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Philippine participation in the Regional Comprehensive Economic Partnership agreement could lift the country’s real GDP by 2.02%, according to the Philippine Institute for Development Studies
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Opting out of the agreement could result in a GDP decline of about 0.26%
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RCEP aims to further liberalize trade in goods and services
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Philippines still needs to work on improving its trade openness, sectoral orientation and complementarity
Philippine participation in the Regional Comprehensive Economic Partnership (RCEP) agreement could raise its real gross domestic product by 2.02%, according to a recent study by state think tank Philippine Institute for Development Studies (PIDS).
Should the Philippines opt out of the deal, its GDP could decline by about 0.26%, said the discussion paper titled “Who Benefits from RCEP? Application of Trade Policy Tools.”
The study assesses the country’s trade performance and participation in the RCEP and analyzes different scenarios related to the agreement.
Signed in November 2020, RCEP aims to further liberalize trade in goods and services while enhancing competition policy, intellectual property rights, investment, technical cooperation and government procurement.
It is viewed as “a strong commitment to supporting economic recovery, inclusive development, job creation, and strengthening regional supply chains, as well as support for an open, inclusive, rules-based trade and investment arrangement.”
RCEP “can be a catalyst for economic development,” according to the study authors, namely, PIDS senior research fellow Francis Mark Quimba, supervising research specialist Mark Anthony Barral, and research analyst Abigail Andrada.
However, the Philippines needs to work on improving its trade openness, sectoral orientation and complementarity.
For instance, along with Indonesia and China, the Philippines scored below 100% in trade openness in 2018. This showed the country “has not followed a growth path similar to its neighbors in the region,” particularly Thailand and Vietnam, which scored above 100%, said the study.
Meanwhile, the sectoral and geographical orientation of the country’s trade revealed that Philippine exports are highly concentrated, the bulk of exports being machinery and electronic equipment. The destination is also concentrated on its traditional partners in the region and the United States.
Trade complementarity, or the extent to which two countries are “natural trading partners,” has been declining in some economies in the Association of Southeast Asian Nations, including the Philippines.
Countries with increasing trade complementarity, such as Indonesia, Australia, and Myanmar, “may have the potential of benefitting more from [the] RCEP agreement when it takes effect.”
As a way forward, the study underscored the need to hasten conversations and debates on RCEP, emphasizing that not implementing the agreement will have a cost to the country.
“Baseline results of the general equilibrium gravity model show that countries outside of the agreement would be negatively affected when RCEP comes into force,” the authors explained.
They also urged Philippine businesses to reduce trade costs, largely by increasing the awareness and utilization of Philippine trade agreements.
Given the concentration of Philippine exports, the authors said there should be “support for private sector innovation and exploration of new products and new markets.”
RCEP entered into force on January 1, 2022 for 10 signatory states, namely, Brunei Darussalam, Cambodia, Laos, Singapore, Thailand, Vietnam, Australia, China, Japan, and New Zealand.
It will be implemented in South Korea on February 1, 2022 and in Malaysia on March 18, 2022.
In the Philippines, deliberations are ongoing on Senate concurrence with the executive ratification signed by President Rodrigo Duterte on September 2, 2021. Various government agencies and industry groups have called on the Senate to ratify the agreement, saying further delay in joining the world’s largest free trade area will result in the Philippines losing growth momentum. Time may be running out with Congress set to take a break on February 5 for the election period.
