May 2023
Surveying the Economic Agreements in the Asia-Pacific Region: Implications for the Philippines
Jovito Jose P. Katigbak
The United States spearheaded in May 2022 the launch of the Indo-Pacific Economic Framework for Prosperity (IPEF) in Tokyo, which aims to promote a “stronger, fairer, and more resilient economy for families, workers, and businesses” in the Indo-Pacific region.[1] The IPEF has 14 participating countries, including Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the US, and Vietnam. Collectively, these countries represent a significant portion of the world, accounting for 60 percent of the global population, 40 percent of the global GDP, and 28 percent of world trade in goods and services.
In addition to the IPEF, the Asia-Pacific region now has two other major economic arrangements: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).[2] The CPTPP is a free trade agreement that includes 11 countries in the Asia-Pacific, while the RCEP consists of 15 countries in the region. These pacts, along with other area-specific and bilateral accords, can potentially bring significant benefits to firms in the Asia-Pacific region.[3] However, governments must also deal with issues such as trade diversion, transaction costs, and opportunity costs that can negatively impact their domestic economies and producers.
This dynamic and complex region can be challenging, particularly for developing countries like the Philippines. Thus, there is a need to outline key policy considerations for the Ferdinand Marcos Jr. administration in navigating the Asia-Pacific region.
Reviewing the Entanglements and Overlaps in the Region
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force in December 2018, is participated by eleven countries, including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam.
The original trade accord included the US, but its withdrawal created a leadership gap that was eventually filled by Japan, a key US ally in the region.[4] The CPTPP is a distinct treaty incorporating provisions from the Trans-Pacific Partnership (TPP) while suspending 22 provisions mainly related to intellectual property and investment. which are mainly related to intellectual property and investment.[5] Its reputation as a high-quality agreement stems from its strict requirements and forward-looking text in key chapters, encompassing investment, financial services, e-commerce, government procurement, state-owned enterprises, intellectual property, labor, environment, transparency, and anti-corruption.
Several other countries have expressed interest in joining the CPTPP, with China and Taiwan having already submitted their applications.[6] South Korea and Thailand have also shown interest in joining, given the significant economic benefits that come with membership.
The admission process for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is expected to be challenging due to the consensus requirement at the beginning of accession, as well as potential discrepancies between the core CPTPP standards and the current domestic policies of applicants and their commitments in other trade agreements.[7] Despite these obstacles, the significant benefits of accessing large economies and participating in the CPTPP make it a preferred option for potential members. The advantages offered by this mega-trade deal vastly outweigh the difficulties associated with the admission process, making it a worthwhile pursuit for interested members.
Regional Comprehensive Economic Partnership (RCEP)
The Regional Comprehensive Economic Partnership (RCEP), which entered into force in January 2022, is one of the most significant regional accords in the Asia-Pacific region. Comprising ten Association of Southeast Asian Nations (ASEAN) member states and five partners (Australia, China, Japan, New Zealand, and South Korea), RCEP covers a combined population of 2.3 billion and accounts for 25.8 trillion USD in global GDP, as well as 12.7 trillion USD in goods and services trade.[8]
The primary objective of RCEP is to address the overlapping economic regulations among the member countries and promote trade in a rapidly evolving global economic environment. Although RCEP contains chapters on investment, electronic commerce, intellectual property, competition, government procurement, and small and medium enterprises, observers note that it has less ambitious targets than CPTPP.[9] The Philippine Senate ratified the RCEP agreement in February 2023 despite opposition from local agricultural groups, which President Marcos Jr. tempered, vowing to revitalize the agriculture sector amid high inflation rates.[10]
While China is viewed as the leader of the RCEP deal, the pace, quality, and nature of the commitments highlight the centrality of ASEAN in driving the pact. The agreement should, therefore, be characterized as an ASEAN-driven, China-backed initiative. Notwithstanding this nuance, it is worth emphasizing that China’s participation in the RCEP has significant implications for the balance of power in the Asia-Pacific, considering its standing as the region’s economic powerhouse. The agreement’s success may contribute substantially to improved trust and confidence in China’s leadership, but this would entail persistent efforts and a steadfast drive from all RCEP member economies.
Indo-Pacific Economic Framework for Prosperity (IPEF)
The Indo-Pacific Economic Framework for Prosperity (IPEF) is the newest economic arrangement in the region, and it is perceived in two ways: (i) America’s attempt to reinstate its credibility and presence in the region;[11] and (ii) a “geopolitical strategy to contain China.”[12] The IPEF is designed to be flexible and inclusive, as countries are not required to participate in all pillars, but may choose to engage in any of the following: (a) connected economy; (b) resilient economy; (c) clean economy; and (d) fair economy.
