Xu Zhanchen: RCEP Should Actively Leverage the Integrated Effects of Multiple Dividends

By—Xu Zhanchen 

The Regional Comprehensive Economic Partnership (RCEP) demonstrates a powerful trade dividend that promotes rapid trade growth, an industrial dividend that accelerates regional industrial integration and enhances industrial chain resilience, an institutional dividend oriented towards higher-level openness, continuous institutional alignment, and innovation, and a development dividend that expedites the capacity enhancement of underdeveloped countries and improves the conditions for national industrialization. All parties should work together to leverage the integrated effects of these multiple dividends.

RCEP is currently the largest free trade area in terms of total population, economic size, and volume of goods trade. The ten ASEAN countries, along with China, Japan, South Korea, Australia, and New Zealand, have jointly initiated a new era of economic cooperation in East Asia. RCEP reached the threshold for entry into force on January 1, 2022, in countries that had ratified it. On June 2, 2023, RCEP officially took effect in the last ratifying country, the Philippines, making it fully effective for all fifteen countries.

RCEP integrates 27 existing bilateral and multilateral trade arrangements and 44 investment agreements in the region, forming a comprehensive, modern, high-level, and mutually beneficial free trade agreement. It marks the first time that China, Japan, and South Korea are within the same framework of a free trade area. The fifteen RCEP countries have diverse national conditions, with significant differences in natural endowments, economic size, and development levels. RCEP reflects the current trend of countries working towards promoting peace, cooperation, and win-win development. In the face of headwinds against globalization, it injects strong positive energy into accelerating global post-pandemic recovery. RCEP demonstrates robust trade dividends, industrial dividends, institutional dividends, and development dividends. All parties should collaborate to effectively leverage the integrated effects of these multiple dividends.

Multiple dividends are gradually becoming apparent.

Fully leveraging the advantages of tariff reductions and trade liberalization, play the foundational role of trade dividends, and expand the market in the East Asian region. The most practical and visible dividend of a free trade agreement is the promotion effect on trade growth.

After the official implementation of RCEP, over 90% of goods traded between member countries will be subject to zero tariffs. Since its implementation on January 1, 2022, RCEP has contributed to steady growth in regional trade. In 2022, China's trade with the other 14 RCEP member countries reached 12.95 trillion yuan, a year-on-year increase of 7.5%, accounting for 30.8% of China's total foreign trade that year. Specifically, China's trade with ASEAN countries in 2022 amounted to 6.52 trillion yuan, a year-on-year increase of 15%, representing 15.5% of China's foreign trade, further solidifying ASEAN's position as China's largest trading partner. In the first quarter of 2023, China's imports and exports with the other 14 RCEP member countries reached 3.08 trillion yuan. Among them, trade with Singapore, Laos, and Myanmar increased by 45.8%, 37.8%, and 29%, respectively. Overall, the trade of other RCEP member countries has shown positive development. Trade in Southeast Asian agricultural products, seafood, and Australian dairy products has seen rapid growth, showcasing the continuous manifestation of the effects of the East Asian regional market.

Fully leveraging the comparative advantages of each country and utilizing the rules of origin cumulation, build a high-quality industrial chain in the East Asian region with global competitive advantages. Due to differences in the development levels of RCEP member countries, a unique development momentum has objectively formed in the region. Each country can participate in the regional production system based on their comparative advantages in raw materials, technology, capital, labor, and manufacturing capabilities.

Currently, about 50% of intra-RCEP trade consists of intermediate goods trade, and member countries are closely connected in the industrial and supply chains. The rules of origin cumulation under RCEP have promoted the rapid growth of intermediate goods trade, and the development and integration effects of the regional industrial and value chains are increasingly evident. Many enterprises have already started cross-border layout and integration of production processes based on the comparative advantages of different member countries. This will promote the continuous improvement of regional economic integration and further strengthen the existing production networks in East Asia. It will enhance the resilience of the entire regional industrial and supply chains, contributing to the further enhancement of the competitive advantage of the East Asian region within the three major global production networks in North America, East Asia, and Western Europe.

Benchmarking international high standards such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), RCEP continually raises its level of openness and liberalization to create new institutional dividends.

