What is more important than zero tariffs?, The largest free trade zone is fully open, with depth | The Philippines fills the "last corner" and all 15 signatory countries come into effect | RCEP | The Philippines

On June 2nd, the Regional Comprehensive Economic Partnership Agreement came into effect for the Philippines. This marks the entry into force of RCEP for all 15 signatory countries. The world's largest free trade zone has entered a new stage of comprehensive implementation.

"RCEP is completely unobstructed", "Philippine officials expect RCEP to bring more opportunities", "The Philippines achieves good business with China through RCEP"... In recent days, multiple Philippine media outlets have focused on the economic effects that RCEP may bring.

What does it mean for the world's largest free trade zone to fully take effect? What benefits can businesses and consumers in various countries receive? Amidst the headwinds of economic globalization, what will RCEP's journey forward bring to Asia and the world?

Philippines' Expectations

On June 2nd, at a press conference held in Manila, the chief representative of the Philippines RCEP negotiations used "milestones" to describe the entry into force of RCEP for the Philippines. Several Philippine officials have stated that they look forward to RCEP bringing development opportunities and accelerating regional economic integration.

RCEP is a witness to ASEAN and regional economic integration. It was first proposed by ASEAN in 2011, aiming to provide a series of trade facilitation measures for participating countries, including gradually eliminating 90% of trade tariffs on goods, and establishing common rules for e-commerce, trade, and intellectual property.

After 8 years and 31 rounds of negotiations, overcoming many difficulties, the 10 ASEAN countries finally signed an agreement with China, Japan, South Korea, Australia, and New Zealand in November 2020, which officially came into effect in January 2022. The free trade zone with the world's largest population, largest economic and trade volume, and highest total trade volume was born from this.

Compared to other signatory countries, the Philippines was the last country in the RCEP family to approve and take effect. Due to factors such as last year's election and opposition from farmers, the approval process in the Philippines has been delayed.

Some Filipino farmers are concerned that RCEP will pose a blow to local agriculture. In response, the Philippine Ministry of Trade and Industry stated that the Philippines has excluded key agricultural products related to farmers' livelihoods from zero tariffs, and the implementation of RCEP will not trigger a large influx of imported agricultural products.

In February of this year, after intense debate, the Philippine Senate finally approved RCEP. According to the rules, the agreement will officially come into effect 60 days after the Philippines submitted its ratification to ASEAN on April 3rd.

Analysts believe that the effects of free trade are not balanced, not just for the Philippines, but also for countries to weigh before approving.

"However, both the Philippines and other participating countries have a consensus," said Yuan Chunqiang, Deputy Director of the Institute of World Economics at the China Institute of Modern International Relations, acknowledging the trend of RCEP towards trade liberalization and economic globalization, as well as the win-win effects it has brought to all parties since its implementation.

Zhou Fangyin, Vice President of Guangdong Institute of International Strategy, believes that the industrial competitiveness of the Philippines is not very strong, and the enthusiasm for joining the free trade agreement is relatively limited. The final approval to take effect is the result of a game of multiple forces. From the external environment, other ASEAN countries have approved the implementation, which will bring political pressure to the Philippines. From a practical perspective, the agreement will bring trade and investment convenience to the Philippines, as well as promote its market integration with other ASEAN countries and the entire region.

According to multiple sources of data, participating in RCEP will bring a 2% increase in GDP in the Philippines; By 2030, exports can increase by 3.7%; The poverty rate will decrease to 3.62% by 2031.

The Philippine Ministry of Finance believes that industries such as agricultural products, automotive parts, and clothing will significantly benefit from RCEP, which will help enhance the international competitiveness of related industries.

As an important contributor to the Philippine economy, small and medium-sized enterprises are expected to receive more external investment, benefit from relaxed rules of origin, and better integrate into the global value chain, thereby achieving economies of scale.

Greater benefits

On the early morning of June 2nd, a batch of plastic earphone accessories sent from Guangdong to the Philippines successfully cleared customs at the Shenzhen port. This is the first batch of goods exported from China to the Philippines after RCEP takes effect.

China is the largest trading partner, largest source of imports, and third largest export market of the Philippines. It can be foreseen that with the implementation of RCEP in the Philippines, China will also benefit from it.

For example, in terms of goods trade, the Philippines will add zero tariff treatment to China's automobiles and parts, some plastic products, textiles and clothing, air conditioning and washing machines, etc; In terms of services and investment, the Philippines has committed to opening up markets to over 100 service sectors, significantly opening up sea and air transportation services; In other areas, China and the Philippines will engage in deeper cooperation in policies and regulations, knowledge sharing, and technological exchanges.

If we broaden our horizons, the broad prospects of cooperation between China and the Philippines are also a microcosm of the development dividends shared by the 15 signatory countries of RCEP.

