It was the US which stood to benefit the most from the TPP in real dollar terms, at $US131 billion by 2030. In terms of the benefits, Vietnam and Malaysia were expected to be the biggest beneficiaries at 8.1 per cent and 7.6 per cent of GDP, respectively.
Not surprisingly, the winners from TPP’s demise are those countries outside of the agreement. Members within an FTA tend to gain, while those outside it could see trade and investment diverted away, especially if they are in close geographical proximity and have similar economic structures.
For Thailand, which could have seen a loss of 0.8 per cent of GDP, the US move would have been welcomed.
The coverage the RCEP provides also pales against the TPP. The TPP had been held up as the ‘gold standard’ or ‘21st Century’ FTA because it not only focuses on new market access in goods and services, but also spread good regulatory practices.
It set high standards in labour and environmental rules, food safety, competition policy, state-owned enterprises, government procurement, regulation of intellectual property, rules for the internet and the digital economy.
The TPP had deeper commitments than the RCEP in two aspects. First, in the core issues covered by both, the TPP had deeper commitments – faster and more comprehensive liberalisation of trade. Second, the TPP covered more areas than the RCEP in a bid to substantially reduce barriers to trade.
Although the gains from RCEP will not be as large in aggregate compared to TPP, it’s likely the RCEP has a higher chance of success.
The principal aim of the RCEP is to bridge two existing and long-standing proposals by adopting an open ascension scheme: the East Asia Free Trade Agreement which focuses on ASEAN plus China, Japan, and South Korea; and the Comprehensive Economic Partnership which added three economies, Australia, New Zealand, and India to ASEAN.
In our view, it is relatively easier for smaller groupings of ‘like-minded’ economies to negotiate trade outcomes than a full multilateral trade round, especially when there are already existing agreements in place between members.
The RCEP is less ambitious in terms of trade issues covered and utilises a clear step-by-step approach.
Furthermore, unlike TPP, which applies the same standards across all countries, RCEP has differential treatment for developing countries and provides for development assistance through economic and technical cooperation provisions. These make it easier for the developing Frontier Mekong countries to join.
With the US pulling out of TPP, it is time to move on and focus on getting the RCEP concluded as quickly as possible.
The economic benefits of RCEP may not be as large but it is likely to be the superior outcome for Asia. The inclusion of China and India, the two most populous countries in the world and two of the fastest growing economies, help to make up for the loss of the US.
While we can rue Vietnam and Malaysia’s lost opportunity from the TPP, both will benefit from greater access to the Chinese market.
Khoon Goh Is Head of Asia Research at ANZ