‘Monsoon path’: RCEP recovery model in Southeast Asia

  Faced with many challenges such as the escalating crisis in Ukraine and abnormal climate conditions, Southeast Asia has achieved remarkable economic performance, which cannot be separated from the Regional Comprehensive Economic Partnership Agreement (RCEP). RCEP is a regional economic cooperation framework first proposed and led by ASEAN. Since its entry into force, it has not only awakened the steady economic recovery of Southeast Asian countries like a “spring breeze” in the short term, but will also remove the “monsoon” of economic recovery from Southeast Asia in the long run. Blowing to other regional economies such as China, Japan, and South Korea presents a unique path for the traditional concept of the recovery of the central country driven by the periphery.
The Wind Rises on the Edge: Wake Up to Recovery

  According to the forecast of the International Monetary Fund (IMF), the global economic recovery will still face many challenges in 2022. The economic growth rate of developing countries will drop by 1.3% year-on-year, and the growth rate of international trade volume will drop by 3% year-on-year. However, Southeast Asia, which is often regarded as the “periphery” of the regional economy, has shown a clear recovery since the second quarter of 2022. Domestic production has stabilized, and some countries have allowed social and economic activities to shift from the anti-epidemic mode to normal. Real gross domestic product (GDP) growth in the second quarter of all major ASEAN countries was positive. Among them, Malaysia’s economic growth rate reached 5% in the first quarter, and 8.9% in the second quarter compared with the same period last year, the second highest single-quarter growth rate since the epidemic, exceeding market expectations. At the same time, the country’s exports in the second quarter increased by 23.3% year-on-year, and various data including total trade volume hit record highs. With the lifting of restrictions on normal economic activities, private consumption in Southeast Asian countries has increased and production has continued to pick up. According to the data released by HIS Markit, an internationally renowned information service company, the average PMI (Purchasing Managers Index) of ASEAN countries in August rose to 49 from 46.5 in July. It has risen for the fourth consecutive month. Among them, Myanmar’s manufacturing PMI rose to 53.2 in August from 51.7 in July, reaching the highest point in 15 months. Indonesia’s manufacturing PMI rose to 50.8 in August from 46.9 in July, indicating that the manufacturing sector ended five consecutive months of contraction and turned to expansion. Thailand’s manufacturing PMI continued to rise in August, rising to 49.7 from 45.9 in July, the highest level since January 2022.
  Southeast Asia’s economic recovery is inseparable from the help of RCEP. As a stable, comprehensive and effective free trade agreement, RCEP will help Southeast Asia’s economic recovery in the short term.
  RCEP has significantly improved the level of cooperation between Southeast Asian countries and important regional economies such as China, Japan, and South Korea, built a unified and open market, and enhanced their interdependence. RCEP promotes the free flow and efficient aggregation of commodities and production factors through trade and investment facilitation measures such as expanding market access. This is especially true for Southeast Asia, which is in a marginal position in this structure and is more dependent. After RCEP takes effect, more than 90% of the commodity trade between the effective member states will eventually achieve zero tariffs, which means that countries have realized their commitment to liberalize trade in goods.
  Moreover, by enhancing the interdependence between Southeast Asian countries and other countries in the region, RCEP will help form an increase in trade and investment in Southeast Asia and further stimulate countries’ dependence on Southeast Asia. Southeast Asian countries are highly dependent on the Asia-Pacific regional market. At the same time, due to their position in the global and regional value chains that cannot be replaced in a short period of time, major economies in the region such as China, Japan, and South Korea are also highly dependent on Southeast Asia. Interdependence means that as long as Southeast Asia actively participates in the regional industrial division of labor, its economy can recover. The emergence of RCEP not only consolidated the original division of labor of Southeast Asian countries, but also provided ASEAN with more opportunities in cooperation with other economies. The results estimated by the Ministry of Commerce of China show that among RCEP members, ASEAN has benefited the most from the macroeconomic level: the cumulative growth rate of ASEAN’s overall GDP will increase by 4.47% in 2035 due to the entry into force of RCEP. Malaysia’s Ministry of Trade and Industry stated that RCEP will become a “key driver” for the country’s economic recovery after the epidemic. Through RCEP exports, revenue will increase by US$200 million. According to data from the Ministry of Commerce of Thailand, in the first two quarters after RCEP came into effect, the trade volume between Thailand and RCEP member countries reached US$169.04 billion, an increase of 13% over the same period last year. The report of the Philippine Development Research Institute shows that once the country approves RCEP and takes effect, the country’s exports will increase by 10.47%, driving GDP growth by 2.02%.
Gathering in the Wind and Cloud: Consolidating the Intrinsic Resilience of Regional Economic Recovery

