By Arjay L. Balinbin, Senior Reporter
PHILIPPINE EXPORTS are expected to dip as the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal, enters into force on Jan. 1.
A study done by United Nations Conference on Trade and Development (UNCTAD) economist Alessandro Nicita found that Philippine exports could fall by $100 million, or equivalent to about -0.1% when measured as percentage of exports to RCEP members in 2019.
“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,” it said.
After eight years of talks, the RCEP trade deal was signed on Nov. 15 last year. It includes China, Australia, New Zealand, Japan, South Korea and all 10 countries in the Association of Southeast Asian Nations (ASEAN), which account for around a third of the global population and economy.
India had opted out of the agreement, citing the risk posed by imports to its domestic industries. Based on the UNCTAD’s estimates, India’s export losses are expected to reach $900 million, and 2.1% of its exports to RCEP will be diverted to favor RCEP members.
“The export losses of countries such as Bangladesh, Pakistan, Sri Lanka and India are more significant when measured in percentage terms,” UNCTAD said.
Tariff concessions are a central principle of the agreement, which will eliminate 90% of tariffs within the trading bloc.
Aside from the Philippines, the UNCTAD study found that the RCEP tariff concessions would result in lower exports for Cambodia, Indonesia, and Vietnam.
“Some of the imports of China from Vietnam will be replaced by imports from Japan because of the stronger tariff liberalization between China and Japan,” UNCTAD said.
“Importantly, the overall negative effects for some of the RCEP members do not imply that they would have been better off by excluding themselves from the RCEP agreement, as trade diversion effects would have accrued notwithstanding,” it added.
UNCTAD pointed out that even without considering the other benefits of the trade pact beyond tariff concessions, the trade creation effects associated with RCEP membership “softens” the negative trade diversion effects.
“Overall, RCEP tariff concessions are expected to increase trade within RCEP by nearly $42 billion, equivalent to almost 2%,” it said. “Most of the effects would be driven by trade diversion (about $25 billion) away from non-member countries. Trade creation due to lower tariffs would contribute about $17 billion.”
For the Philippines, UNCTAD estimated total trade diversion at $200 million, although total trade creation is $200 million.
Japan is seen to benefit the most from RCEP tariff concessions. This is mostly because of trade diversion effects.
Japan’s exports are expected to go up by about $20 billion, an increase equivalent to about 5.5% relative to its exports to RCEP countries in 2019, UNCTAD noted.
“In 2019, Intra-RCEP trade represented about 50% of the total trade of RCEP members, reaching nearly $2.3 trillion, or 13% of global trade in goods,” it said.
The Philippines’ Trade department has been promoting the deal as a market access advantage.
RCEP Lead Negotiator and Trade Assistant Secretary Allan B. Gepty said during a Senate hearing on the matter in October that the key benefits of the trade deal for the Philippines are cheaper costs for sourcing key inputs of the manufacturing sector, convenience for businesses in trading with key free trade agreement partners, competitiveness for Philippine industries, among others.