Southeast Asia Global Relations Outlook Part 5: International Agreements

This is the fifth part in a short series exploring Southeast Asia’s relationships with key global powers and economic blocs. The series aims to give a snapshot at the beginning of 2024, looking at the events over the past months that have shaped the region’s global relationships, and the dynamics that will determine them moving forward. 

Part 1 looked at Southeast Asia’s relationships with the US and China; Part 2 looked at the ‘next two’ global economic powers, the European Union and India. Part 3 looked at Southeast Asia’s relationships with its East Asian neighbors: Japan, South Korea, and Taiwan. Part 4 looked at Southeast Asia’s relationships with the Gulf countries. Part 5 will look at Southeast Asia’s relationships with International Agreements

Introduction

In recent years, the Asia-Pacific region has become the arena for a new wave of multi-lateral initiatives shaping economic relationships within the region and beyond. Among these initiatives are the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Indo-Pacific Economic Framework for Prosperity (IPEF).   

The Regional Comprehensive Economic Partnership (RCEP) represents the world’s largest regional trading bloc, comprising 15 member countries accounting for 30% of the world’s population and GDP. Aimed at promoting regionalism and streamlining trade agreements, RCEP’s entry into effect underscores its significance in shaping the Asia-Pacific trade landscape. As accession rules are developed to allow more countries to join, RCEP’s role in deepening trade links and potentially challenging global economic dynamics, particularly those centered around China, comes into focus. 

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) stands as a landmark trade agreement comprising 11 countries around the Pacific Ocean, plus the UK. Rising from the ashes of the Trans-Pacific Partnership (TPP) negotiations the CPTPP continues to evolve and with a hamstrung WTO, it signals one pathway for fostering transregional global economic exchange.  

The 14 nation-strong Indo-Pacific Economic Framework for Prosperity (IPEF) has been spearheaded by the Biden administration with a view to re-engaging the region with an economic programme to balance out strong security relationships. With its focus on emerging issues including supply chain resilience and the digital economy, IPEF is a modern initiative that aims to enhance economic cooperation among its member countries while addressing challenges such as market access and enforcement mechanisms for labor and environmental standards. 

While RCEP, CPTPP, and IPEF all seek to enhance economic cooperation in the Indo-Pacific region, the nature of these agreements varies significantly. RCEP, as a traditional free trade agreement (FTA), focuses on tariff reductions, rules of origin, and market access for goods. The CPTPP, though also an FTA, aims for a higher standard of liberalization, going beyond border measures to address issues including intellectual property rights, labor standards, environmental protection, and state-owned enterprises. IPEF is not a trade deal, but a framework for economic cooperation, focusing on establishing shared standards in key areas, without the binding tariff reductions or dispute resolution mechanisms of traditional FTAs. 

But together, they reflect the evolving dynamics of economic integration and cooperation in the Asia-Pacific region, presenting opportunities signatory members as they navigate the complexities of international trade in the 21st century. 

IPEF

In May 2022 the Biden administration launched the Indo-Pacific Economic Framework for Prosperity (IPEF) with 14 countries, including seven ASEAN members — Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. It is largely seen as a geostrategic move by the US to re-engage in the region with an economic programme, to balance more comprehensive security ties, especially after the Trump administration withdrew from the TPP in 2017.  

On 16 November 2023, the Biden administration hosted an IPEF leader’s meeting in conjunction with the APEC Summit held in San Francisco. The meeting was held to recognise the success of IPEF ministers in signing the Pillar 2 Agreement covering supply chains on 14 November 2023. As of now, substantial conclusions have been reached for Pillar 3 on sustainable economy and Pillar 4 on a ‘fair economy’, while negotiations for Pillar 1 on trade are still ongoing.^[1] The trade pillar has been the subject of concern and criticism as it had been evident for some time that significant progress would not be achieved by the APEC deadline. Its focus on issues from labour to digital economy reflect the modern trade policy landscape, but a lack of market access provisions has disappointed many members.   

