How will RCEP benefit ASEAN
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 fewer duties of spare parts and finished products.
With 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. ASEAN 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. As far as China Technology is concerned, it has reached a super higher level as compared to her ASEAN brothers - this is because of pressure from the US where a lot of American products have become non-exportable to China (US is unwittingly boosting China technology). The result of which is China putting all her resources to create high tech products that were embargoed to China, including microchips and lithography machines. 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 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 ambassador 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 needs 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 off 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 do 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 its 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. That said, Indonesia should look into how to improve her agricultural sector by use of better technology and innovations to make agriculture receptive to the young workers; Indonesia is facing a decline in her agricultural sector as young workers are shunning working in the rural areas and leaving for the urban areas as they have been better educated. Things like vertical farming should be encouraged on a large scale with governmental support after all food security is one of the most important aspects of an Indonesia that is facing an explosion of her population. She might do well to transform her huge land bank of oil palm estates into renewable energy estates, at least for those estates that are near to the urban centres.
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 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 assessment 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, alas 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. Still, if ASEAN were to fall back on agricultural products, she will have to do more like upgrading of the agricultural practises which China had done. Cultivating Palm Oil, rice and even food production will have to incorporate some form of modern technology just so that they can attract the younger ones to get into the sector. There are a lot of things that ASEAN can do for example to introduce renewable energy (solar) production in the midst of their plantation land. Or incorporate vertical farming methods in their estates so as to produce both fish and vegetables since youths do have a good opinion of getting involved in stratified farming.
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 with 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.
What about Innovation? Can ASEAN innovate fast enough to catch up with the giants?
It is a known fact that if there is very little of money spent on R & D, then there will also be little innovation, the kind that can propel the whole nation out of the woods. It is also a given that there is very little of fund for R & D. ASEAN companies are mostly small in size and most of them are actually struggling to make a decent living out of their productions. There is no time to think of innovation as the term does not ring any bell with the army of entrepreneurs. Back in their mind, they are of the opinion that it would be better to leave R & D to the bigger guys. Thus there is this dilemma that they would rather remain as a contract manufacturer than throwing their money for innovation. But the truth is that you don't have to have money for innovations. If you have enough to eat then it is most likely the case that you will remain as just a non oem producer. Thinking out of the box is hard and other people might laugh at you, so the saying goes. However, it is the guy who does not have enough to eat that they would have to depend on innovation to survive. Innovation inclinations must be drum into the head of the school pupil when they are in their primary years even if they come from poor families with the hope that they will carry it to the time when they have the opportunity to become producers. ASEAN should have this spirit if it were to survive the onslaught from the bigger folks. It is after all an educational matter which will can be done from the existing institutions but it must be first of all beginning with the teachers. It is certainly a doable task. You might want to read about the new thinking of innovation analytics here.
And to top it off, 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 vaccines. If they do not have the means, as some of the ASEAN members are trying hard to apportion money for the vaccines, 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. What about 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 do well 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!
We are now seeing a great disruption due to Russia sending in troops and tanks into Ukraine. Disruption to the supply chain is top of the agenda. It is also a wake up call for ASEAN as her supply chain gets disrupted again. Even worse, the individual countries of ASEAN will have to take sides as far as the US instituted sanctions is concerned. Again, chosing the right partners may be more unpredictable for you do not know whether your partner will abandon you later on. But there is one thing that ASEAN can do is to look at her own backyards and see whether they can resuscitate their supply chain industries in order to avert being left without spare parts. This is a chance for small economies to re-invent themselves by hook or by crook.
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 Jakarta, 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 have been doing it for years. In order to conquer the sea, new ideas are needed as the engineering aspect of it has 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 is 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 indigenous 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, touch less 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 impoverished in the hilly regions of GuangZhi you see no more as they have become successful farmers and entrepreneurs. 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?
Some strategies to overcome deadwood
There are industrialisations that have gone wrong. No one knows how it gone wrong. For example, we now have economies that are chasing after the implementation of autonomous vehicles but they do not realised what is going to happen when their roads are flooded with cars with no drivers. What would happen then? It just need someone to hack into the system and have the whole thing jammed up or someone went haywire. And they say it is an industrialisation policy that they have to pursue! Indeed if left to the geeks, the whole economy will struggle to survive. Pollution, crowds, water crisis, climate change, sea level rising, sinking land and a whole gamut of others we were to be better off not to mention. Cities are dying due to overcrowding never mind if more people are moving in for search of a decent living. Rural areas are also dying for short of people eking out a living. Only the old and very young are left to fend for themselves. Should we then move to strategize for a revival of rural economies? Here is a strategy that’s worth thinking about. You can read it here
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.
What about the non ASEAN members?
Japan will be facing a lot of backlash due to her selfish but US supported regime of releasing Fukushima radiation contaminated water into the Pacific ocean. This is criminal act of a mighty proportion which no sane nation will do. Will China and ASEAN agree to kick out Tokyo from RCEP? Seeing the way Tokyo going all out to kill the wales and then this discharge of radioactive water, it is better to just put a barrier to what Tokyo wants to do against humanity. Most people in the region has not forgotten what Japan did to them during the second world war and most sane people will not forgive Japan for discharging this Fukushima tainted water in years to come. What else have Japan got to contribute to RCEP? Is it the Olympics? Let her play by herself and let the rest of the world except for the US boycott the games! One of the serious consequences of Japan polluting the Pacific Ocean is that people (will include Japanese) will refrain from the consumption of marine products caught off the Pacific Ocean which will encourage more of fish breeding on land. There will then be an opportunity for ASEAN countries to expand on their land based fish culturing business on land as more people avoid from eating marine products caught from the sea. As such, ASEAN countries should take the opportunity to encourage large scale breeding of fish on inland farms. New risk new opportunity created by Japan's treacherous act!
