RCEP and ASEAN


rcep signatories

Impact of RCEP on ASEAN


On November 15, 2020, 10 members of the Association of Southeast Asian Nations (Asean), which comprised of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam plus China, Japan, South Korea, Australia and New Zealand signed on the deal.


RCEP’s guiding principle state, “The objective of launching RCEP negotiations is to achieve a modern, comprehensive, high quality and mutually beneficial economic partnership agreement among the ASEAN member states and ASEAN’s FTA (free trade agreement) partners.” Meanwhile, it is expected that member states will ratify it by middle 2021.


The RCEP is expected to eliminate a series of tariffs on imported products for the member nations in the coming 20 years. The agreement also includes rules on intellectual property, telecommunications, financial and professional services, and e-commerce but not environmental, labour standards and the contentious state own enterprises. The intent is that it will lead to trade creation because the countries that are part of the RCEP will progressively lower tariff rates, so that will lead to an increase in trade among them.

However, many signatories of the RCEP already have FTAs with each other but it is known that the existing FTAs can be very complicated to use compared to RCEP. However, under RCEP, member nations would be treated equally. It would also incentivise companies in member nations to look at the trade region for suppliers. As it is, China being one of the largest of economies and a big supplier to the supply chain will benefit the most. So what does it mean for the smaller countries of ASEAN or even Korea, Japan, Australia and New Zealand? Japan and Korea might also benefit with lower duties as they have a supply chain in China and do also export to China. As for the ASEAN countries it goes without saying that they will be able to export their raw materials to China and import with less duties of spare parts and finished products.

But that being said, is there any other thing that ASEAN countries can do to help balance the trade equation with China? Unfortunately not on a long shot. AEASN will have to come up with indigenous products that China does not make. Or perhaps products with lesser technologies but with marketable indigenous inputs like locally designs that suit certain purposes. Yes, there is a lot of work for ASEAN after having signed RCEP. At the end of the day, China in kick starting RCEP is because China wants to sell more of its products to the other members. And for the other members, the aim is to get access to the bigger market in China, period.


What is there for ASEAN?


Trade is like War fare and for RCEP there is no difference. And like war fare, you will need to prepare if you want to win. You will need to take stock of your own ability. You will need to prepare your people to go for war and like most smaller economies, you must be able to motivate your people to be ready to fight. For the twenty first century and also for the borderless era, you must not only send your embassador to just attend meetings and come back with nothing. When you go and meet giants, you must have something that they don't have, otherwise don't go! You must be able to motivate your people to go out there and fight because you will have to meet up with giants. You will need to learn how David slew Goliath!


As Industrial Revolution 4.0 is getting a hold of production processes, it goes for ASEAN to make changes so as to keep up with the Joneses. Chief among the many facets is education where there is an urgent need to restructure the system to suit a manufacturing economy. Not only that but when we talk about education, we will need to touch on revolutionising it to conform to world standards. For this we will be better of if we can also include a feedback system (to keep the teachers up to date) and also to incorporate Artificial Intelligence and TVET.40 . And a second but no less important is to change how a government goes around dishing money for research and development. It is sad to know that most of ASEAN countries does not give priority to technology developments as they are more comfortable with importing technology. Buying machines from advance countries seemed to be the mantra as it is less of a hassle. If something were to go wrong with the machine, they will just call rectification crew, some of them have to be flown in as an emergency crew. So you see why ASEAN need to buck up!


For Vietnam, and as a member of RCEP its major export categories that are expected to benefit include IT, footwear, agriculture, automobiles, and telecommunications. As Vietnam moves to become a high-tech manufacturer, the RCEP can help local firms increase exports and attract high-quality goods but lower prices for its consumers. In addition, with demand for Vietnam’s exports like agriculture and fisheries products, Vietnam is set to benefit as there is a bigger market in China but not forgetting that you can get almost anything through the internet from China. So, indeed Vietnam will have to drive up its R & D in order to make better products just to rebalance its trade equation with China. As for ASEAN, what you can make in Vietnam you will be able to make in the other countries. Vietnam will have to look into making unique products that is not available in the other member countries.


As for Indonesia, a free trade agreement like RCEP has positive sides for Indonesia as it can challenge a country to be more efficient, productive, and innovative in increasing an industry’s competitiveness level. Indonesia’s manufacturing sectors will be under great pressure as its manufacturing industry is not as strong as that of China, Korea or Japan. Indonesia is after all an agricultural country and it can produce food at a lower cost because of low labour cost.


