Something momentous happened over the weekend that signals the continuing shift of the world’s economic fulcrum to Asia-Pacific away from North America, dominated by the United States. Fifteen economies comprising about a third of the world’s population and of the global economy signed a trade agreement that formalizes what is now the world’s largest trading bloc.
Initiated by the 10 Asean economies that we are part of, the newly-minted Regional Comprehensive Economic Partnership or RCEP now brings in five of the six “dialogue partners” with which Asean has already had separate free trade deals: Australia, China, Japan, New Zealand, and South Korea. India, the sixth dialogue partner, was originally part of the group, but chose to withdraw late last year on fears of an onslaught of dumped goods from China, among other concerns. RCEP would have been even more formidable with India, bringing the group’s combined population and economic share closer to 40 percent of the entire world. Even without India, RCEP is now bigger than the European Union, and the North American Free Trade Agreement composed of Canada, the United States, and Mexico.
Formal signing of the RCEP agreement is seen as a “victory” for China over the United States, as it certainly gains an advantage over the latter in their ongoing trade war. This is because China, by its sheer size, inevitably dominates the new trade group, and with formalization of the agreement, can assert that (1) it has alternatives to the US market, and (2) it gains the upper hand over the latter in influencing future economic directions in Asia-Pacific.
It was the second concern that had prompted President Barack Obama to champion the Trans-Pacific Partnership (TPP) agreement as a key part of his administration’s “pivot to Asia.” TPP was then seen as a rival to RCEP, as even as it has a much smaller combined population and consumer base, it would have also accounted for 40 percent of the world’s incomes. But Donald Trump chose to pull out of TPP in one of his earliest moves as president, thereby emasculating that grouping. Still, the rest proceeded on a much-downgraded scale and significance, as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP, which they signed in 2018.
Where does our country stand in all this? Trump’s withdrawal from TPP was actually a blessing for the Philippines, because we had not been part of the group forging the TPP, which included the three Asean members Malaysia, Singapore, and Vietnam. Had it gone through with the United States in it, we would have suffered significant diversion of our very prominent trade and investment ties with the United States, especially to Vietnam and Malaysia. Their preferential access to the US market under TPP would have made them preferred sources of products that we export to the United States, and preferred destinations for US foreign investments (which they already had been even without TPP). For that reason, our government had been making a strong pitch to join TPP as well—until Trump came.
In contrast, as a founding Asean member, the Philippines had been part of the RCEP from the very beginning. Trade Secretary Ramon Lopez points out that the RCEP economies accounted last year for half of Philippine exports, 61 percent of our imports, and 11.4 percent of foreign direct investments. The agreement is thus of critical importance to us, especially as we look to our post-COVID-19 economic recovery.
For sure, traditional trade opposers would again be wary of a greater influx of imports due to the trade deal. But we would do well to go beyond defensive concerns and also focus on great opportunities opened up for Filipino producers and workers. In addition to the nine other economies in the Asean Economic Community, they can now look to newer doors opened into the large economies of Australia, China, Japan, New Zealand, and South Korea. And provided we do our homework right—including catch up on infrastructure, fix our tax system for better conformity with our neighbors, and improve confidence in our country’s governance—then RCEP could truly be a critical path to a better post-pandemic economic future for Filipinos.
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