Opinion

RCEP might not stop reshuffling of Asian value chains

China is no doubt bound to benefit, but other members of the regional trade pact may benefit even more

By: Date: November 17, 2020 Topic: Global Economics & Governance

This opinion post was originally published in Asia Times.

There could not be better timing for China to announce such a huge trade deal as the Regional Comprehensive Economic Partnership (RCEP), in the midst of presidential reshuffling in the US.

Furthermore, among the many wild cards that Beijing could use during the period of political vacuum in the US, opting for trade liberalisation is a great plus for China’s image and probably more relevant in economic terms than any other more aggressive option that the media have been discussing, from Taiwan to the South China Sea.

Still, it is important to note that the RCEP negotiations had been dragging on for eight years and that the final agreement has been watered down in terms of key liberalisation measures.

Also read: By opting out of RCEP, India missed another bus

Not only was the geographical coverage bigger when the negotiations started – it included India – but the scope in terms of liberalisation was also larger. Furthermore, when RCEP started as a response to the Trans-Pacific Partnership (TPP), the US-China strategic competition was just starting, while it is now pulling RCEP members in different directions.

The best example is recent trade friction between China and Australia, but there could be many others. In the same vein, increasingly pervasive US sanctions against targets in China will not help make RCEP a success.

While the US – and Europe – are key losers remaining outside of this deal, the biggest winner might not necessarily be China. China is no doubt bound to benefit, but other members within RCEP may benefit even more.

China will face fewer barriers to exports into the rest of Asia (including e-commerce). But the Association of Southeast Asian Nations, on the one hand, and South Korea and Japan on the other will find it easier to build their value chains, where production is based in ASEAN with Northeast Asian investment.

In fact, ASEAN countries have been receiving an increasing amount of manufacturing FDI (foreign direct investment) from Japan, South Korea and Taiwan, which is already bigger than their FDI into China. Such a sharp increase in investment into ASEAN is not only a response to higher labour costs in China but is also meant to diversify away from an excessively China-centric value chain.

Thanks to this, Japanese, South Korean and Taiwanese trade integration within ASEAN has also been increasing, especially when focusing on intermediate goods. Against this backdrop, ASEAN will likely grow its own manufacturing capacity, thanks to Northeast Asia’s FDI. However, a good chunk of the final demand might still be in China.

In sum, while the actual increase in market access will remain limited among some of the RCEP members (such as Australia and China), the importance of this deal is for the world to realise that Asia is still dependent on the Chinese market and that Asian countries cannot pass on the opportunity of improved (even if still limited) market access into China.

As for the relative losers outside of the deal such as the US, we would imagine that the incoming Joe Biden administration will soon react by engaging in negotiations for a trade deal with Asia.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Podcast

Podcast

A rushed deal or a rush to judgement?

The Comprehensive Agreement on Investment (CAI) is supposed to improve market access for European companies operating in China and to ensure a level playing field, as well as reciprocity. Does it fulfil such expectations?

By: The Sound of Economics Topic: Global Economics & Governance Date: January 27, 2021
Read about event
 

Upcoming Event

Feb
4
13:00

Carbon Border Adjustment Mechanism: Greening the EU trade?

Assessing CBAM from a trade perspective.

Speakers: Luis Garicano, Emily Lydgate and André Sapir Topic: Energy & Climate, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author
 

Opinion

中國企業受累貿戰和疫情,但仍優於全球同業

總體上,中國企業的表現半喜半憂:相對全球同業表現較好,但收入下降和槓桿率升高帶來的風險也不容忽視。

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 21, 2021
Read article More on this topic More by this author
 

Opinion

RCEP對亞洲影響積極,無阻價值鏈重組

總體而言,雖然RCEP成員之間在市場准入上實際提升幅度有限(例如中國和澳洲),但這一協定的意義在於讓世界意識到,亞洲仍然依賴中國市場,亞洲國家不能錯過中國放寬市場准入的機會,即使幅度有限。

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 21, 2021
Read article More on this topic More by this author
 

Opinion

An EU - China investment deal: a second look

For the moment, it does not look like we have the basis for greater and deeper economic relations with China. However, dismissing China and the opportunities that it creates for global cooperation would also be a mistake.

By: Maria Demertzis Topic: Global Economics & Governance Date: January 19, 2021
Read article More on this topic More by this author
 

Opinion

Résilience : la nouvelle boussole

Pour surmonter le choc de la pandémie de Covid-19, l’économiste écarte, dans sa chronique, l’idée d’un repli protectionniste, mais suggère de passer d’un objectif de réduction des coûts à celui de la réduction des risques.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: January 18, 2021
Read article More on this topic More by this author
 

Blog Post

The double irony of the new UK-EU trade relationship

The Trade and Cooperation Agreement signed between the European Union and the United Kingdom goes against six decades of UK efforts to avoid being economically disadvantaged in Europe. Tracking the evolution of the EU-UK relationship over the last 60 years can help in understanding this.

By: André Sapir Topic: European Macroeconomics & Governance Date: January 12, 2021
Read article More on this topic More by this author
 

Opinion

Europe's disappointing investment deal with China

Why rush a deal that is so inherently complex?

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 4, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Deglobalisation in the context of United States-China decoupling

After decades of increasing globalisation, there now seems to be a slowing, or even a turn to deglobalisation, meaning decelerating trade and investment and reduced global value chains. This trend seems to have accelerated because of the United States’ push to contain China in the context of their strategic competition. So far, however, there is less evidence of deglobalisation in terms of financial flows.

By: Alicia García-Herrero and Junyun Tan Topic: Global Economics & Governance Date: December 21, 2020
Read article More on this topic More by this author
 

Blog Post

When and how should the European Union conclude an investment agreement with China?

A look into the potential Comprehensive Agreement on Investment between China and the European Union.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 17, 2020
Read about event Download PDF More on this topic
 

Past Event

Past Event

Europe and India: Comparing Approaches to Global Economic Challenges

Stakeholders from government, private sector, media and academia/institutions come together to review India-EU relations and point to a promising direction for the future.

Speakers: Yamini Aiyar, Suman Bery, Navroz K Dubash, Ignacio Garcia Bercero, Alicia García-Herrero, Rajat Kathuria, Gautam Mukhopadhaya, Ananth Padmanabhan, Georgios Petropoulos, André Sapir, Shyam Saran, Simone Tagliapietra and Guntram B. Wolff Topic: Global Economics & Governance Date: December 15, 2020
Read article More on this topic More by this author
 

Opinion

A silver lining for ageing Asia

An ageing population is generally bad news for growth prospects, but Japan and Taiwan offer important lessons.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 8, 2020
Load more posts