Given US election year sensitivities over trade, there remain low expectations for a substantive agreement to be reached on the trade pillar at least in 2024. At present, US demands for rules setting high labor and environmental standards have faced pushback from Southeast Asian countries. Ultimately, how the protracted negotiations over the trade pillar conclude will strongly affect ASEAN’s overall perceptions of IPEF.^[2] 

Beyond market access

However, IPEF is still expected to bring advantages and remains a new and innovative way of pursuing economic cooperation on emerging ‘next generation’ issues, such as supply chain resilience, digital economy, and climate change. It also provides a platform for international economic diplomacy, where ASEAN Member States will be able to engage in rulemaking for regional trade as well as to resolve bilateral trade issues with other member economies.^[3]

For instance, it has been argued that participation in IPEF has helped restore market access for Malaysian companies which had previously faced restrictions by US authorities due to allegations of forced labour and transshipment. Since issues such as labour standards are already addressed through IPEF, Malaysia’s participation in the framework could serve as insurance against future punitive trade policy actions by Washington, as well as providing a platform to resolve existing trade frictions.

For other ASEAN countries that have faced trade restrictions from the US for issues such as transshipment (such as Vietnam, Thailand, and Cambodia), IPEF may provide an important resolution mechanism. The high standards and rules that IPEF seeks to establish may eventually help other ASEAN countries that are non-members of IPEF to benchmark their economic governance against evolving global norms.^[4] 

IPEF can help facilitate the ongoing supply chain diversification away from China and towards Southeast Asia. With around a third of US goods imports from Southeast Asia consisting of electronics and machinery, better supply chain cooperation between the US and Southeast Asia will help reinforce the trade of value-added products, thereby helping ASEAN economies break out of the so-called middle-income trap.^[5]

IPEF will also allow ASEAN participants to benefit from knowledge-sharing and to gain best practices from IPEF partners on a range of issues including supply chain resilience, digital infrastructure (including digitalizing government transactions), and implementing anti-corruption and tax measures.^[6]

Remaining concerns

That being said, without the threat of taking away market access, IPEF ultimately lacks a mechanism to enforce the high environmental and labour standards it lays out. When negotiating contentious issues, such as agreeing on common digital trade principles, the non-binding approach of IPEF may make it less effective than other regional agreements such as RCEP or the CPTPP.

In digital governance, the regulatory gaps and diversity across states will pose a serious negotiation challenge. The recent proliferation of preferential trade agreements, each with its own e-commerce provisions has deepened regional fragmentation in digital trade. In any case, without commitments on market access, participating countries will have little incentive to engage seriously.^[7]

The exclusion of Cambodia, Laos, and Myanmar, generally seen as being ASEAN members closest to China, from IPEF has also raised suspicions that it is a coalition exclusive to US allies acting as a bulwark for US strategic interests. This may be an unfair criticism given the significance of the economies for global trade, their lack of membership of other clubs such as APEC, and in the case of Myanmar, being under heavy US sanctions. Concerns have also been raised that it undermines ASEAN centrality. In response, ASEAN members such as Indonesia have been pushing to include the three remaining members left out of IPEF. Given that Laos is 2024 chairman of ASEAN, this push to expand IPEF’s membership may become particularly pertinent. However, the ongoing conflict in Myanmar will present huge hurdles to any potential membership.^[8]   

CPTPP

The CPTPP is a free trade agreement that currently comprises 12 countries in the Asia-Pacific region. This includes four ASEAN member states: Brunei Darussalam, Malaysia, Singapore, Vietnam, as well as Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand and Peru.

The US is not party to the agreement, President Donald Trump having pulled out of the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP), in January 2017. The remaining 11 countries in the original TPP continued negotiations and devised the CPTPP, which was signed in Chile in March 2018 and entered into force in late December 2018.

The CPTPP retains the original 30 chapters of the TPP text, including its dispute settlement mechanism. However, it indefinitely suspends 22 specific commitments from the TPP that were priorities for the US, with the option for CPTPP parties to reintroduce them by consensus, pointing to an open door for the US to rejoin at some point in the future.

A new global model?

