21 | NOV | 2019
Bangkok summit: the future of global growth and trade lies in East Asia
If anyone still has doubts about the future of East Asia as the motor driving growth, they should take a look at last weekend’s summit in Bangkok - Photo: File photo/REUTERS

Bangkok summit: the future of global growth and trade lies in East Asia

08/11/2019
15:40
Gabriel Moyssen
Mexico City
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15 countries covering nearly a third of the world’s gross domestic product agreed to sign up for the Regional Comprehensive Economic Partnership (RCEP) in February 2020

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If anyone still has doubts about the future of East Asia as the motor driving growth, they should take a look at last weekend’s summit in Bangkok, where 15 countries covering nearly a third of the world’s gross domestic product agreed to sign up for the Regional Comprehensive Economic Partnership (RCEP) in February 2020.

While the White House is still trying to resolve its absurd trade war with China, and the United States-Mexico-Canada Agreement (USMCA) is stalled in Capitol Hill, more focused in President Donald Trump’s impeachment process, Beijing reiterated its global vocation as founder of RCEP, along with the member states of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam), plus Australia, Japan, New Zealand, and South Korea.

According to the 14 East Asia Summit host, Thai Prime Minister Prayut Chan-O-Cha, ASEAN “welcomed the conclusion of RCEP negotiations and the commitment to sign the agreement in 2020,” stressing that “this will significantly contribute to an open, inclusive, and rules-based international trading system and expansion of value chains.”

During his intervention, Chinese Prime Minister Li Keqiang urged leaders to build an open economy, in order to forge ahead economic globalization to a “direction of openness, inclusiveness, balance, and win-win cooperation,” adding that all RCEP text negotiations and essentially all market access negotiations have been concluded.

The great absentee in the new bloc is India, whose Prime Minister, Narendra Modi, pulled out in a last-minute decision guided by the impact the deal would have on its uncompetitive industrial and farm sectors.

Explaining its position, Indian foreign ministry spokeswoman Vijay Thakur Singh told reporters on Monday that New Delhi “had significant issues of core interest that remained unresolved.”

Many in western capitals were keen to see India in the pact as a counterweight to China, which proposed it in a joint initiative with Japan in 2011.

However, Modi’s government is protectionist and was concerned about a flood of cheap mass-produced goods hurting small businesses and tens of millions of subsistence farmers in the Indian economy.

India’s bilateral trade deficit with China is almost half of its entire deficit with all RCEP members, and the country has also not ostensibly benefitted from its current free trade agreements including Japan, South Korea, and ASEAN. Steel, aluminum, textiles, dairy, and other sectors opposed to RCEP fearing millions of job losses.

Nevertheless, Chinese Vice Foreign Minister Le Yucheng highlighted that the 15 RCEP nations “are taking an open attitude; whenever India is ready, it is welcome to get on board.”

Strategic blunder

In sharp contrast, Washington has offered virtually more of the same to the region, confirming that its withdrawal from the bigger Trans-Pacific Partnership (TPP) deal was a strategic blunder for its own interests.

Many delegates in Bangkok considered Trump’s absence as a sign that the U.S. is more concerned with his impeachment and the 2020 general election than the geopolitical and economic situation of Eastern Asia.

Vaguely, bearing his trademark, Trump invited ASEAN leaders to a “special summit” in the U.S. next year, underscoring in a message that the meeting would provide “an excellent opportunity” to “broaden and deepen our cooperation on matters of great importance.”

Apart from trying to downplay RCEP in Bangkok, Commerce Secretary Wilbur Ross recalled that the U.S. signed a free trade agreement with Japan this year and also renegotiated a deal with South Korea.

Using Washington’s tired old rhetoric, National Security adviser Robert O’Brien accused Beijing of “intimidation” to prevent ASEAN nations from exploring its natural resources in the South China Sea, ignoring the progress made by the RCEP bloc on boundary disputes through the negotiation of a Code of Conduct that would be signed in 2021.

As for the U.S.-China talks, Gao Feng, spokesperson for China’s Ministry of Commerce, highlighted on Thursday that both sides had agreed to simultaneously lift some existing tariffs on one another’s goods.

Earlier, news outlets in Beijing said the Asian giant is open to sign a bilateral trade deal, yet it will avoid giving too many concessions, after last week’s cancellation of the Asia-Pacific Economic Cooperation (APEC) summit in Chile.

Trump had previously suggested that he and China’s President Xi Jinping would sign the “phase one” of the agreement in the South American country, where massive protests against neoliberalism are threatening the government.

Beijing had proposed the removal of all tariffs in exchange for Chinese imports up to USD $50 billion worth of agricultural products within two years. 

A deal is within reach with a possible meeting between Trump and Xi in December, yet Washington should forget the “wishful thinking” that structural issues could be resolved quickly.

Beijing is not ruling out that Trump would haggle, as he did in pressuring Mexico to agree to the USMCA earlier this year.

Growth in developing East Asian and Pacific economies is projected to decelerate in the near term, reported in October the World Bank.

Regional growth will decline from 6.3% to 5.8% this year, and to 5.7% and 5.6% in 2020 and 2021, respectively, reflecting a broad-based decline in export growth and manufacturing activity, especially affected by the trade war between the U.S. and China.

However, the RCEP should boost intra-Asian integration, opening new trade opportunities that even India would not be in a position to underestimate once it has made progress in its social development programs, such as improving health care and sanitation.

During the first half of 2019, a period when global Foreign Direct Investment (FDI) outflows were down by 5%, they jumped 20% to ASEAN, remarked the United Nations Conference on Trade and Development (UNCTAD).

Despite the trade war and digitalization, the “Fourth industrial revolution” underway that is transforming manufacturing, banking and services, in 2018 four ASEAN countries saw FDI inflows hit record highs, all of them—Cambodia, Indonesia, Singapore, and Vietnam—recipients of what UNCTAD’s head of investment research Richard Bolwijn called in Bangkok investment divergence” from China.

The FDI inflows from Japan and South Korea also increased; Japan’s total FDI in ASEAN reached USD $249 billion in 2018, a figure that has tripled over the past ten years and far exceeds the accumulated totals of the U.S. and the European Union in the region. In the U.S. case, FDI plummeted to just USD $8 billion, compared with USD $25 billion in 2017

Much of the new FDI in Southeast Asia—in particular, Singapore, Indonesia, Vietnam, and Thailand—was in manufacturing, jumping from USD $30 billion in 2017 to USD $55 billion last year, up some 83% year-on-year.

Technology advances that are changing the global value chain and moving manufacturing back to European and North American markets, such as 3-D printing, would be bad news for ASEAN if the regional group was not a huge market itself, comprising 650 million people, many of them joining the middle class and more than half of them under the age of 35.

This means for Mexico an important lesson, in a moment when the country is struggling with null growth and the White House is studying the imposition of new tariffs on automobile exports. 

As a member of APEC and the TPP’s successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Mexico should strengthen its interaction and cooperation with East Asia.

Editing by Sofía Danis
More by Gabriel Moyssen

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