Although the IPEF seeks to “rethink what trade policy can be in the 21st century,” critics argue that some parties have not fully committed to the agreement due to the absence of a market access provision and the exclusion of China, which is a major trading partner for many participating economies.[13] This may hinder the IPEF’s ability to accomplish its objectives.
Figure 1 illustrates the overlaps in memberships to CPTPP, RCEP, and IPEF, demonstrating the complexity of regional trade arrangements and the challenges of ensuring coherence and coordination among them. Notably, seven countries are parties to all three major accords, underlining their common strategy of accessing more niche market opportunities amid the global trade slowdown and the US-China decoupling. Japan and Singapore are regarded as purveyors of free trade, with Australia, Brunei, and New Zealand following suit. Malaysia is steered by its goal of becoming a high-income nation in the near term, while Vietnam is heavily invested in discarding its “laggard” label among Southeast Asian peers through propelling living standards at home.
Figure 1. Memberships to Major Asia-Pacific Economic Deals
Source: Author, 2023
Other sub-regional agreements
The Asia-Pacific region is also home to sub-regional and area-specific pacts, such as the Pacific Alliance (PA), the Asia-Pacific Trade Agreement (APTA), the ASEAN Agreement on Electronic Commerce (AAEC), and the Digital Economy Partnership Agreement (DEPA). The PA aims to promote regional integration among Chile, Colombia, Mexico, and Peru.[14] Meanwhile, APTA involves Bangladesh, China, India, Laos, Mongolia, South Korea, and Sri Lanka and pursues investment and services trade liberalization, better trade facilitation, and improved rules of origin.[15] Further, the AAEC is a treaty between ASEAN member states to introduce common rules and principles on e-commerce promotion, facilitate seamless cross-border e-commerce transactions, cultivate trust and confidence in e-commerce use among citizens, and intensify cooperation among parties for inclusive growth.[16] The DEPA, on the other hand, is a digital-only trade pact involving Chile, New Zealand, and Singapore and is open to all World Trade Organization (WTO) members for future accession.[17]
These deals are further complemented by several trade and partnership agreements at the bilateral level, which often include provisions on tariff reduction, investment protection, and intellectual property rights. Examples of these bilateral accords include the Japan-Australia Economic Partnership Agreement, South Korea-Indonesia Comprehensive Economic Partnership Agreement, and the US-Japan Critical Minerals Agreement.[18]
Factions or Pathways to a Free Trade Area of the Asia-Pacific?
The Asia-Pacific Economic Cooperation Forum (APEC), through the 2014 Beijing Roadmap and the 2016 Lima Declaration, has identified the TPP and the RCEP as possible pathways toward establishing a Free Trade Area of the Asia-Pacific (FTAAP).[19] Conceived in Chile in 2004, FTAAP aims to promote trade liberalization and tackle “next-generation trade and investment issues” with a “comprehensive, high-quality” agreement.[20] APEC is currently working on an FTAAP Agenda Work Plan and Work Programs in key areas, such as digitalization, inclusion, sustainability, trade and investment, and trade response to the pandemic, with the goal of revitalizing the project according to the 2022 Leaders’ Declaration.[21]
However, several factors are currently impeding progress towards this goal. The COVID-19 pandemic and the Russia-Ukraine conflict have caused significant disruptions to trade-related activities between and among Asia-Pacific economies. Additionally, protectionist policies pursued by former US President Donald Trump and the United States’ retreat from the region have fueled a trend towards deglobalization. The great power rivalry between China and the US has also inevitably generated cleavages, as evidenced by the non-membership of the US in RCEP and CPTPP;, and China in CPTPP and IPEF.
While all agreements explicitly support a rules-based, multilateral trading system in alignment with the World Trade Organization (WTO), ongoing leadership jousting may intensify competition and lead to uneven progress towards a freer, more forward-looking economic landscape in the region. Moreover, many countries are still undertaking the domestic structural reforms required by the CPTPP, RCEP, and IPEF. This will require considerable resources and time, particularly for developing countries, to meet the ambitious standards expected in areas such as intellectual property rights, competition, labor, environment, transparency, and anti-corruption.
Given these challenges, it is unlikely that the FTAAP will gain significant traction among leaders in the region at present. However, some positive developments may help renew interest in greater collaboration at the regional level. For example, the U.S.-China Phase One Trade Agreement and the continued post-COVID-19 economic recovery of states may provide an impetus for progress.[22] Nonetheless, addressing the stumbling blocks to FTAAP implementation will require significant effort and cooperation from all parties involved.