In July 2023, the UK would formally join the CPTPP, become the first non-founding country to apply and successfully join. According to a recent briefing paper by the UK government, the agreement is expected to come into force for the UK economy in the second half of 2024 once the UK and the other CPTPP members have completed the necessary legislative processes. With the UK’s formal entry, the collective GDP of the members of the CPTPP is expected to expand to 15% of the world’s total from the current 12%.^[9]

Already spanning the Pacific, with members on four continents, the UK’s accession may further the transformation of the CPTPP from a regional agreement to a global solution. Depending on the direction of travel, such as closer harmonisation with EU rules, the CPTPP could be the basis of a huge transregional regulatory sphere, facilitating trade and economic exchange between Europe and the Asia-Pacific. As two of the largest and most influential economies in the bloc, Japan and the UK may have an outsized influence on the agreement’s future.^[10]

Further expansion

The successful entry of the UK has opened the door for other applicants – at the time of writing China, Taiwan, Ecuador, Costa Rica, Uruguay, and Ukraine have also applied to join the trade pact. Other countries such as South Korea, Thailand, and Indonesia have also expressed interest in joining.

The near-term entry of China and Taiwan into the CPTPP is unlikely for geopolitical and economic reasons. Despite the US not being a member, the CPTPP is broadly viewed as a US-aligned bloc, especially with Japan, Canada, and the UK as members. Taiwan submitted its application one week after China. China will most likely insist on joining first, and should it successfully accede it will most likely exclude Taiwan. There are also significant obstacles to China’s accession due to the discrepancies between Chinese policy and CPTPP standards in the areas of labor, the environment, state-owned enterprises, and digital commerce. For China to meet these standards, significant changes to Chinese policies would likely have to be made, which would require long transition periods or exemptions. .^[11]

More likely to join is South Korea, whose trade policies are the most aligned with those of the other member economies, while its improving relations with Japan should minimize opposition to its entry. The South Korean government announced its intention to apply in April 2022, but has yet to file a formal application.^[12]    

RCEP

The Regional Comprehensive Economic Partnership (RCEP) is the world’s largest regional trading bloc, comprising 30% of the world’s population and GDP as well as 28% of global trade. It is composed of the ten members of ASEAN as well as New Zealand, Australia, China, South Korea, and Japan. The deal recently came into full effect in all the 15 member countries after it officially took effect in the Philippines on 2 June, 2023.^[13] 

An ASEAN-led initiative, RCEP is expected to formalize and streamline the multitude of ‘ASEAN Plus’ FTAs by unifying Rules of Origin and expanding rules of cumulation, thereby helping promote regionalism and the regional engagement in global value chains. Along with the CPTPP, RCEP will help further bolster the Asia-Pacific’s centrality to the global trade ecosystem. RCEP is expected to create deeper trade links between the three Northeast Asian economies of China, South Korea, and Japan. In comparison, Southeast Asia is expected to benefit less since it already has FTAs with the other RCEP partners. As such, RCEP is expected to reorient trade and economic ties away from global linkages and towards a more regionally-focused, China-centric economy. This deepening of trade dependence on China may challenge attempts by the US to economically isolate China through other initiatives such as IPEF.^[14]

More recently, the ASEAN Secretariat stated that they were developing procedures to allow more countries to join RCEP. The accession rules are expected to be finalized in 2024. As of now, only Sri Lanka and Hong Kong have expressed their interest in joining the agreement. While the agreement allows India to rejoin at any time, it is unlikely for New Delhi to do so any time soon given its concerns about an influx of Chinese imports.^[15]       

Conclusion

The development of IPEF, CPTPP, and RCEP signify a concerted effort among countries in the Asia Pacific region and their global partners to foster economic cooperation, streamline trade regulations, and promote regional integration.

The three agreements, while different in membership and scope, are collectively the result of a number of dynamics – the continued growth of Asia as the world’s largest trading region, stalled progress at the WTO and broader skepticism about global multilateralism, and the on-going tensions between the US and China.

As intra-regional trade in Asia grows and Southeast Asian economies grow their participation in global supply chains, it is logical that regional agreements emerge to bolster these trading relationships. This regionalism is not only a response to opportunity, but also out of necessity as progress at the WTO stalls and is no longer aligned with Asian economic interests. However, the deliverables of these agreements fall short compared to counterparts like the European Union or USMCA in shaping trade and investment flows. Economic integration in Asia lags behind, pointing to potential areas for further development and collaboration.