As for Thailand, its Ministry of Commerce is of the view that it will begin to train farmers and entrepreneurs on how to tap into the benefits of RCEP this year by way of reducing cost but increasing quality. Thailand exports fruit, vegetable oil, cereal, tapioca starch, seafood, processed food and fruit juice to other RCEP members. Again, increase market access is the aim. As for technology, there is very little to shout about as it is still an agricultural society. The Department of Trade Negotiations released latest data, indicating that in 2019 Thailand exported agricultural products worth 25.2 billion U.S. dollars to 16 RCEP member countries. Products that have seen greater demand in 2020 include fresh and frozen fruit, fresh and frozen chicken, canned and processed fruit and fruit juice.


As for the Philippines, the RCEP will further broaden the Philippines' economic engagements with its trading partners through improved trade and investment, enhanced transparency, integrated regional supply chains, and strengthened economic cooperation but nothing much on technology.


As for Malaysia, almost 60% of her trade involve RCEP members, so Malaysia’s tends to gain with easier access and reduced duties; it bode well to benefit from joining RCEP. However, there is still much work to be done if Malaysia will to be able to export to these similar technology countries besides China, Korea and Japan. For one thing, Malaysia will need to step up its own indigenous technology to be on a different supplier basis. Whatever you can make in Malaysia, you can make in ASEAN with very little price difference.


Malaysia's situation is a bit of catching up in terms of technology as she could not afford to sell to China on the same tech level because China is far far ahead of the rest. There is no better example from an assesment of the latest trade exhibition called the 17th China-ASEAN Expo in Nanning, China. There were all selling food products like tea, coffee, bird nest and bakery products. There was no Malaysian exhibitor with technology to sell about from among the many participators. A bit hard trying to sell tea to China! Maybe coffee will make it somehow. But they were quiet well received though because they were showing how to cool the milk tea while pouring from one container to another and back ala indian style. What future for Malaysia being part of RCEP? It was no better for the other ASEAN countries as most of them only promote food products. It should have been called ASEAN-China-Food!


As for Singapore, it will most probably open a bigger market for its electrical, pharmaceuticals and medical equipment. And for Myanmar, Cambodia, Laos and Brunei, cheaper products from China and also a greater access to the Chinese market.


There then is the dilemma for ASEAN: to either up the technology or to just sell more of its agricultural produce. But upping the technology (may be imported) may not be of a help because China spends 2.5 % of GDP on R & D and thus is leaps ahead of ASEAN. We are beginning to see an uptick of indigenous technology such as artificial intelligence and industry 4.0 elements in its production.


What should ASEAN do and what are the strategies?

The members of ASEAN being of a smaller economy can indeed better compete if they were to put their funds into indigenous technologies to shore up unique products that China is not going to make. A case in point is Singapore where they have found it fit to put their money in biotechnological and medical equipment that has found market in China. Thailand will do well if they put their money on developing biotechnology enhance fruit. Thailand will also go along way if it were to pioneer into hydrogen fuel cars for the ASEAN market instead of focussing its energy in also producing electric vehicles for the simple reason that China is on the way to flood the ASEAN market with its EV. It goes to figure that if you only have a little amount of money, go and put them in developing indigenous products that might find access in the ASEAN market. Don’t think grabbing of China market as they are now focussing on supplying to their domestic market as a form of diversification brought on due to the trade war w ith the US. For ASEAN, there is always a tendency for the government and the private sector to spend on importing technology.


There is a shortage of support for developing indigenous technology which is a sad truth. The simple reason is it is easier to just import and transplant them into products than to put hard work and money to do research and development. Another aspect of the equation is that due to China’s prowess in the manufacturing technology, it has however caused the disappearance of a supply chain for parts as most of them had to close shop due to the flooding of cheap imports from China. As a way to remedy the problem, governments of ASEAN should roll up their sleeves and pay attention in rebuilding of local supply chains. It is a fact that ASEAN manufacturers can’t source their parts from local enterprises as there are none to go to and we have to really solve this problem or we will forever face the problem of sourcing our parts from China.


And to top it of, what about the Coronavirus scourge? Can governments overcome the pandemic? Well, you will need a good strategy if you want to overcome the setback. If you can't beat the virus then don't even think that you can beat your brothers! Governments need to spend money on building more quarantine centres and they will need to spend money to procure vacines. If they do not have the means, as some of the ASEAN members are trying hard to apportion money for the vacines, they might be better off borrowing money just to stamp the scourge rather than waiting for the disease to subside. For the time being, you should focus your effort to stamp out the disease and not sending your sick people to go out and sell your products. Travelling has ground to a stop!


What can ASEAN do?