The Philippine Agenda: Set the House in Order
After he assumed duty as the Philippines’ top chief, President Ferdinand “Bongbong” R. Marcos Jr. stressed the country’s pursuit of an independent foreign policy in his first State of the Nation address. Underscoring the phrase “friend to all and an enemy to none,” the Marcos Jr. administration seems more inclined to adopt a strategic hedging approach buoyed by “strong and more multifaceted” partnerships, while compartmentalizing its dealings with major powers.[23] The Philippines is a party to RCEP and IPEF, and initially expressed interest in joining the TPP but recalibrated its stance after the US withdrawal. While this predicament supports the country’s foreign policy agenda, vital issues still highlight an overarching theme: the government should prioritize domestic concerns before maneuvering amid the complexity of these deals.
For instance, to fully capitalize on the gains presented by these economic pacts, the Marcos Jr. administration must undertake structural reforms that ensure better enforcement of intellectual property rights-related laws, mitigate anti-competitive behaviors against micro, small, and medium-sized enterprises (MSMEs), and improve protection and promotion of labor rights, especially for digital workers. It may likewise encourage wider adoption of sustainable practices among firms, organizations, and households and enhance the implementation of legal measures on transparency and anti-corruption.
Additionally, the government must address the low utilization rate of free trade agreements (FTA) among Philippine firms. A 2022 study found that the number of exporters and export transactions utilizing FTA preferential tariffs has remained unchanged since 2010. This contradicts the government’s goal of stimulating export-oriented activities upon participation in an FTA.[24] To address this issue, concerned agencies should implement expanded and tailored FTA-related information campaigns and simplify and fast-track FTA utilization procedures.
Indeed, overcoming these issues is critical, as the recent statements by the Department of Trade and Industry demonstrate the government’s commitment to expanding the country’s FTA network and diversifying its trade partners as leverage for unforeseen risks and adverse developments. More importantly, the Philippines’ participation in both RCEP and IPEF paints a picture of a middle power cognizant of the prospects in an increasingly interconnected world. Perhaps this will fortify the country’s external position as a staunch supporter of free trade. Nonetheless, the Marcos Jr. administration should always ground its independent foreign policy on its principal domestic objective: the pursuit of “economic and social transformation… that accelerates economic and social recovery toward inclusive and resilient prosperity.“[25]
Endnotes:
[1] The White House. 2022. “FACT SHEET: In Asia, President Biden and a Dozen Indo-Pacific Partners Launch the Indo-Pacific Economic Framework for Prosperity.” May 23, 2022. https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-in-asia-president-biden-and-a-dozen-indo-pacific-partners-launch-the-indo-pacific-economic-framework-for-prosperity/.
[2] Australian Government Department of Foreign Affairs and Trade. 2018. “Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).” 2018. https://www.dfat.gov.au/trade/agreements/in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-pacific-partnership.
[3] ASEAN Secretariat. n.d. “RCEP.” https://rcepsec.org/.
[4] Aurelia George Mulgan. 2018. “CPTPP a Boost for Japan’s Regional Trade Leadership.” East Asia Forum. February 27, 2018. https://www.eastasiaforum.org/2018/02/27/cptpp-a-boost-for-japans-regional-trade-leadership/.
[5] The TPP involved 12 Asia-Pacific nations and was considered as the largest trade agreement covering 800 million people and 40 percent of the world’s economy. TPP parties agreed to eliminate and reduce tariffs and non-tariff barriers on certain goods and services, as well as committed governments to ensure transparency and non-discrimination in government procurement, state-owned enterprises, and regulatory environment. It would have also bound parties to adopt progressive laws on labor, environment, and small and medium enterprises. The TPP was signed in February 2016 and the US withdrew in January 2017.
Australian Government Department of Foreign Affairs and Trade. n.d. “COMPREHENSIVE and PROGRESSIVE AGREEMENT for TRANS-PACIFIC PARTNERSHIP PREAMBLE.”
[6] Jeffrey J. Schott. 2023. “Which countries are in the CPTPP and RCEP trade agreements and which want in?” Peterson Institute for International Economics. April 3, 2023. https://www.piie.com/research/piie-charts/which-countries-are-cptpp-and-rcep-trade-agreements-and-which-want.
[7] Jeffrey J. Schott. 2021. “Joining the CPTPP is a long process and needs consensus among existing members.” Peterson Institute for International Economics. September 23, 2021. https://www.piie.com/research/piie-charts/joining-cptpp-long-process-and-needs-consensus-among-existing-members.
[8] ASEAN Secretariat. 2022. “RCEP Agreement enters into force.” RCEP. January 1, 2022. https://rcepsec.org/2022/01/14/rcep-agreement-enters-into-force/.