The different models across the three initiatives also reflect the numerous ways in which ASEAN and its members are managing heightened geopolitical and geoeconomic competition between the two major global powers (and secondary powers). IPEF is evidently a US-led project; the CPTPP does not include the US but is led by key US allies, and the door remains open for the US to join. RCEP on the other hand, with its diverse membership spanning both US allies and China, presents an opportunity to bridge economic disparities, as well as highlighting the strategic maneuvering within the region.

Lastly, the enduring importance of the US market and investment cannot be overstated, particularly for ASEAN countries reliant on external markets. The dominance of US-led supply chains across the region underscores the intricate web of economic interdependence and the continued relevance of American investment in driving growth and development.

About the Southeast Asia Public Policy Institute

The Southeast Asia Public Policy Institute is a research institute based in Bangkok and Singapore, working across the region. Our mission is to support the development of solutions to the most pressing public policy challenges facing Southeast Asia in the 21st century. The Institute undertakes in-depth research to develop actionable policy solutions on a range of issues across sustainability, technology, public health, trade, and governance. We convene dialogues with stakeholders and decisionmakers to drive discussion on the challenges and opportunities facing markets across the region. The Institute draws on a network of in-market researchers, advisors, and partners to provide insights and recommendations for governments, policymakers, and businesses.

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^[1] Saraswathi, M. (2023), ‘Indo-Pacific Economic Framework: One pillar signed, two concluded, trade pillar remains pending’ in The Edge,

^[2] Tobita, R. and Ushigome, S. (2023), ‘IPEF struggles to deliver trade benefits as U.S. looks inward’ in Nikkei Asia,

^[3] Ramli, I.M., Waskitho, T., Kasih, M.C. (2023). The Interplay of IPEF Between RCEP and CPTPP: An ASEAN Viewpoint. In: Bungenberg, M., Chi, M., Jusoh, S., Ranjan, P., Rustambekov, I. (eds) Asian Yearbook of International Economic Law 2023. Asian Yearbook of International Economic Law, vol 2023. Springer, Cham, Menon, J. (2023), ‘What Can Malaysia Expect from IPEF?’ by ISEAS Yusof-Ishak Institute,

^[4] Menon, J. (2023), ‘What Can Malaysia Expect from IPEF?’

^[5] Ramli, I.M., Waskitho, T., Kasih, M.C. (2023)

^[6] Ramli, I.M., Waskitho, T., Kasih, M.C. (2023)

^[7] Negara, S. W. and Wihardja, M. M. (2023), ‘IPEF’s Relevance for ASEAN’ in Fulcrum,

^[8] Ramli, I.M., Waskitho, T., Kasih, M.C. (2023)

^[9] Webb, D. (2024), ‘Research Briefing: The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)’ in UK Parliament House of Commons Library, Iwamoto, K. (2023), ‘U.K. accepted as 12th member of CPTPP trade bloc’ in Nikkei Asia,

^[10] Kohda, S. and Hiraki, A. (2023), ‘The United Kingdom’s CPTPP accession a boon to Japan’ in East Asia Forum,

^[11] Wiendieck, S. and Stark, P. (2023), ‘Asia’s Free Trade Agreements in Focus: CPTPP, RCEP and IPEF’ in Rodl & Partner, Petri, P. A. and Plummer, M. (2023), ‘The UK’s Indo-Pacific tilt and the CPTPP’s prospects’ in Brookings,

^[12] Petri, P. A. and Plummer, M., ‘The UK’s Indo-Pacific tilt and the CPTPP’s prospects’, Schott, J. (2023), ‘Which countries are in the CPTPP and RCEP trade agreements and which want in?’ by the Peterson Institute for International Economics,

^[13] Vietnam Plus (2023), ‘ASEAN wants to expand RCEP membership’ by the WTO Center,

^[14] Petri, P. A. and Plummer, M. (2020), ‘RCEP: A new trade agreement that will shape global economics and politics’ by Brookings Institution, Ling, E. O. Y. (2021), ‘RCEP & CPTPP 2021: Projections and Opportunities’ by ASEAN-BAC Malaysia,

^[15] Shofa, J. N. (2023), ‘Procedures for Countries to Join RCEP to be Ready by 2024’ in Jakarta Globe,