Demise of TPP revives RCEP

A truck loads shipping containers at the Sihanoukville Autonomous Port in September 2008. The port provides a direct route for Cambodian exports into China. Ngoun sovann

Demise of TPP revives RCEP

Phnom Penh Post | 2 December 2016

The announcement by US president-elect Donald Trump that he intends to pull the United States out of the Trans-Pacific Partnership (TPP) agreement has breathed new life into the largely dormant Regional Comprehensive Economic Partnership (RCEP), a rival multilateral free trade proposal that puts China and ASEAN in leading roles.

Signed in February, the TPP was expected to liberalise trade among its 12 signatory Pacific Rim nations, which include the US, Canada, Mexico, Vietnam, Malaysia and Japan. Cambodia’s exclusion from the massive trade pact was seen as potential blow to the Kingdom’s economy, primarily because the deal would give some of its competitors – particularly Vietnam – privileged access to the US market.

Jayant Menon, lead economist for Asian Development Bank’s Office for Regional Economic Integration, said the uncertain future of the TPP had galvanised interest in the RCEP, a more inclusive and less-stringent 16-nation Asia-Pacific free trade agreement that includes all 10 ASEAN member states, as well as China, India and Australia.

“With the TPP effectively dead, I think this provides an opportunity for the RCEP to fill the vacuum, and set the scene for trade policy in this region,” he said. While it would be tempting to think of the RCEP as a China-centric deal, Menon said that despite China being the dominant economy in the grouping, if implemented correctly the trade deal should benefit all signatories. 

However, unlike the TPP, the RCEP does not require its member countries to liberalise trade or enact sweeping economic reforms. “RCEP has to become more ambitious in terms of what it needs to achieve, and [its signatories must] avoid concluding an agreement seen as achieving too little in terms of genuine reforms,” he argued.

Analysts say the TPP’s lofty reform goals, and that potential legal entanglements would largely be handled by US courts, were defining reasons why certain Asian countries, including China and Cambodia, were unlikely to seek inclusion in the deal.

“The whole point of the TPP was to have high standards in new areas like state-owned enterprises, the digital economy and the environment. So high, in fact, that this was why China was very unlikely to join TPP,” said Ear Sophal, author of Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy.

But with the TPP appearing to be doomed, he cast doubt on whether the RCEP – first proposed in 2011 as a counterbalance to the TPP – was even needed. “If you don’t believe in high standards, and just want to trade, getting rid of the TPP makes sense,” he said. 

“If there is an RCEP, its standards will be the lowest common denominator.” He added that the RCEP provided little benefit in accessing new markets, especially for Cambodia’s $6.5 million garment industry.

“There might be hope in South Korea, Australia and New Zealand, but we’re not talking about particularly large markets compared to the US,” he said. “None of these countries combined could buy the amount of garments that Cambodia currently exports to the US.”

Miguel Chanco, lead ASEAN analyst for the Economist Intelligence Unit, said that as the RCEP would not harmonise business practices in the same way the TPP aims to, it would not serve to deepen regional economies.

“It is hard to say what would happen with the RCEP and how it would change the region, but I just don’t expect that it would lead to very much liberalisation,” he said. 

However, he said Cambodia still stands to benefit from the trade deal. “What is important to Cambodia, in terms of what it can get from RCEP is that it could increase investment in manufacturing and reduce trade barriers,” he said. “With Cambodia being heavily reliant on importing raw material from China for the garment sector, those reductions could help the garment sector to be more competitive.”

Arup Raha, chief economist of Malaysia-based CIMB Group, argued that the current RCEP framework would offer little benefit to the Kingdom’s economy. He said while Cambodia’s garment sector provided tremendous short-term benefits, the country was at risk of becoming overly dependent on the sector and not climbing up the value-added chain. 

“Cambodia’s economy is led by garment manufacturing and that has nothing to do with trade deals,” he said. “What is more important is that money for manufacturing is flowing south from China and countries need to have the proper infrastructure to capture it and remain competitive.”

From a geopolitical perspective, Paul Chambers, a professor of international relations at Thailand’s Chiang Mai University, said the TPP was largely seen as a way for the US to combat China’s growing influence in the Asia-Pacific region. Its failure “would destroy Washington’s Asia Pivot, at least on the economic front”.

Chambers pointed out that the conclusion of the RCEP would make ASEAN countries further dependent and receptive to Chinese influence. “The regional political economy of Southeast Asia would become ensconced under a rules regime dominated by China,” he said. 

“Cambodia would be one cog in this machine and the RCEP could increase its dependence on China.”