Much of Asia is preparing to usher in the year of the rabbit this coming weekend. Expect much movement on the trade agreement front as the region returns to a post-pandemic normality.
Post-pandemic new normal?
While much of the rest of world may be battered by a variety of pressures, including the ongoing war in Ukraine, soaring energy prices, stubborn inflation and the potential for economic recession, Asian economies appear more buoyant.
Hope can be seen across Asia with projections of 3 to 5% GDP growth. These figures may be considerably off the pace of past trends, but growth projections are higher than Europe or the United States. Even Japan’s government, which has long grappled with challenging growth figures, is now expecting 1.5% growth in 2023.
After nearly three years of Covid-19 related shutdowns, the year of the rabbit also marks the start of full economic reopening across the region. The pandemic may not be over, but it is increasingly difficult to see how governments could re-shutter economies in the region.
Many Asian markets are extremely travel and tourism dependent. Both leisure and business travel has been severely disrupted. The sector is especially important to smaller firms, which form the bulk of businesses in and across Asia. The rebound in travel presents considerable hope for brighter times ahead, including in many developing country markets.
Singapore’s airport passenger figures reached a million per week at the end of the year, with expectations that travel will fully rebound to pre-pandemic levels in the first quarter.
Thailand’s government is hopeful that it will receive 22 million tourists across the year. The return of Chinese outbound travel spells good news for many Asian tourist destinations. Prior to the pandemic, more than 150 million trips abroad departed from China.
Economic interdependence goes beyond just travel links. Asia has long been dominant in global supply chains, particularly for trade in goods such as textiles and apparel, electronics, and equipment and components. Many of these links have been severely tested by the pandemic.
RCEP rollout and possible expansion
Perhaps fortunately for the region, the economic reopening coincides with the launch of Asia’s biggest trade agreement, the Regional Comprehensive Economic Partnership known under its acronym RCEP. Indonesia became the 13th participating economy at the start of 2023, joining most of ASEAN, Australia, China, Japan, New Zealand, and South Korea.
RCEP has been in force for most of the region for a year and, while some benefits such as tariff reductions can be slow to be phased in, the rest of the agreement is already active.
This includes new market access and consistent approaches to trade in services and investment, new provisions covering intellectual property rights, and a raft of coordination commitments for future work on standards and government procurement.
The entry into force of RCEP should encourage greater trade in Asia. While the region has long been globally connected and integrated, for many goods and services, the final market has been found outside Asia. RCEP makes it easier to deliver goods, services, and investment within the region by eliminating or reducing trade barriers between members.
RCEP will also open for new membership in mid-2023. Hong Kong has already said it wants to join at the first opportunity. Other Asian governments, such as Bangladesh, have expressed interest in the regional trade deal.
The region should be heavily focused this year on further implementation of RCEP’s nearly 500 pages of commitments and 14.000 pages of country-specific pledges, including the establishment of a secretariat to help manage the sprawling trade agreement.
RCEP is not the only regional trade deal in the headlines in the year of the rabbit.
CPTPP prepares for new accessions
The Comprehensive and Progressive Trans-Pacific Partnership – CPTPP – saw the grouping grow to 10 and now includes Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
Members are working on accessions in 2023. The United Kingdom is nearing the final stages of talks to join with five more economies waiting in the wings, including China, Taiwan, Costa Rica, Ecuador, and Guatemala.
Governments are also pursuing bilateral trade agreements. For example, Australia and India launched their trade deal at the start of the year. South Korea’s government has just announced their intention to sign 10 new free trade agreements.
Officials are not just managing traditional FTAs but are enthusiastically embracing the opportunities posed by digital trade.
Digital agreements and IPEF
The Digital Economy Partnership Agreement or DEPA is a stand-alone digital agreement connecting Chile, New Zealand, and Singapore. Korea, Canada, and China are currently in accession negotiations.
The most recent bilateral Digital Economy Agreement between Singapore and South Korea came into force only days ago. It joins similar digital agreements between Singapore and Australia and the United Kingdom.
Thirteen Asian countries are also working with the United States on the Indo-Pacific Economic Framework known as IPEF.
While not a trade agreement, IPEF provides a platform for discussion and commitments on a range of topics, including supply chains, the circular economy, and trade-related issues like labour and the environment.
The next negotiating round for portions of IPEF – the so-called “pillars 2-4” – will take place in India in early February. Further rounds will address all four pillars.
Much of Asia will also be meeting in the year of the rabbit across American locations for Asia Pacific Economic Cooperation. APEC provides a range of opportunities for member economies to discuss a range of economic topics like supply chain resilience, digital trade, connectivity, opportunities for small and medium-sized enterprises, climate change and environmental sustainability.
Despite hopeful signs, there are still some dark spots on the horizon. Inflation and interest rate changes are being felt across the region. Firms must grapple with ongoing, and possibly escalating, geopolitical tensions that are spilling over into the economy. While the pandemic is moderating, it remains unclear what the “new normal” will actually entail.
Nevertheless, after a very bumpy and challenging couple of years, the economic fortunes across Asia appear to be turning.
Trade has always been important to the region and the year of the rabbit looks set to reinforce interdependent economic trends.
Deborah Elms is founder and executive director of the Asian Trade Centre in Singapore.