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Asia-Pacific exports are reviving alongside a broader upturn in
global trade flows
The new Regional Comprehensive Economic Partnership (RCEP) will
further boost trade in the region, creating the world's largest
free trade area
Asia-Pacific exports suffered a severe slump in the first half
of 2020 due to the shockwaves from the global COVID-19 pandemic and
widespread lockdowns that disrupted industrial production and
consumer spending. As global lockdowns have eased, Asia-Pacific
exports have rebounded in the second half of 2020, helped by
improving export orders from the US and EU. The rebound in China's
economy has also helped the rebound in exports from many Asian
economies.
The new Regional Comprehensive Economic Partnership (RCEP) trade
deal will add a further silver lining to the medium-term export
outlook, as 15 Asia-Pacific countries create the world's largest
free trade agreement to further liberalize trade and investment
flows.
RCEP will create the world's largest free trade
area
RCEP is a positive regional trade liberalization initiative that
will help to boost trade and investment flows among the 15 nations
that have agreed to the trade deal. The 15 Asia-Pacific economies
that make up the RCEP membership together account for around 29% of
world GDP. The RCEP members comprise the 10 nations of ASEAN, plus
China, Japan, South Korea, Australia and New Zealand. RCEP
negotiations commenced in November 2012 and the 15 RCEP member
nations concluded negotiations on the text of the agreement on 4th
November 2019. The RCEP agreement is expected to be signed by
ministers at the 37th ASEAN Summit in Hanoi in mid-November
2020.
RCEP will be the world's biggest free trade agreement (FTA)
measured in terms of GDP, larger than the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP), the
European Union, the recent US-Mexico-Canada Free Trade Agreement or
Mercosur.
Although tariff liberalization has already progressed
significantly among the 15 RCEP members over the past decade
through a wide network of FTAs, RCEP will further reduce tariff
barriers. The scope of RCEP includes reducing tariffs on trade in
goods, as well as creating higher-quality rules for trade in
services, including market access provisions for service sector
suppliers from other RCEP countries. The RCEP agreement will also
reduce non-tariff barriers to trade among member nations, such as
customs and quarantine procedures as well as technical
standards.
RCEP significantly extends the scope of trade and investment
liberalization through chapters that create a common rules of
origin framework as well as strengthening intellectual property
protection, trade in services and reducing barriers to
investment.
Impact of the COVID-19 pandemic on Asia-Pacific
exports
The Asia-Pacific region has been a key beneficiary of global
trade and investment liberalization over the past five decades,
with many of the region's economies having experienced rapid
long-term growth in their exports to key global markets. That
structural trend has been supported by multilateral trade
liberalization through the GATT and WTO trade rounds, as well as by
a growing network of regional and bilateral free trade agreements
within the Asia-Pacific region.
However, this long-term trend of rapid export growth has
suffered some setbacks in the past three years. The first shock was
due to the escalating US-China trade war in 2018 and 2019, which
resulted in some disruptions as well as trade diversion effects due
to rising bilateral tariff barriers for trade between China and the
US. The negative impact on some Chinese exports resulted in wider
supply chain implications for many other Asian countries.
These disruptions to Asia-Pacific trade escalated further during
the first half of 2020, as the COVID-19 pandemic triggered
lockdowns and travel bans across the world, resulting in sharp
declines in exports of goods and services from many Asia-Pacific
economies. The easing of lockdowns in key markets such as the US
and EU since June has subsequently triggered a rebound in
manufacturing exports from many Asia-Pacific economies, as sectors
such as autos, pharmaceuticals and electronics have shown strong
growth in output during the third quarter of 2020. However, with
international tourism travel prohibited across most of the
Asia-Pacific region, exports of services have remained weak during
the second half of 2020.
Manufacturing sector export orders have shown a strong recovery
across the Asia-Pacific during the third quarter of 2020, matched
by a rise in the PMI export orders data for the region, as the
widespread easing of lockdown restrictions in the US and EU markets
helped to drive a rapid rebound in Asian exports of manufactures.
With the electronics sector being a key segment of the
manufacturing exports of many East Asian economies, the strong
rebound evident in global electronics new orders highlights the
recovery in Asian manufacturing exports in the second half of
2020.
China's export sector has shown a strong upturn during the
second half of 2020, with exports rising 11.4% year-on-year in
October, after an increase of 9.9% y/y in September. In Malaysia,
exports rose by 13.6% y/y in September, with exports of
manufactured products up by 16.3% y/y. Singapore's non-oil domestic
exports rose by 5.9% y/y in September, with electronics exports
surging higher by 21.4% y/y. South Korean exports also posted
strong gains in September, rising 7.6% y/y, albeit followed by a
small drop of 3.6% y/y in October due to a smaller number of
working days in the month compared to a year ago.
RCEP outlook and trade policy implications
Following considerable disruption to Asia-Pacific trade flows
during 2018-2020 due to the US-China trade war and the impact of
the pandemic, the implementation of RCEP will help to further
reduce barriers to regional trade flows within the Asia-Pacific
region over the medium to long-term.
While the RCEP deal is not as comprehensive as the CPTPP deal in
terms of scope and range of trade issues covered, its membership
includes a larger group of nations, notably reflecting the
membership of China, which considerably boosts the total GDP of
RCEP members compared to the CPTPP membership. The RCEP also
creates a trade liberalisation framework that can be built on and
strengthened through further rounds of trade negotiations.
A key priority area for further RCEP negotiations is likely to
be e-commerce, given the rapidly growing importance of online trade
in many Asia-Pacific economies, since a substantial agreement was
not achieved in the original RCEP framework. Other countries could
also potentially join the RCEP grouping in future, widening the
economic impact of RCEP trade and investment liberalization
measures.
India, which had been one of the nations involved in the RCEP
negotiations at an earlier stage, eventually decided in 2019 not to
join the RCEP deal. India's decision not to join the RCEP deal
reflects considerable domestic concerns amongst political parties
as well as industry groups in India about the potential economic
shock to Indian industries from dismantling tariff barriers for
trade with the other RCEP member nations. However, the other RCEP
members have left the door open for India to join at a later
date.
A potential trade policy issue for the next US Administration is
that the implementation of RCEP will leave the US outside of both
RCEP and CPTPP, the two major Asia-Pacific regional free trade
agreements. However, US multinationals will be able to benefit from
the RCEP provisions through their subsidiaries operating within
member countries.
In the overall Asia-Pacific trade policy landscape, the RCEP
deal is a major further step by APAC governments to liberalize
regional trade flows, following the implementation of both the
Japan-EU Economic Partnership Agreement (EPA) and the CPTPP deals
in quick succession during in 2019.
Once ratified and implemented by member nations, the RCEP free
trade agreement will become a building block for further advancing
trade liberalization in the Asia-Pacific, both through expanding
the scope of the existing agreement and through the accession of
other nations to the agreement.
Rajiv Biswas, Asia Pacific Chief Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