The institutional dividends of RCEP primarily involve the effective implementation of various conveniences and preferential policies under existing rules. All parties should strengthen the alignment of policy implementation, promote regional regulatory convergence, reduce institutional costs, and effectively improve the business environment. In the rapidly evolving landscape of contemporary technologies like artificial intelligence, the Internet of Things, and big data, there is a need to advance the development of emerging areas such as e-commerce and data trade. RCEP encourages deep cooperation among member countries in areas like data infrastructure, cross-border e-commerce, smart cities, big data, and 5G applications, leveraging the examples and leading roles of existing cooperation achievements. Aligning with high-standard free trade agreements such as CPTPP and the Digital Economy Partnership Agreement (DEPA) is the general direction for the next steps. China has proposed accelerating institutional opening up, advancing rule and regulation alignment, and creating more development opportunities for all member countries.

Adhering to the principles of gradual progress and inclusivity, RCEP aims to enhance the development capabilities of underdeveloped countries, ensuring the improvement of welfare and overall balanced interests for all parties.

RCEP embodies the well-known "ASEAN way," characterized by establishing good mutual trust mechanisms through extensive negotiations, respecting the equal status of all parties, and fully considering concerns and differences, all in a manner that reflects the necessary inclusivity through gradual transformative approaches. RCEP adheres to the principle of balance of interests, taking into full consideration the interests of all parties and providing transition period arrangements for less developed members. Currently, all RCEP member countries can achieve overall welfare improvement and growth, creating a vivid example of shared development opportunities for all participating nations.

Advancing the effective release of dividends.

The achievement and comprehensive implementation of RCEP are hard-won, and all parties should cherish it. Against the backdrop of the "decoupling" trend promoted by Western countries such as the United States, RCEP aims to promote "strengthening chains," "extending chains," and "filling chains" in the region, becoming the biggest highlight in driving global economic recovery, and its effectiveness will benefit the entire world. Obtaining multiple dividends from RCEP requires enhanced communication, increased mutual trust, and collaborative efforts among member countries, particularly in resisting external forces that may cause disruption through non-market forces.

The multiple dividends of RCEP are interconnected rather than isolated. Trade dividends form the basis for other dividends, and industrial dividends rely on trade dividends. Institutional dividends represent the high-level expansion of trade and industrial dividends, and in turn, institutional dividends continuously enhance trade and industrial dividends. When releasing RCEP dividends, attention should be paid to managing relationships with other free trade agreements and regional multilateral cooperation frameworks, especially leveraging the supportive role of the China-ASEAN Free Trade Area Agreement and cooperation with relevant countries based on the Belt and Road Initiative.

Firstly, it is essential to promote and guide the existing rules of RCEP, ensuring that various market entities in each member country truly understand and effectively utilize them. RCEP covers aspects such as market openness, rules of origin, trade facilitation, technical standards, and intellectual property rights. Specialized areas like rules of origin require strengthened training and guidance.

Secondly, institutional development should be strengthened, and the establishment of the RCEP Secretariat through negotiations should be expedited. Ensure that RCEP maintains a central position among various economic and trade agreements in the region and promptly address any issues encountered during implementation. Establish specialized mechanisms such as RCEP-related industry alliances to accelerate the development and release of cooperation potential brought about by multiple dividends.

Lastly, advance the alignment between RCEP and China-ASEAN Free Trade Area 3.0, creating synergies. The ongoing negotiations for China-ASEAN Free Trade Area 3.0 version will be more open in the areas of digital economy, green economy, service trade, and investment. This version is conducive to further upgrading RCEP.

It is worth noting that over the past decade, ASEAN member countries actively participating in the Belt and Road Initiative have achieved fruitful results. For example, the opening and operation of the China-Laos Railway have transformed Laos from a "landlocked country" to a "land-linked country," significantly improving its conditions for foreign trade development. The current improvement in infrastructure and connectivity levels brought about by Belt and Road cooperation is narrowing the development gap between underdeveloped countries in Southeast Asia and other countries in the region. This will greatly enhance the ability of underdeveloped countries to benefit from participating in RCEP. (The author Xu Zhanchen is the Head of the Department of World Economy Studies, China Center for International Economic Exchanges)

(The original article was published on Economic Daily on 15th July, 2023)