Chi Fulin

May 21, 2023

At present, global geopolitical tensions are rising, economic landscape is rapidly evolving, industry and supply chains are out of order. Against this backdrop, we need to fully recognize the significance of the implementation of RCEP, grasp the mega trend and remove interferences to jointly build the world’s largest free trade area into a high-level one.

1. Shared development is RCEP’s prominent feature. It will not only give a big boost to the inclusive development of the region but also stimulate the global economic growth

1.1 Development is the basis and prerequisite for solving all problems. It is so now and it will be so in the future. By giving priority to common development in the region, RCEP is development-oriented and aims to unleash the potential of economic cooperation in the region. At present, global economic growth may face the severe challenge of a "lost decade". As estimated by the World Bank, the global average economic potential growth between 2022 and 2030 may fall to be about a third lower than that in the first decade of this century. But, if countries stick to sustainable and pro-growth policies, the potential economic growth may increase by 0.7 percentage points. To seek for development or to accept recession? To cooperate or to provoke antagonism? The world today faces a major choice.

It is clearly stated in RECP’s Preamble to "broaden and deepen economic integration in the region, strengthen economic growth and equitable economic development". The RCEP, with developing countries as its mainstay, pursues common development as its core interest. The next 5 to 10 years will be a crucial period for the release of RCEP’s policy dividends. As the International Monetary Fund (IMF) estimated, the total GDP growth between 2022 and 2028 in the RCEP region will reach $13.3 trillion, which would be 17% higher than the combined GDP growth of the US and the EU. By 2040, East Asia's GDP will account for more than 50 percent of the world economy, up from about 30 percent now. Thus, it will become the world's largest economic growth center and an important force for the transformation of the world economic and trade order.

1.2 Market- and rules-based development is sustainable development. It is so now and it will be so in the future. The US-led "Indo-Pacific Economic Framework" attempts to build a values-based and exclusive supply chain system in the Asia-Pacific. In essence, it is a "zero-sum game" driven by its own interests and by the purpose of maintaining its own hegemony at the expense of others. A few days ago, a commentary in India warned to guard against falling into the trap of the Indo-Pacific Economic Framework. In sharp contrast, the development in the RCEP region is market- and rules-based, which will lead to long-term sustainable growth in the region. "Establishing clear and mutually beneficial rules to facilitate trade and investment" is RCEP’s basic principle. And the development in the RCEP region will prove again that market- and rules-based regional economic cooperation is full of dynamics and vitality.

1.3 Shared development is the pursuit and goal of free trade in the new era. It is so now and it will be so in the future. The RCEP region upholds the flag of inclusive and shared development, and will surely win the future of free trade in the region and across the world. While the practice of some countries taking values as the premise, establishing "small courtyard with tall walls", "decoupling and breaking supply chains" and “forming exclusive small circles" will increase the uncertainty of global development and lead to the disruption of global industrial and supply chains.

RCEP upholds the basic principle of shared development and has set up special and differential treatment clauses, which benefit all members at different stages of development. For example, in 2022, Cambodia's exports to other RCEP members increased by 7 percent year-on-year, contributing about 2 percentage points to its economic growth that year. An analysis predicts that RCEP will boost ASEAN's GDP growth rate by 4.47 percentage points by 2035, with the GDP growth rate of the Philippines, Cambodia, Thailand and Vietnam to increase by more than 6 percentage points.

2. High-level opening-up is an important goal of RCEP. Advancing the high-level opening-up process in the RCEP region at the right time will continuously elevate the level of economic development in this region and contribute to the formation of a new landscape of global free trade

2.1 The RCEP featuring shared development is a free trade arrangement suitable for the region and an important vehicle for unlocking the dividends of regional development. Objectively, an inclusive rule system with lower standards is often more effective than one with high standards but strong exclusivity. RCEP’s outstanding strength lies in the balance between high standards and applicability. By upholding the free trade principle of "inclusiveness and sharing" and the flexibility of openness, the RCEP region holds great promise. In the future, a higher-level RCEP with shared development as its purpose will unleash greater economic growth effects and play an important role in promoting global governance reform.

2.2 We should adapt to the general trend and advance the high-level opening-up process in the RCEP region to meet regional development needs.

(1) To promote early implementation of the commitment on opening-up in the RCEP Agreement. For example, we should work together to shorten the transition period for opening commitments such as "zero tariff" and shift to service trade negative list management. We should promote the transition of RCEP’s "rules of origin" towards "full accumulation". We should give full play to the main role of enterprises to achieve a breakthrough in free trade at the industrial level and invite other economies from the Asia-Pacific region and even from other regions to join when conditions are ripe.

(2) Advancing the alignment and integration of RCEP with CPTPP at an appropriate time. First, we should create conditions for the alignment of some of RCEP’s policies and institutions with those in CPTPP while upholding the principle of inclusiveness and sharing. Thus, the cost of using rules for economies that are members of both RCEP and CPTTP can be effectively reduced and greater regional economic and trade benefits can be generated. We should, while raising the level of openness in traditional trade issues, make use of RCEP’s consultation mechanisms to align its rules with "behind the border" rules of CPTTP in areas of e-commerce, intellectual property protection and competition policy.

