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13 Nov 2020

International Economy

All eyes on RCEP: the world’s largest free trade framework and Thailand’s most comprehensive FTA (Current Issue No.3159)


          The Regional Comprehensive Economic Partnership, or RCEP, comprises 15 member states, namely the 10 ASEAN countries and their Plus 5 which consists of China, Japan, South Korea, Australia and New Zealand. RCEP member states were finally able to wrap up their longstanding negotiations, which had been ongoing since 2012, at the 37th ASEAN Summit held in Vietnam on November 15, 2020. The RCEP free trade pact has the largest economic framework, accounting for 31 percent of global GDP – and encompasses the largest consumer market with a total population of 2.3 billion people. Even so, RCEP still awaits ratification by the parliaments of at least six ASEAN countries and four of the Plus 5 countries, and it is expected to take effect during the second half of 2021. KResearch views that, while ASEAN may have existing FTAs with China, Japan, South Korea, Australia and New Zealand, the collaborative effort under RCEP's goal of establishing free trade across as many regions as possible has been done in part to generate interest on par with CPTPP. However, the reality is that the RCEP is not a substitute for CPTPPsince RCEP puts emphasis on supply chain connectivity within Asia, whereas  CPTPP  linksto supply chains in America.

           In regard to Thailand, which already has a deep trade and investment relationship with the other RCEP member states, KResearch perceives that Thailand stands to benefit even more both directly and indirectly from the pact, going forward. Directly, this agreement will contribute to an increase in trade volume between Thailand and other RCEP member states. However, since Thailand ​has already established FTA deals with other ASEAN countries through the ASEAN Free Trade Area and individually with each of the Plus 5 countries, the benefit in terms of trade may be minimal. Indirectly, it will induce the Plus 5 countries to lower tariff barriers for the first time. The implementation of RCEP will help to solidify Thailand's position as a primary candidate for setting up a key production base in Asia, particularly in the industries for which Thailand has an edge in terms of manufacturing and exports, such as automobiles and parts, plastic pellets and plastic products, chemicals, rubber and rubber-based products, electrical appliance parts and electronic components. That said, the fact that the Plus 5 countries are more likely to engage in trade with one another due to the lowered tariff barriers is unlikely to lead to market competition with existing ASEAN or Thai products as they belong to different categories.

            An FTA deal is a key factor that foreign investors consider when it comes to devising a business expansion plan/ developing their business plans. KResearch is of the opinion that the time is ripe for Thailand to choose between 1) adjusting itself to meet the high standards of this FTA by entering into negotiations with CPTPP or with the US, EU and the UK, and  2) conditioning itself to attract foreign investors without the aid of an FTA with the West. Regardless of which path it takes, Thailand will need to make adjustments as both options yield winners and losers, wherein the Thai government should be prepared to provide assistance where necessary.

International Economy