[9] ASEAN Secretariat. n.d. “REGIONAL ECONOMIC COMPREHENSIVE PARTNERSHIP AGREEMENT”. RCEP. https://rcepsec.org/legal-text/.
[10] Cliff Venzon. 2023. “Philippines ratifies RCEP trade deal after shift by Marcos.” Nikkei. February 22, 2023. https://asia.nikkei.com/Economy/Trade/Philippines-ratifies-RCEP-trade-deal-after-shift-by-Marcos.
[11] Dingding Chen and Yingfan Chen. 2022. “Will IPEF Help the US Counter China?” The Diplomat. June 15, 2022. https://thediplomat.com/2022/06/will-ipef-help-the-us-counter-china/.
[12] Chu Daye and Liu Caiyu. 2022. “US convenes IPEF meeting to ‘rally partners to counter China for US economic gains’.” Global Times. July 26, 2022. https://www.globaltimes.cn/page/202207/1271486.shtml.
[13] Emily Benson and Grant Reynolds. 2022. “The Indo-Pacific Economic Framework for Prosperity: A new approach to trade and economic engagement.” International Institute for Sustainable Development. September 25, 2022. https://www.iisd.org/articles/policy-analysis/indo-pacific-economic-framework.
[14] “WHAT IS THE PACIFIC ALLIANCE?” n.d. Alianza del Pacifico. El poder de la integracion. https://alianzapacifico.net/en/what-is-the-pacific-alliance/.
[15] United Nations Economic and Social Commission for Asia and the Pacific. n.d. “Asia-Pacific Trade Agreement (APTA).” https://www.unescap.org/apta.
[16] ASEAN Secretariat. 2019. “ASEAN AGREEMENT ON ELECTRONIC COMMERCE.” https://agreement.asean.org/media/download/20190306035048.pdf.
[17] New Zealand Foreign Affairs and Trade. n.d. “Digital Economy Partnership Agreement (DEPA).” https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/digital-economy-partnership-agreement-depa/.
[18] Office of the United States Trade Representative. 2023. “United States and Japan Sign Critical Minerals Agreement.” March 28, 2023. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/march/united-states-and-japan-sign-critical-minerals-agreement.
[19] Asia Pacific Economic Cooperation. 2014. “Annex A – The Beijing Roadmap for APEC’s Contribution to the Realization of the FTAAP.” https://www.apec.org/Meeting-Papers/Leaders-Declarations/2014/2014_aelm/2014_aelm_annexa.; Asia Pacific Economic Cooperation. 2016. “Annex A: Lima Declaration on FTAAP Recommendations.” https://www.apec.org/meeting-papers/leaders-declarations/2016/2016_aelm/2016_annex-a.
[20] The Pacific Economic Cooperation Council. n.d. “FREE TRADE AREA OF THE ASIA-PACIFIC.” https://www.pecc.org/research/ftaap.
[21] “ABAC STATEMENT ON FTAAP.” 2022. http://www.keidanren.or.jp/abac/report/2022/20220428_MRT-a1.pdf.; Asia Pacific Economic Cooperation. 2022. “2022 Leaders Declaration.” November 19, 2022. https://www.apec.org/meeting-papers/leaders-declarations/2022/2022-leaders-declaration.
[22] United States Department of Agriculture. n.d. “China Phase One Agreement.” https://www.fas.usda.gov/topics/china-phase-one-agreement.
[23] Joyce Ann L. Rocamora. 2022. “Marcos charts independent foreign policy, ‘friend to all’ stance.” Philippine News Agency. July 25, 2022. https://www.pna.gov.ph/articles/1179677.
[24] Francis Mark A. Quimba, Neil Irwin S. Moreno, and Abigail E. Andrada. 2022. “FTA Utilization in the Philippines: Trends and Determinants.” PIDS Discussion Paper Series No. 22-35. https://pids.gov.ph/publication/discussion-papers/fta-utilization-in-the-philippines-trends-and-determinants.
[25] National Economic Development Authority. 2023. “Philippine Development Plan 2023-2028.” https://pdp.neda.gov.ph/wp-content/uploads/2023/01/PDP-2023-2028_Chapter-1.pdf.
CIRSS Commentaries is a regular short publication of the Center for International Relations and Strategic Studies (CIRSS) of the Foreign Service Institute (FSI) focusing on the latest regional and global developments and issues.
The views expressed in this publication are of the authors alone and do not reflect the official position of the Foreign Service Institute, the Department of Foreign Affairs and the Government of the Philippines.
Jovito Jose P. Katigbak is a Foreign Affairs Research Specialist with the Center for International Relations and Strategic Studies of the Foreign Service Institute.
