pacific, signed the world’s largest free trade agreement on Sunday, November 15, in the hopes of shoring up the region’s economy amid the coronavirus crisis.

Talks on the Regional Comprehensive Economic Partnership (RCEP) were first initiated in 2012. The deal is now set to impact at least 2.1 billion people, equivalent to around 30% of the global gross domestic product.

While signatories of the China-backed deal hail the agreement, some observers remain skeptical over its impact.

Moreover, the absence of India in the pact is a red flag for many. The United States is also keeping a close eye on what’s deemed as a deal that would give its rival, China, a tighter grip on the developing region.

RCEP’s goals

RCEP is a trade pact between the 10 members of the Association of Southeast Asian Nations (ASEAN), along with Australia, China, Japan, South Korea, and New Zealand.

The ASEAN Secretariat said the deal aims to establish a “modern, comprehensive, high-quality, and mutually beneficial economic partnership” that would bring employment and market opportunities, and accelerate economic growth and development in the region.

It promises to recognize “the individual and diverse levels of development and economic needs of the RCEP parties” through its 20 chapters.

Some of the features include:

Granting national treatment to the goods of the other parties. This means that signatory countries will treat imported goods, services, and intellectual property like trademarks and patents the same way as they treat their own.

Reduction or elimination of customs duties

Duty-free temporary admission of goods

Non-tariff measures that complement “tariff liberalization outcomes.” These include general elimination of quantitative restrictions, greater transparency on application of non-tariff measures, administration of import licensing procedures, and application of fees and formalities connected with importation and exportation.

In summary, RCEP aims to lower tariffs, open up trade in services and promote investments, and reduce costs for companies by allowing them to export a product within participating countries without meeting separate requirements for each country.

Philippine Trade Secretary Ramon Lopez said the signing of the RCEP agreement in this time of the pandemic signals “a renewed vow in a rules-based system for trade and investment.”

Regional politics

While the goals seem good on paper, observers pointed out that the trade pact solidifies China’s geopolitical ambitions in the developing region. The United States is not part of the bloc.

The US-backed Trans-Pacific Partnership was on track to be the world’s biggest trade pact, until the Trump administration pulled the plug in 2017, fearing it would result in job losses.

India, one of Asia’s biggest players, is also notably absent, fearing that its domestic producers would be hit hard by a deluge of cheap Chinese goods.

“Our decision was guided by the impact this agreement will have on the ordinary human beings of India and livelihood of people, including the poorest of the poor,” said Vijay Thakur Singh, a senior diplomat in charge of East Asia for India’s Ministry of External Affairs, in November 2019.

Textiles, dairy, and agriculture were flagged as 3 vulnerable industries.

“The problem with RCEP is that you have 15 incredibly diverse countries at different stages of development and with completely internal priorities,” said Alexander Capri, a trade expert at the National University of Singapore Business School.

Philippine industries

The ambitious trade agreement, signed virtually amid the pandemic, was slammed by groups like Trade Justice Pilipinas.

“RCEP is just an unjust deal and added burden in the time of a pandemic,” the group said.

It noted that the deal will “further prop up a broken economic model that will need to radically transform in favor of one that is more resilient.”

Free trade is always a controversial matter, as commitments may create or expose asymmetries that exist among participating countries.

Trade Justice Pilipinas warned that ASEAN nations will see rising imports and declining exports in the wake of RCEP.

“We would see the cost of imports rise by as much as $908 million, with sharp increases in imports from South Korea, China, and Vietnam. On the other hand, the value of exports to RCEP countries is only expected to increase by around $4.4 million. Trade balance with RCEP countries will worsen by $904 million per year,” the group said.

Meanwhile, Rashmi Banga, senior economic affairs officer of the United Nations Conference on Trade and Development, noted that the elimination of tariffs will reduce revenue sources of countries at a time when cash is running dry due to the pandemic. – with reports from Agence France-Presse/

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Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.