China is on a mission to change her industry structures to be more attune to the domestic market. As such there will be a move to manufacture higher technology products and so ASEAN should take note. However there will still be a demand for low tech products of which ASEAN would be interested. Food and power will be the thing that drives China and we will see more infrastructures being built to cater for the productions of energy. As the Pacific Ocean is being polluted by the Fukushima radioactive discharge, there will be a reduction in fishing activities in the South China Sea as people are afraid of consuming contaminated marine products caught by her huge fleet of fishermen. In the most probability, China will be focusing on land base fish breeding as a move to reduce the impact of contaminated marine products, including those that were rear in coastal marine environments. China will also look into the expansion of stacked agriculture practise such as vertical farming as land becomes scarce. There will also be a flood of electrical powered vehicles as even mobile phone makers are jumping into the bandwagon. There are now more than four hundred EV manufacturers in China and growing by the day! So expect the next wave of Made in China products to be able to run on the roads and by automation to boot. ASEAN should take note as it will be cheaper to buy EV's from China than to make them for their own consumption. Add to that China have all the ingredients to make batteries to power the EVs they made.
Good as it is Korea will benefit from being able to export its range of electric vehicles (EV) and fuel cells to ASEAN. It is definitely strong on automobiles and hydrogen powered trucks.
Australia is strong on its agricultural products but it would be beneficial for her to play down the linkage with the US, especially in her role as the five eyes partners.
NZ being a small agricultural country will do well in its exports of dairy products provided of course that she downplay her role in the US sponsored 5 Eyes Partnership. When it comes to trade issues, it is always good not to play the political nosy parker.
What about the impact of Covid?
For sure, covid-19 will have a great impact for all of us for the long haul. Scientist have also declared novel coronavirus as an endemic which will have serious consequences for mankind, not least is the way we have to live with covid. ASEAN, like the rest of the world has been severely impacted by the covid pandamic due mainly to the need for lockdowns (which comes so very often). Many manufacturing were curtailed because of lockdowns and the what nots which has caused a breakdown of the supply chain. As a result, many firms were made to lose their export business as they have to shut their manufacturing. A case in point is the medical glove industry - Malaysia, being the main supplier of medical gloves had to concede to China to help supply because thier manufacturers were made to curtail their production due to the large presence of covid infected immigrant workers. The Malaysian glove industry which is a low technology industry is highly dependant on immigrant workers to run their operation (partially automated) but because they could only afford to house their workers in small congested worker's quaters with the result which workers being easily infected by the disease and rendered out of service - constantly stopping production. And China being a large user of medical gloves was also highly impacted because of breakdown of the supply chain, thus forcing her to increase her own production just to keep the supply chain going - this is a lesson that the other ASEAN members have to bear in mind - if you cannot increase your productivity, then others will fill that gap for you. End of the day - find high technology (indegenous) to target for your production otherwise you should be ready to close shop - the lesson of RCEP highlighted by the spread of novel coronavirus (of the Delta and Mu variant). It should also be noted that even if you have gone the route of automation, there is no guarantee that you will be part of the supply chain network for there is always the threat of disease breakouts - there is this urgent need to take a relook at the way we do things in view of the presence of highly infectious diseases-think of touchless technologies and the way we manage the air (we should think of ways to extract out the polluted air once it is being exhaled) in our environments.
China's 2021 GDP, grew 8.1 percent, the fastest expansion in nearly a decade, exceeding the government's target of above 6 percent and following a revised 2.2% growth in 2020. Consumption expenditure contributed 65.4 percent to the 2021 GDP growth, compared with 54.3 percent in 2020, surpassing the average level of 60 percent from 2013 to 2019 but was still lower than in developed economies. Meanwhile, industrial production in China advanced 4.3 percent year-on-year in December 2021, accelerating from a 3.8 percent rise in the previous month and beating market forecasts of a 3.6 percent gain. It was the strongest growth in industrial production since August, helped by a recovery in energy production and in spite of the coronavirus pandemic and the disruption of supply chains. So China is moving forward while the rest of the world is holding its breath - interesting insights for ASEAN. How then should ASEAN evolve? For ASEAN, the pandemic is a serious setback in terms of productivity as there were plenty of lockdowns which caused productivity disruptions. She will now need to take serious steps to regrow her economies even when there are signs of stagnations. One way out is to take a giant step to overhaul her economy by way of injection of newer technologies that are associated with gaining better efficiencies. Still, ASEAN should really look at what she can sell to China since the middle kingdom is moving very much faster than the rest - ASEAN can supply small items that China would not find efficient to produce so a team of supply chain practioners from ASEAN should be stationed in China to explore the opportunity. Small item manufacturing is something that ASEAN can do because it does not need big financing as compared to infusing Industry 4.0 elements in manufacturings. ASEAN financial players together with the government counterparts should help to make this a possibilty instead of brooding over what to do post pandemic.
With the aftermath of the Ukraine War unfolding and Europe's great dependance on cheap gas, there will be the issue of where to get cheap fuel. That is where some of the ASEAN countries come into play. Malaysia will be the one place to watch because of its availability of energy. Malaysia still exports oil and gas and her ecobomy is not greatly affected by imported inflation. It would be a great place to shift manufacturing to as there is abundant of energy. Sarawak is one of the place in the world where there is an abundance of hydro electric energy and it would cater well to those european economies that are facing increasing cost of fuel.