Firstly, the implementation of RCEP provides support for the growth of foreign trade and investment in various countries. Taking China as an example, since January last year, the total import and export volume between China and other participating countries has increased by 7.5% year-on-year, and the actual utilization of investment from other participating countries has increased by 23.1% year-on-year.

Secondly, RCEP, combined with other bilateral free trade agreements, helps countries reduce trade costs and improve trade facilitation. Last year, Chinese enterprises enjoyed tariff reductions of over 3 billion yuan under the RCEP framework, resulting in a significant reduction in import and export clearance time.

Thirdly, RCEP brings tangible benefits to consumers in various countries. For example, Chinese consumers can buy imported goods such as Southeast Asian fruits, Japanese and Korean cosmetics, Australian health products, and New Zealand milk at lower prices.

"Since the successful RCEP negotiations, there have been criticisms internationally that it is not 100% open and many tariffs need to be reduced for a long period of time. This precisely indicates that the rules and pace of RCEP are in line with the industrial structure and economic status of all economies." Yuan Chunqiang pointed out.

As is well known, trade liberalization and facilitation are important contents of RCEP, and rules of origin are its major breakthroughs. But in addition, RCEP also incorporates cutting-edge international rule systems such as e-commerce, intellectual property protection, and cross-border personnel mobility, while maintaining a high level of development and considering the personalized needs of each country.

Yuan Chunqiang believes that the greater and intangible benefits of RCEP lie in providing a broader and higher-level industrial chain cooperation platform for all economies in the region, and preserving a buffer period for countries. During this process, relatively developed economies such as China, Japan, and South Korea will provide capacity training and protection to relatively underdeveloped economies, with the ultimate goal of promoting common development among all economies.

Information conveyed

Looking at the world, RCEP started later than the two major free trade zones of the United States, Canada, Mexico, and the European Union. But regardless of economic scale, population size, or member diversity, it surpasses the first two.

Now, with a corner of the Philippines, RCEP is fully open. What is the significance of this for regional cooperation and economic globalization?

Two analysts believe that the significance of RCEP is not only reflected in economic interests such as trade and investment, but also condensed at the political level, which can be summarized into three key words: cooperation, inclusiveness, and stability.

Cooperation lies in "RCEP representing a positive attitude towards promoting economic cooperation on a broader scale," said Zhou Fangyin.

"The United States has always wanted to develop an 'Indo Pacific economic framework', and some countries outside the region hope to form alternative industrial chains that bypass China in the Asia Pacific region. However, the operation of RCEP sends a message to the world that so-called 'decoupling and breaking the chain' with China and creating a 'parallel system' cannot be successful." Yuan Chunqiang pointed out that because regional economies enter vast markets and complete industrial chains in cooperation with China, they receive tangible benefits, including in countries with political resistance such as Japan and South Korea. This is exactly the uniqueness of RCEP.

In contrast to RCEP, "the 'Indo Pacific Economic Framework' has been launched for several years, and the possibility of its true implementation is not very high." Yuan Chunqiang pointed out that the main problem is that it does not include the open market access of the United States, which is seen as a favor by the outside world but cannot be achieved. The United States wants to build an alliance with China as its goal, but many regional countries do not want to take sides. They believe that cooperation with China is comfortable, and the United States may just be building a castle in the air.

Inclusion lies in the fact that "against the backdrop of unilateralism and protectionism in the United States, the momentum of promoting free trade worldwide has been hindered. RCEP is one of the few platforms that is still moving forward. Unlike the Comprehensive and Progressive Trans Pacific Partnership, which is still moving forward, it is more inclusive and welcomes all countries to join." Zhou Fangyin pointed out that the United States is also promoting the "Indo Pacific Economic Framework", but mainly driven by political factors rather than market factors, aiming to create a closed supply chain. This itself is a distortion of free trade and free flow of capital.

Stability lies in, in the long run, "RCEP will reverse the backward situation of East Asia in the 'East Asia Europe North America' triangle through solid cooperation within East Asia, making the tripartite East Asian corner more stable. This will bring benefits to all participants in East Asian regional cooperation," said Yuan Chunqiang.

Looking ahead, Yuan Chunqiang mentioned an observation point, which is how RCEP can achieve the expected cooperation in "jointly expanding the cake".

"Some Westerners have criticized that the more developed economies in RCEP pose so-called 'coercion' to other economies. Therefore, all economies in RCEP need to prove with facts that our goal is to jointly expand the cake and benefit all participants." Yuan Chunqiang pointed out that with joining closer regional cooperation chains, each economy can find space and links suitable for its own development. This win-win rather than zero sum game posture is the ideal cooperation model of RCEP.