A China-backed trade and investment deal representing about a third of the global economy is unlikely to bring immediate significant benefits for its developing member countries, analysts and economists say.
The Regional Cooperation Economic Partnership (RCEP) needs to be ratified by all 15 of its signatories, which may take time, the experts told the Reuters Global Markets Forum.
The fact that the deal incorporates different levels of tariff reductions for each country and product means labour-intensive economies may end up with more imports than exports in the short-term, particularly during the coronavirus pandemic, they said.
The RCEP is seen as the China-backed alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The United States had driven the formation of the CPTPP’s predecessor, the Trans-Pacific Partnership, until former President Donald Trump pulled out of the deal in 2017. The remaining countries subsequently formed the CPTPP without the US.
The RCEP has no provisions to improve labour rights in member countries, which has been exacerbated by the COVID-19 pandemic to justify reductions in formal wages and conditions, said Kate Lappin, Asia Pacific regional secretary at Public Services International.
“The agreement might not be good for governments and workers, but still deliver profits for foreign investors,” Lappin said she expected the RCEP to help countries with developed industrial policies namely China, Japan, Korea and Australia, along with New Zealand in terms of agricultural products that support the growth of higher value industries.
Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said a long-term positive will likely be that businesses would be encouraged to build supply chain networks within the region.
“(RCEP) helps to harmonise the rules of origin when trading within the region … so long as inputs of a product are imported from RCEP members, the product will (qualify) for tariff waiver,” Yao said.
Based on this, Yao predicted that Vietnam, Indonesia and Malaysia would benefit the most in the long term.
Advantage China
China’s large global footprint in digital technology and services along with its “Made in China 2025” strategy, which prioritises 10 key sectors including robotics, aerospace and clean-energy cars, will likely help it take advantage of these shifting supply chains.
Joanna Konings, a senior international trade economist at Dutch bank ING, said the “Made in China 2025” strategy is helping China make more valuable products while holding on to low value-added activity through automation.
The RCEP pact makes it easier for Chinese companies to run regional supply chains more efficiently, said Chris Rogers, research analyst at S&P Global Market Intelligence unit Panjiva.
In return, Southeast Asian countries get better access to China, South Korea and Japan, and therefore, “the politics and economics are well-balanced,” Rogers said.
He added that he does not expect RCEP to facilitate a big increase in infrastructure investment, but corporate investment in supply chains is likely to go up.
Deborah Elms, founder and executive director at the Asian Trade Centre, said she was concerned that RCEP does not provide investors protection against governments that try to expropriate private assets.
“Given the size of many infrastructure projects, this may be a problem for many firms,” she said.
-ALJEEZERA