  RCEP will not only enhance the interdependence between Southeast Asia and member states, but will also provide institutional guarantees for supply chain security with various innovative rules. After the epidemic, this will promote the orderly reshaping of regional production networks and enhance the inherent resilience of the Southeast Asian economy. Therefore, RCEP will blow the “monsoon” originating in Southeast Asia to the Eurasian continent, and meet the “clouds” of other economies such as China, Japan, and South Korea, bringing rain and rain to regional economic growth, and realizing economic growth from the periphery to the center. The “monsoon path” of recovery.
  However, while high levels of interdependence with regional markets and the world economy provide the impetus for development among countries in the region, they also create a source of vulnerability. The financial crisis that spread from Thailand and other Southeast Asian countries to the entire Asia-Pacific region in 1997 took the “monsoon path”. RCEP has improved the order of the regional supply chain in a systematic way, provided the necessary anti-risk mechanism for the future recovery of countries in the region, and guaranteed a long-term and stable economic recovery.
  First of all, RCEP realizes trade liberalization and facilitation through unified methods such as direct tax reduction and rules of origin. RCEP can restrain trade protectionist behaviors such as tariff barriers, reduce the probability of trade conflicts, and effectively guarantee the expansion of economic recovery from Southeast Asia to other countries in the region. All member states have made opening commitments higher than the level of their own “10+1” free trade agreement with ASEAN.
  In terms of trade in goods, RCEP adopts a bilateral two-two bidding method to carry out tax reduction commitments, and has formulated a more diversified tax reduction mechanism according to the economic conditions of countries in the region. For example, RCEP’s tax reduction commitments include both “uniform concessions” applicable to all member states and designated “country-specific concessions” for countries with different levels of development. At the same time, RCEP implements unified rules of origin in the region, which greatly simplifies customs procedures. For example, in order to shorten the customs clearance time of goods, RCEP allows the electronic information required for the import of goods to be submitted in advance before the goods arrive, and requires release within 48 hours as much as possible; for perishable goods, a more detailed customs clearance process is stipulated, requiring as much as possible Release within six hours.

The 19th China-ASEAN Expo held in Nanning, Guangxi in September 2022 will set up the “ASEAN and RCEP Boutique Exhibition Area” for the first time to further promote cooperation and exchanges between China, ASEAN and other RCEP member states. 2022 is the first year of China-ASEAN comprehensive strategic partnership and the first year when RCEP comes into effect.

  In terms of trade in services, RCEP flexibly uses a combination of negative lists and positive lists to formulate trade access commitment rules based on the development level of the service industry in each country. It has included rules in 13 aspects, including new financial services, prudential measures, and specific information processing, to improve The level of financial services in the region. For example, the opening commitments of the 15 member states in the field of service trade have not only made substantial progress on the basis of their respective “General Agreement on Trade in Services” (GATS) commitments, but also higher than the level of the original “10+1” free trade zone. Except for Laos, Cambodia, and Myanmar, which have a relatively low level of service industry, the number of committed service departments in other countries has increased to more than 100.

  Secondly, the RCEP countries have also innovated many risk prevention mechanisms to ensure the stability and orderly recovery of investment activities in the region, becoming the most powerful insurance for the current “monsoon path” of economic recovery. Among them, the most typical ones are “freezing mechanism” and “ratchet mechanism”. The freezing mechanism means that after the entry into force, any revision of the agreement items by each country cannot be lower than the original commitment level, that is, the restrictions on foreign investment cannot be increased, and the level before the entry into force cannot be returned. The ratchet mechanism means that every revision of the measures in the future by each country can only be less restrictive to foreign investment than before the revision, that is, the revision of the measures can only be more beneficial to foreign investment and cannot go backwards.
  Thirdly, the RCEP rules have also achieved results in strengthening the local capacity building of each country, which can provide impetus for regional economic growth in the long run. RCEP fully considers the balance between the interests of investors and host countries: under the institutional environment that encourages local enterprises to take advantage of their advantages and participate in the division of labor in the region, countries can accelerate the reorganization of regional industrial chains more quickly. At the same time, Southeast Asian countries can also strengthen technical cooperation and technical assistance with China, Japan and South Korea to reduce the technological gap within the region.
Riding the Wind and Waves: Helping the “Belt and Road” Sailing

  Under the situation of “anti-globalization” and the tide of trade protectionism, RCEP has not only improved the level of regional economic integration, but also enhanced the ability of countries to participate in the high-quality joint construction of the “Belt and Road”, and contributed to the construction of the “Belt and Road” initiative. keep going.
  At the macro level, the concept of inclusiveness and openness embodied in RCEP coincides with the principle of joint consultation, joint construction and shared benefits of the “Belt and Road”. RCEP member countries have many differences in development level, cultural customs, social system, etc., especially between ASEAN countries and developed economies Japan and South Korea. However, since RCEP came into effect, its dividends have been gradually released and magnified. The economic recovery of ASEAN countries is the best example.
  At the micro and meso levels, RCEP can also complement the construction of the “Belt and Road” initiative. Before the signing of RCEP, there were many “ASEAN+1” free trade areas in the Asia-Pacific region. However, with the increasingly close economic ties in the region, the efficiency of countries using free trade areas is low. RCEP greatly simplifies the differences between trade agreements and alleviates the imbalance in regional production networks and supply chains. The “RCEP Maritime Trade Index Report (2022)” released by China Economic Information Service shows that with the liberalization and facilitation of commodity trade in RCEP and the deepening of regional accumulation rules of origin, intra-regional maritime trade is more open and free. Index gradually increased.
  In the face of exogenous shocks such as the new crown epidemic, the escalation of the Ukraine crisis, and trade protectionism, RCEP’s contribution to the economic recovery of Southeast Asia cannot be ignored. The interdependence between China and Southeast Asia and the endogenous resilience of the regional economy also mean that China must attach importance to RCEP. The natural fit between RCEP and the “Belt and Road” also urges China and ASEAN countries to work together to maintain the open order of the regional economy. As the primary proposer and important builder of RCEP, ASEAN countries attach importance to and concern about RCEP not only out of the need for economic recovery, but also as a powerful way to enhance their regional economic division of labor: The cooperation framework is combined with the economic development of other countries and becomes an important supplier of regional cooperation mechanisms. Therefore, RCEP uses the “monsoon path” to drive the growth of regional center countries such as China, Japan, and South Korea in the traditional sense, guarantee the status and development autonomy of ASEAN countries in regional economic cooperation, and change the traditional distinction between center and periphery. RCEP is bound to provide more vigor and vitality for regional economic development.

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