RCEP: Finally, the ultimate solution to the South China Sea disputes?

YET this “solution” hit the headlines the other day, with most people not realizing its vast geopolitical ramifications, that it could finally end the possibility of war over the South China Sea disputes. It’s often referred to by its acronym RCEP, which makes it appear more inscrutable.

RCEP stands for Regional Comprehensive Economic Partnership, with the Philippines the 15th East Asian country to ratify it, just the other day — after China, Japan, South Korea, Australia, New Zealand, and Singapore and eight Asean members in the past two years. It calls for the elimination of 90 percent of the member countries’ tariffs in a phased manner within 20 years of their ratification.

While its proponents boast that it will be the world’s biggest free-trade bloc, representing 30 percent of world GDP, hardly pointed out that China accounts for a huge chunk of this — 18.5 percent of the global economy. The shares of the other members of RCEP are far smaller: Japan 9.3 percent, Korea 1.7 percent, and Australia 0.9 percent. Except for its undiplomatic tone, it could be more accurately called the Regional China Comprehensive Economic Partnership.

In fact, RCEP has always been perceived by US analysis as a China-led free trade agreement that is “a significant geopolitical win for China.” Another analyst pointed out: “Although the agreement shall boost regional trade and stimulate economic growth, it is also indicative of a pivot to a more China-centric or Sino-centric trade in the region which could boost China’s influence in the region.”

Quite obviously, the fact that China with its 1.4 billion population, or 60 percent of the bloc’s 2.2 billion people, represents such a huge market, in which tariffs would be zero, that Japan, Korea and Asean rushed to join in. The Philippines was the last to join because of pressures from two unlikely allies: farmers’ groups and the US which resisted a China-dominated trading bloc. (Most agricultural products, however, aren’t subject to the RCEP’s tariff reduction schedule.)

RCEP will be the free trade bloc dominated by the superpower in our part of the world, China, just as the US has the Western Hemisphere, through its North American Free Trade Agreement, and Germany and France have their European Union. This is the reason why India has opted out of RCEP, as it sees China as its rival in terms of economic power, that the Chinese will manage to control the bloc to India’s disadvantage.

Asean

Senate President Juan Miguel Zubiri, who led the body in asking for the ratification of the agreement, said that RCEP is an Asean-led Free Trade Zone. He’s wrong. It was China that pushed for the RCEP, which it rushed to have ratified after the US in 2022 announced a so-called “Indo-Pacific Economic Framework” that excluded China.

RCEP will be to the advantage definitely in the near future of China, Japan and South Korea which are already China’s biggest trading partners. As all free-trade arrangements have historically worked, RCEP puts at an advantage the more economically developed trading partners since their products, except for agricultural and low-tech products, are more competitive and less expensive because of the technology they use.

For instance, Japanese companies that produce electrical goods and electronic products, machinery, automobile components, and some agricultural and food products, will enjoy significant tariff concessions when they export to China. As a result, the Japanese government expects the accord to increase its own GDP by 2.7 percent and create approximately 570,000 jobs.

Already, in the first three months of RCEP’s ratification, exports and imports between China and RCEP members grew by 11.1 percent and 3.2 percent, respectively. China is deepening its trade with East Asia.

Zubiri’s press release quoted a 2021 study by three economists of the Philippine Institute on Development Studies that said participation in the RCEP will lead to a 2 percent increase in the country’s GDP while non-participation will result in a 0.26 percent decrease in GDP. An earlier (2016) study cited in that paper claimed that RCEP may result in trade creation particularly in areas of construction, transport machinery and equipment, and services; GDP increase of up to 3 percent; and poverty decline from 25 percent to 23 percent.

Analysis

However, I don’t think the government’s decision to join the RCEP is based on any cold analysis of its costs and benefits. Indeed, there has been a dearth of studies on how the RCEP will impact our different industries.

For my part, I really can’t see which of our products can take advantage of zero tariffs in China, Japan and Korea. On the other hand, just going to a supermarket, one can conclude that China, Korea, and now even Vietnam, can wipe out in a free-trade arrangement our manufactured foods industry.

We had to join RCEP because all of our neighbors, even the richest among them, had joined it in 2021 and 2022. We had no choice, we would have been left out of what would be the biggest trading bloc in the world if we did not join RCEP. Nobody in his right mind, except for Sen. Risa Hontiveros, the only senator to vote against it, would probably want that.

What will determine if RCEP will be a bane or boon for us, is whether our big businesses, helped by the government, will be able to produce products whose competitiveness are boosted by zero tariffs in the exporting country. What is worrisome is that many of our big businesses — those with the necessary financial means — aren’t in export production but in real estate and finance.

Inarguable

The inarguable benefit of RCEP is that it will push to the background — as the Chinese have always insisted we should do — the territorial and maritime disputes in the South China Sea among China, the Philippines, Vietnam and Malaysia. With a “Sino-centric” RCEP, Japan and South Korea — which have US military bases having been American puppets for most of the post-war era — would use their geopolitical, and even economic clout, to rein in American belligerence towards China.

Referring to its territorial disputes with Japan, China’s revered leader Deng Xiaoping long exhorted both his country’s and Japanese leaders to put aside such quarrels for future generations to resolve as they may be smarter. RCEP is such a smart idea. Who would want the world’s biggest economic bloc to be buffeted by conflicts that could lead to war, which squabbles can simply be shelved for resolution in the far future. Indeed, France and Germany had been warring for centuries until the European Union was created.

Indeed, the US was audacious in encircling Russia (which provoked it to invade Ukraine) as except for its gas and oil, it had little trading clout in Europe. China is definitely not Russia it could demonize now, as the Asian superpower will be the hub of an Asian mega trade bloc.

We have claims in the South China Sea, and so does China, Vietnam and Malaysia. We should just recognize those differences exist and stop rattling our rusty swords and shouting to the world that “ours is ours,” and focus on how we can take advantage of the newest and biggest free trade market in the world.

RCEP will be a geopolitical game changer in Asia, just as economic blocs have been game changers in world history. President Ferdinand Marcos Jr. should be praised for resisting US efforts to dissuade us from joining it.

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RCEP: Finally, the ultimate solution to the South China Sea disputes?
Source: Breaking News PH