The Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade zone, entered into force in 2022 with the potential to strengthen trade relations among its members. With all 15 member states having completed their domestic ratification processes, RCEP is poised to boost the development of intra-regional supply chains in “Factory Asia,” which now accounts for nearly 60 percent of world trade, making it the second most integrated economic region after Europe.
RCEP represents 50 percent of the world’s population and 32 percent of the global gross domestic product (GDP). Trade among member states accounts for a 28 percent share of world trade, though the agreement’s immediate benefits vary due to overlapping bilateral and regional trade arrangements in some countries. For instance, RCEP ranked 4th worst in terms of usefulness out of 20 trade arrangements in Australia, likely due to overlaps with existing arrangements. In contrast, it has become by far the most utilised trade agreement in Japan, especially for trade with China and South Korea–long non-FTA/EPA destinations, the Japan Chamber of Commerce and Industry (JCCI)’s data confirmed.
For ASEAN, RCEP’s full implementation enhances regional supply chain connectivity and aids post-pandemic global economic recovery. Although ASEAN is not as large as the US, China, or Japan in terms of economic size, value-added contributions, and final demand markets, it plays a crucial role as a transit point in global value chains. In this regard, RCEP reinforces ASEAN’s position as a regional institutional hub.
However, RCEP—rooted in the five existing ASEAN+1 FTAs—may not bring about structural changes in the ASEAN-centred economic integration, unlike the Trans-Pacific Partnership (TPP). Contrary to RCEP, the advent of TPP challenged ASEAN’s traditional liberalisation approach and enhanced internal divide.
Historically, ASEAN’s economic growth has relied on foreign direct investment (FDI) and trade with large external economies. Over the past few decades, intra-ASEAN trade has declined, instead leading to increased dependence on China. In this context, RCEP’s implementation coincided with a turning point in China-ASEAN economic relations. During the COVID-19 pandemic, bilateral trade between China and ASEAN grew steadily, making them each other’s largest trading partners for the first time in 2020.
Furthermore, the ongoing trade conflict between the United States and China has also accelerated the relocation of production facilities from China to Southeast Asia, particularly to countries like Vietnam and Indonesia. This trend, known as “China Plus One,” initially gained traction among Japanese firms in the mid-2000s. Recently, given the geographical proximity to mainland China, Chinese firms have adopted this model to safeguard their supply chain and export markets amid the intensifying Sino-US strategic competition.
While ASEAN countries demonstrate high mediating capacity in intra-regional production networks, there remain some impediments for economic development such as trade facilitation and digital transformation. ASEAN is undergoing digitalisation across a wide range of sectors, and the region’s booming digital economy is forecasted to reach US$1 trillion by 2030, with internet penetration at 90 percent, comparable to Europe and the US. About half of Southeast Asia’s population uses smartphones, and the region boasts some of the world’s most engaged social media users, according to a survey.
Despite this digital growth, Southeast Asia is one of the few regions where local companies and global tech giants intensively compete with one another, as most symbolically evidenced by Uber’s exit from the region in 2018. The digital economy’s expansion is expected to intensify competition between US and Chinese e-commerce giants and local firms. Additionally, Southeast Asia is emerging as a global hub for cloud service providers, but fragmented regulation on digitisation across the region makes it difficult for the private sector to expand their businesses beyond national borders, inhibiting digital business growth.
In terms of digital regulation, Singapore has led the way, establishing six digital agreements including the Digital Economy Partnership Agreement (DEPA) and the Australia-Singapore Digital Economy Agreement. These frameworks emphasise the importance of free data flows for economic growth and prosperity, while RCEP merely offers a flexible model, seeking to balance technological potential with countries’ ability to regulate their increasingly digital economies and societies.
In 2023, ASEAN member states began negotiating the ASEAN Digital Economy Framework (DEFA), aimed at harmonising digital trade rules across the region. Touted as the world’s first regional digital economy agreement, DEFA provides a more integrated approach with common rules-based mechanisms and standards. It helps expand Southeast Asia’s e-commerce market, which accounted for close to 70 percent of Southeast Asia’s digital economy, from US$105 billion in 2020 to $300 billion by 2025. In the long term, DEFA will help establish the ASEAN Digital Economic Community by 2045.
Despite ongoing geopolitical tensions, ASEAN members are progressing toward legally binding agreements on digital payments, big data, cybersecurity, and digital skills. As the region’s digital economy continues to grow, Southeast Asian consumers will play a key role in shaping its future.
Yuma Osaki is an assistant professor at Doshisha University in Kyoto. He is also currently enrolled at the Crawford School of Public Policy of the Australian National University, pursuing another PhD in political science and international relations. He served as one of the 2023 Indo-Pacific Fellows of the Perth USAsia Centre.
This article is published under a Creative Commons License and may be republished with attribution.
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<p>Time: 2024 By: Ministry of Industry and Trade</p>