If you were to look around hard enough then you will have wondered why governments are not focussing hard enough about Green Technology. Sure, everybody is busy launching solar energy farms but there is more to it than just putting up solar. How about manufacturing solar panels? Certainly not a good proposition as China and India has already megafied their production of solar. However, there are many new forms of solar like solar panels that you can just paint on and then there is perovskite. And huge wind turbines that are deployed out to the sea which can be installed all over the ASEAN coast. Think about the jobs that they help create. Then there is issue of making everything work more efficiently, uses less fuel and what about people running all over the place doing useless jobs. ASEAN should put their hearts into green technology as it offers the most Green Technology new jobs. Then there is automation, artificial intelligence, carbon capture, hydrogen economy and machine learning which when handled well can bring forth opportunities that they would not have realised. But before that there is this funding that should be taken care of as well otherwise nothing works. You may want to get a piece of the funding at Green Tech Financing


There is a dire need for ASEAN to go into the next wave of technology in the form of IR 4.0 which the advance countries have gotten a foothold of. It is not necessary to change the way they do manufacturing but they should target at some of their indigenous industries to incorporate better efficiencies. Then there is also a need to look into the marketing aspects of their products as the way they do their traditional marketing has already passed. New way , new hope to capture market share otherwise they will lose out in the long run. ASEAN will need to look into new fields like carbon capture and carbon bury (into ocean bed) as climate change comes knocking on its doors. Hydrogen economies will mean there will be a lot of changes like getting new supply chains and infrastructures. Old cars , trucks that ran on gasoline will need to be recycled when the hydrogen economies take stock. On another note, ASEAN will dowell to relook at how to have water security and also redesign their way they do agriculture so as to use less water for their pursuits. Water is not going to be a given as climate change comes bearing in. If today you have water, you might have to pray for rain the next day!


Another perspective that needs to look into is the sea level rise. There are many ASEAN cities lying on low coastal land which is expected to be inundated with sea water by 2100. It goes to show that there is indeed a great deal of work to be done to help overcome the impending disaster. Let us talk about what can be done to these cities like Jarkarta, Manila, Singapore, Bangkok and Ho Chi Min city. Before the sea water come rushing in, works like creating of shore dikes, moving people to higher lands, realigning the waste water channel, realigning the electrical conduits, building up sea front with settlements and elevating the road and rail systems. As the sea level rise is inevitable and it might rise sooner than what the experts predicted, it would be better for the town planner to start thinking of how they can prevent disaster from taking place. Moving people up hill would pose a problem as there is not enough of higher level land to go around. And instead of only thinking of moving the people up hill, why not move the people to the sea. Building settlements on the sea is not a problem as there are rich people who has been doing it for years. In order to conquer the sea, new ideas are needed as the engineering aspect of it have to be taken. Sea water corrodes but they can be tamed, so new materials will have to be deployed. Fishing (both pond and sea water) and agriculture should be included when people moves out to the sea. Power and Clean Water too have to be included in the mix as sea settlements would need such basic elements to survive if they were not to rely on the motherland for such basic necessities. So there is much to think about and there is plenty of work; we are talking about moving house.

ASEAN should not have to depend on their traditional businesses to stay alive. It is also not in the interest of middle level technology countries to solely depend on foreign investment to help create jobs. Some ASEAN members are of the view that since they are now sitting in an increased grouping, they would be able to attract foreign investment. Foreign investment into the ASEAN countries usually are of the low technology kind. What do you think it will help boost your economy? No one of right thinking will want to think of only creating jobs for their unskilled. It would be better to create industries with new technology. You would be better off spending some money to develop on indigenious technology than to go all out to attract investment in building up a bottle soft drink entity that gives to many unskilled employments! Climate change is knocking at our doors and changes have to be made, so it will give us plenty of opportunities to try on new things like changing the air conditioning and ventilation system, touchless technology, ir4.0 and artificial intelligence to better manage traffic congestions overcome over burning of fossil fuels.


A little scoop of what China will be in another five years time will help motivate ASEAN countries to wake up from their sleep. China has vowed to get the rest of their population out of poverty. It is not only telling everybody but they are doing it as best as they can. Just imagine China with three quarters of its population falling into the middle income group by 2015. What once you see them being impoverised in the hilly regions of Guangzhi you see no more as they have become successful farmers and entreprenuers. You won't be able to sell them anything. Instead they have something that they can sell to you. So for ASEAN, you will need to buck up or else you will be the new poor! Anybody wants to revive TPP?



On the positive side

Majority of Americans want to wage war, with or without Trump and so it is a great opportunity for ASEAN to grab whatever they can to help push out America to its brink. When it comes to war, whether a trade war or real war, small economies like that of ASEAN's will need to really look hard at who they want to side. America is far off so it would be foolish to go to their side, even though some of ASEAN members tend to cling unto great America but they will be the ultimate looser when they find that America can no longer support them. So, yes go with RCEP and dig in fast before the tide turns for the worse!


We as a part of ASEAN would like to help to solve this supply chain problem. And how do we do it? Well, for one thing, we will help our entrepreneurs to design new products with indigenous technology. Indigenous technology may not be high technology but it will have a local content that will come from people who knows what the problems to solve are. Putting in some local flavour and you get a new recipe! We will help. Give us a thinker then.