(3) The alignment of RCEP’s rules with those of CPTPP will create important conditions for accelerating the establishment of the envisioned Free Trade Area of the Asia-Pacific. According to an estimation of the World Bank years ago, the envisioned FTAAP would drive regional economic growth by 4.6%, which would be more than four times the driving effect of the CPTPP and will drive global economic growth by 2%. The establishment of FTAAP has been the common aspiration of all parties for many years. To achieve this important goal, we need to strengthen confidence, remove interference and obstacles, and forge a new type of Asia-Pacific partnership featuring openness, inclusiveness and win-win cooperation by aligning RCEP’s rules with those of CPTPP, in order to lay an important foundation for the establishment of the Free Trade Area of the Asia-Pacific.

2.3 Major economies should play a facilitating role in building a high-standard RCEP.

The GDP and added value of manufacturing of China, Japan and the ROK put together all account for more than 80% of the totals in the RCEP region. They are also major export markets in the region and have an important role to play in building a high-level RCEP. Moreover, there is still much to be done for economic and trade cooperation among the three countries under the RCEP framework. China, Japan and the ROK should eliminate interference from outside the region to honor their commitments on economic and technological cooperation and on market opening under the RCEP framework.

Not long ago, President Xi Jinping stressed again that “We are ready to work with all countries that are willing to work with us for win-win cooperation and common prosperity of the world economy” .China and the United States’ GDP and trade put together account for 70% and 50% respectively of the totals of the Asian-Pacific region. They both should be promoters of the establishment of the Free Trade Area of the Asia-Pacific.

3. ASEAN is the main force for advancing the RCEP process. And forging a 3.0 version of the China-ASEAN Free Trade Area will be a big push for the high-level opening-up in the RCEP region.

3.1 ASEAN and China are centers of vitality and gravity of the RCEP region. ASEAN countries constitute the mainstay of the RCEP region and is one of the global markets with the largest growth potential. From 2014 to 2019, ASEAN's GDP grew at an average annual rate of about 5%, much higher than the world's 2.9% and the EU's 2.1%. By 2030, ASEAN is expected to overtake Japan to become the world's fourth largest economy, according to an analysis.

China has always been an important promoter of the RCEP process. In 2022, China's imports from, and exports to, other RCEP members increased by 7.5% year on year. Its non-financial direct investment in other RCEP members increased by 18.9% year on year, and foreign direct investment it absorbed increased 23.1% year on year. It has become a major strategic task for China to participate in building the world's largest and high-quality free trade area with other members through high-quality implementation of the RCEP.

3.2 Speeding up the building of Version 3.0 of the China-ASEAN Free Trade Area is a key step to advancing the high-level opening-up of the RCEP region. The forge of Version 3.0 of the China-ASEAN Free Trade Area and the promotion of trade and investment liberalization and facilitation at a higher level will fully unleash the potential of the two most dynamic markets of China and ASEAN, and will also accelerate the high-level opening-up of the RCEP region and strengthen ASEAN’s centrality in the regional cooperation framework.

3.3 China is the largest market of ASEAN. High-level opening-up in China will be an important driving force for building the Version 3.0 of the China-ASEAN Free Trade Area. In the next 10-20 years, the structural transformation of China's consumption structure, industrial structure, urban and rural structure, science and technology structure, energy structure and trade structure contain huge market space. Taking consumption structure as an example, it is estimated that the proportion of service consumption of urban and rural residents in China is expected to reach about 50% by 2025 and over 55% by 2030. The continuous release and open sharing of this potential will create huge market space for promoting economic growth in the RCEP region.

Promoting high-quality development through high-level opening-up is a major strategy for China’s sustainable development. To this end, one of the major tasks for China to build a new pattern of development in which domestic circulation and international circulation promote each other is to strengthen economic and trade cooperation with ASEAN. For example, we will actively develop border and cross-border economic cooperation zones and free economic zones, and explore ways to give national treatment to market players from neighbouring countries in these border and cross-border economic cooperation zones.

The purpose of constructing Hainan Free Trade Port is to make it an important hub for China-ASEAN comprehensive strategic cooperation:

·   To form an important force for promoting comprehensive strategic cooperation between China and ASEAN through interlinked and interactive development of Hainan Free Trade Port and the Guangdong-Hong Kong-Macao Greater Bay Area;

·   To build Hainan Free Trade Port into an important meeting point between China and markets of other RCEP members through establishment of "corporate headquarters base";

·   To build a demonstration zone of version 3.0 of China-ASEAN Free Trade Area focusing on cooperation in blue economy, green economy, and digital economy.

·   To build a pilot institutional opening-up zone by accelerating high-level opening-up stress tests.