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ASEAN Needs To Reclaim RCEP For Regional Economic Leadership – Analysis

By Mari Pangestu and Rania Teguh There is a chorus of calls for ASEAN to walk the talk on its claims of centrality in the management of the strategic challenges to peace and prosperity in East Asia. Calls for ASEAN to ‘do more’ usually centre on its claiming a more assertive role in security affairs in the South China Sea and redoubling its efforts to encourage political dialogue in Myanmar. But the bigger threat to ASEAN centrality is corrosion of the open economic order on which its prosperity and security depend. And there is opportunity to cement its role as a platform for negotiating a regional economic order attuned to its members’ interests in East Asia through the Regional Comprehensive Economic Partnership (RCEP), which is less politically fraught. RCEP is the world’s largest trade agreement, with its 15 members of 2.3 billion people accounting for 32 per cent of global GDP and 29 per cent of world merchandise trade. It aims to create a more integrated and efficient regional market, driving growth, strengthening regional value chains and boosting competitiveness of member economies. RCEP will also promote investment by attracting more foreign direct investment into regional manufacturing. Other provisions on e-commerce, competition, intellectual property and SME development can also support trade growth. In the 15–20 year phase-in for less developed members, the agreement provides for 92 per cent market access among all the partners. The current utilisation of RCEP varies across member countries, with big differences in the number of Certificates of Origin (COOs) issued in its first year of operation. Members which did not have an FTA with each other prior to RCEP’s implementation benefited most. China leads with 218,100 COOs issued in 2023, a 38.2 per cent year-on-year increase, on exports valued at US$7.21 billion. The figures for Thailand and Indonesia are still miniscule. Regional value chains are yet to be reconfigured beyond the ASEAN + 1 FTAs with China, Japan, Korea, Australia and New Zealand, under cumulative rules of origin. RCEP is more than a trade agreement. Its inbuilt institutional infrastructure includes a political cooperation process led by ministers and leaders, supported by a Joint Committee and subsidiary bodies. This provides a political foundation for addressing emerging policy challenges, from digital trade to climate change, through multilateral cooperation. RCEP is a ‘living agreement’ which allows for a comprehensive economic cooperation agenda. The region can stay competitive in the industries of the future without sleepwalking into protectionism or a wasteful industrial policy arms race by working together now to ensure the development of trans-regional value chains allows its economies to specialise where they have comparative advantage, not just in goods but also in services. The restructuring of industrial value chains around the energy transition and shifts in manufacturing bases has, however, not been matched by the cooperation that is required. ASEAN is in danger of falling into the trap of inefficient and costly fragmentation around competition for investment in these sectors. RCEP’s economic cooperation pillar was designed to address this danger. Cooperation within RCEP structures also gives the region the opportunity to form common policy positions in response to developments outside the region that impinge upon its core ASEAN economic development interests. One of the biggest risks to regional integration is the increasing securitisation of economic policy in industrial economies that reshape trade around dubious political considerations rather than market competitiveness. A critical issue is the unilateral imposition of rules by external actors, particularly in areas such as environmental regulation. The European Union’s Deforestation Regulation and Carbon Border Adjustment Mechanism (CBAM) are examples of policies that could disrupt ASEAN’s economic development strategies, highlighting the need for ASEAN to strengthen its own regulatory frameworks and ensure that external rules don’t undermine regional cooperation. RCEP provides ASEAN with the tools to push back against this trend and needs to act quickly to defend the rules-based multilateral system and safeguard its multilateral economic interests. One immediate step would be for ASEAN to embrace the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), which serves as a temporary backstop for the WTO’s dispute settlement system. Another priority would be addressing the misuse of the national security exception under the General Agreement on Tariffs and Trade (GATT), which has been increasingly invoked to justify protectionist policies. ASEAN has a clear interest in working with its partners to limit the overreach of this provision. The success of RCEP depends on political leadership. Without clear direction from the top, the agreement risks being a locomotive stuck at the station. ASEAN’s leaders will have to take ownership of the regional economic agenda, to utilise RCEP not only a platform for economic growth but also as an instrument for managing strategic challenges. It can also do this through leading by example — demonstrating through policy initiative its commitment to multilateralism, open markets, and sustainable development. The recent downgrade of US credit by Fitch should serve as a wake-up call. The US withdrawal from global economic leadership has significant implications, and regional policymakers and leaders need to understand the gravity of the situation. It isn’t business as usual: the great powers, who increasingly see their economic relationships through the prism of geopolitical competition, can’t be relied upon to supply the global public good of leadership in furthering multilateralism and rules-based trade. To an unprecedented extent, small and middle powers — especially in the Global South — must now take the lead on openness. In RCEP, ASEAN and East Asia have a vehicle for taking on that role, and ASEAN must reclaim ownership of RCEP to assume its centrality in regional leadership. About the authors: Mari Pangestu is Professor of International Economics at the University of Indonesia and former Indonesia Trade Minister and Managing Director of the World Bank. She is currently Indonesia’s Special Envoy for Climate Finance. Rania Teguh is Pacific Trade and Development Scholar at the Crawford School of Public Policy, The Australian National University. Source: This article was published at East Asia Forum