17 Dec 2021 – RCEP tariff concessions may cut Philippine exports

by Louella Desiderio – The Philippine Star, 17 Dec 2021

MANILA, Philippines — Philippine exports to other members of the Regional Comprehensive Economic Partnership (RCEP) agreement may decline by $100 million due to the deal’s tariff concessions, but this can be offset by additional trade and other benefits, the UN Conference on Trade and Development (UNCTAD) said.

In a study released yesterday, the UNCTAD said RCEP tariff concessions may result in lower exports for countries like the Philippines, Cambodia, Indonesia and Vietnam.

In particular, the study showed Philippine exports to RCEP may decline by $100 million or by 0.1 percent.

Cambodia’s exports are seen to decline by 3.9 percent, Indonesia by 0.3 percent, and Vietnam by 1.2 percent.

“The reason for this is the negative trade diversion effects, as some exports of these economies are expected to be diverted to the advantage of other RCEP members because of differences in the magnitude of tariff concessions,” the UNCTAD said.

On the other hand, Japan is seen to gain the most from the deal’s tariff concessions because of the trade diversion effects, with exports seen to increase by $20 billion or about 5.5 percent relative to its exports to RCEP members in 2019.

Exports of other member economies are also seen to increase including Australia (1.9 percent), China (1.8 percent), South Korea (two percent) and New Zealand (4.5 percent).

Overall, RCEP tariff concessions are expected to increase trade within the bloc by nearly $42 billion, equivalent to almost two percent.

While there are negative effects for some RCEP members, UNCTAD said this does not mean they are better off excluding themselves from the trade deal.

The UNCTAD said the tariff concessions are expected to further boost trade within member countries not only by creating trade within the bloc, but also by diverting trade from outside the region.

As RCEP’s process of integration goes further, it said trade diversion effects could increase.

“The large potential of the RCEP agreement in creating trade for the member economies also implies that even for members that may initially be negatively affected by trade diversion effects, it is better to be in than out the RCEP agreement. Not only because being part of the deal creates additional trade that may offset the losses, but because it strengthens economic integration and the benefits that may come with it, such as foreign direct investment, technology sharing, structural transformations, among others,” UNCTAD said.

Amid the coronavirus pandemic, UNCTAD said the entry into force of RCEP is also seen to promote trade resilience.

UNCTAD said its recent research showed trade conducted within trade agreements has been relatively more resilient against the COVID-19 global trade downturn.

RCEP, which was signed by Association of Southeast Asian Nations members the Philippines, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam, and trade partners Australia, China, Japan, South Korea and New Zealand in November last year, covers a third of the world economy.

It is set to take effect on Jan.1 next year after meeting the required number of countries that have deposited their instrument of ratification of the deal.

The Department of Trade and Industry wants to complete the ratification process and get Senate concurrence for the RCEP within the year to be among those that can benefit from the deal when it takes effect.