The Asian Development Bank (ADB) said trade agreements in Asia and the Pacific, including the “mega trade deal” Regional Comprehensive Economic Partnership (RCEP), are breathing new life into global value chains.
In a study titled, “Asian Economic Integration Report 2017” released on Wednesday, the Manila-based multilateral development bank said robust intraregional trade and investment have become a buffer against uncertainties in global trade and economic growth.
Among these trade pacts is the RCEP which is nearing completion. ADB Economic Research and Regional Cooperation Department Director Cyn-young Park told the BusinessMirror that concluding the RCEP would further boost trade and investment in the Asean and six other states covered by the proposed agreement.
“Once concluded, it is expected to help boost trade and spur economic growth of the region by lowering tariff and nontariff barriers in goods and services, as well as impediments to investments, among others,” Park said in an e-mail.
Park described the RCEP as a proposed free-trade agreement (FDA) between the 10 Asean countries and Australia, the People’s Republic of China, India, Japan, the Republic of Korea and New Zealand.
The RCEP is termed in the ADB report as a mega trade deal given that it represents a population of 3.4 billion people and accounts for around 39 percent of the world’s GDP in purchasing power parity terms.
Asean countries, including the Philippines, and multilaterals like ADB are hopeful that the agreement is concluded, because apart from boosting trade and investment and further grow economies in the region, the RCEP can also address problems created by the “noodle bowl” effect.
The noodle-bowl effect stems from the intertwining of FTAs in Asia and how these have wrecked havoc on rules of origin and standards.
As such, having the RCEP, which Park said goes beyond bilateral trade agreements, is a “unified FTA and a mega regional trade deal” rolled into one.
“With a group of multiple members, it can help address the noodle-bowl problem to a certain extent by introducing harmonized rules of origin requirements at the regional level. It can also contribute to strengthening regional value chains through expansion of trade networks in intermediate goods,” Park said.
The report said the conclusion of the RCEP has been deemed a key output to mark the Asean’s 50th year anniversary this year. This was contained in the Joint Media Statement released after the fifth RCEP Ministerial Meeting in the Philippines in September 2017.
ADB said in 2016, Asia’s intraregional trade share, measured by value, rose to 57.3 percent in 2016, a record high, up from an average of 55.9 percent from 2010 to 2015.
Foreign direct investment (FDI) within Asia rose in absolute value to reach $272 billion in 2016, despite a 6-percent decline in global FDI flows into the region. This intraregional FDI increased as a share of total FDI to the region from 48 percent in 2015 to 55 percent in 2016.
“Asia and the Pacific is leading a recovery in world trade that is helping the region to maintain strong growth momentum amid global economic and trade policy uncertainty,” said Yasuyuki Sawada, ADB chief economist. “Asia’s continued integration and cooperation will underpin regional economic growth and financial resilience.”
ADB said given the role intra-Asian FDI plays in enhancing global and regional value-chain development, this is expected to help strengthen the region’s trade growth globally.
Asian economies have continued expanding their global presence, with FDI originating from Asia rising 11 percent in 2016 to $482 billion, primarily through investment in renewable energy, natural resources, semiconductors and information technology.
“Beginning March 2016 growth returned and has been rising steadily. The ongoing global economic recovery lifted demand for the region’s exports, particularly in Hong Kong, China; Japan; Taipei,China; and Vietnam,” the report stated.
The report also features a special chapter on how Asia can strengthen financial resilience in an era of financial interconnectedness.
It highlights that 20 years after the Asian financial crisis, Asia stands strong, with healthier financial systems, stronger regulations and better regional financial cooperation mechanisms.
Significant challenges remain, however, with unresolved financial market and system weaknesses. Remaining regulatory policy gaps could also increase the region’s risk exposure and financial vulnerability through excessive leverage and risk-taking.
The report offers several recommendations for countries in the region to strengthen their resilience to future crises, including maintaining sound macroeconomic fundamentals and strengthening national regulatory and supervisory frameworks and institutional capacities.
The study also offered recommendations on how to further develop local currency bond markets; strengthen regional regulatory cooperation, including resolution mechanisms for interconnected regional banks; and reviewing and strengthening of existing financial safety nets against potential contagion and spillover effects.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members, 48 of whom are from the region. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in cofinancing.