ASEAN Global Value Chain and Its Relationship with
RCEP: Impacts of RCEP on ASEAN Integration

by
ASEAN-Japan Centre

March, 2022

Notes

The terms “country” and “economy” as used in this study also refer to territories or areas,
as appropriate. The designations employed and the presentation of the material do not
express any opinion whatsoever on the part of the ASEAN-Japan Centre concerning thelegal status of any country, territory, city or area; or of the authorities; or of delimitationsof frontiers or boundaries.
The tables use the following symbols:• Two dots (..) indicate that data are not available or are not separately reported.
• A dash (-) indicates that the item equals zero or its value is negligible.
• Use of an en-dash (–) between dates representing years, e.g., 2015–2016, signifies thefull period involved, including the beginning and end years.
• Reference to “dollars” ($) means United States dollars, unless otherwise indicated.

Prepared by Masataka Fujita (former Secretary General of the ASEAN-Japan Centre).
The author wishes to thank Koichi Ishikawa (Asia University) and staff members of theASEAN-Japan Centre for their helpful comments. The manuscript was edited by Tora
Estep. Errors and omissions are only those of the author and should not be attributed tohis organization.

Contents

1. The setting
2. How ASEAN changes its GVC in a wider regional perspective of RCEP
a. General picture: ASEAN GVCs vs. RCEP GVCs
b. ASEAN and its individual country GVCs with ASEAN and with RCEP
c. Japan, China, and Republic of Korea with ASEAN GVCs and with RCEP GVCs
d. Australia and New Zealand with ASEAN GVCs and with RCEP GVCs
3. Economic opportunities for ASEAN after the adoption of RCEPa.

Larger economic sizeb.

Increasing tradec.

Increasing investment

4. Costs for ASEAN associated with expanding regionalizationa. Centrality
b. Distribution of benefits
5. Policy implications1

2

1. The setting
The Regional Comprehensive Economic Partnership (RCEP) agreement epitomizes theregional and interregional economic integration efforts that are considered an importantfeature of today’s global economic landscape, affecting flows of trade and foreign direct
investment (FDI) for sustainable development. This paper examines and compares global
value chain (GVC) patterns of ASEAN with those of RCEP in light of ASEAN’s regional andinterregional integration efforts to identify RCEP-related opportunities and costs for ASEAN.
The fundamental question is whether ASEAN benefits from this integration achievement
more than or at least as much as its partners in this agreement (Australia, China, Japan, New
Zealand, and Republic of Korea). This can be measured by possible gains in trade andinvestment that the RCEP agreement is likely to achieve and the increased centrality of
ASEAN that the region hopes to gain. The first measure comprises possible increases in tradeand investment. The second measure establishes that the central position of ASEAN will beenhanced or at least maintained in the wider RCEP region after the agreement, which will bemeasured by comparing the global and regional value chains between ASEAN and RCEP.
If benefits gained from the agreement are unevenly or inequitably distributed among themember states of RCEP or do not reflect the economic size of member states and if ASEAN
loses its centrality in economic international transactions (in this context trade and FDI) along
the value chains, policy suggestions will be needed to correct these situations towards more
equitable distribution of gains and restoring the centrality of ASEAN in the wider RCEP
region.
RCEP strongly boosts intraregional trade and investment linkages (table 1). While it has not
emerged well in ASEAN, given a lower share of intraregional trade and investment, at onequarter to one-third of the total at most, the regional development of the European Union(EU) demonstrates that it supports industrial growth through relocation of production tolower-cost countries and specialization of production on a regional basis. Such patterns haveso far proved largely, though not entirely, elusive to the ASEAN region (except, for example,
the case of Thailand and Lao PDR), but RCEP may provide ASEAN with opportunities tointegrate more into intraregional development because of involvement of large developed(e.g., Japan) and developing countries (e.g., China) in RCEP.

3

Table 1. Mechanisms of RCEP impacts on GVCs through trade and FDI flows
Mechanisms

Effects on intraregional trade and Effects on trade and FDI flows from
FDI flows
outside the region

Relevant agreement chapter

Chapter 2 Trade in Goods
Chapter 4 Customs Procedures andTrade Facilitation
Chapter 5 Sanitary and Phytosanitary
Measures
Trade and investment liberalization,
Chaoter 7 Trade Remedies
facilitation and/or protection provisions
Chapter 8 Trade in Services
Chapter 9 Temporary Movement of
Natural Persons
Chapter 10 Investment
Chapter 19 Dispute Settlement

Enables/encourages GVCs throughincreased flows from regional
investors, including existing thirdcountry investors from outside theregionEnables/encourages GVCs throughincreased flows from third-country
traders and investors not currently
established in the region

Trade, investment and market
integration provisions

Chapter 3 Rules of Origin
Chapter 6 Standards, TechnicalRegulations, and Conformity
Assessment Procedures
Chapter 7 Trade Remedies

Reorganization of GVCs at theregional level, including trade,investments (or divestments) and
offshoring (or reshoring) activities

Attracts new third-country trade andinvestment through enlarged markets

Policy harmonization implicit in theimplementation of the agreement

Chapter 11 Intellectual Property
Chapter 12 Electronic Commerce
Chapter 13 Competition
Chapter 16 Government Procurement

Encourages GVCs through trade andinvestment through reductions intransaction costs and perceived risk

Enables/encourages GVCs throughincreased inflows if harmonizationencompasses regulations applicableto third-country traders and investors

Chapter 14 Small and Medium
Broader pan-regional investment
Enterprises
projects made possible by or integral
Chapter 15 Economic and Technicalto the agreement
Cooperation

Provides GVC platforms through increased trade and investment opportunities

Source: ASEAN-Japan Centre, based on UNCTAD, "Regional Integration and FDI in Developing and Transition Economies", Multi-Year Expert Meeting on Investment,
Innovation and Entrepreneurship for Productive Capacity-Building and Sustainable Development, Geneva, 28 –30 January 2013.
Note: The mechanisms, relevant chapters of RCEP and effects are not mutually exclusive.

ASEAN has been at the centre of the process in East and South-East Asian economic
integration, alongside major regional economies, including China, the Republic of Korea andJapan. Collectively, they are known as the “ASEAN+3”, though the three economies also haveseparate economic arrangements and relationships with ASEAN (“ASEAN plus one”).
Economic integration has evolved beyond the geographical scope of East and South-East Asiaand affected the broader regional integration process through various mechanisms, such as
the Asia-Pacific Economic Cooperation and more recently the Comprehensive andProgressive Agreement for Trans-Pacific Partnership (CPTPP). RCEP differs from these two
mechanisms in that ASEAN plays a central role in the initiative and has been sitting in thedriver’s seat starting with ASEAN’s proposal (Shimizu, 2021). In other words, RCEP
“contributes to enhancing ASEAN centrality in regional frameworks” (Joint Leaders’Statement on the RCEP, 15 November 2020).
Since its establishment in 1967, ASEAN has made great efforts to improve regional
connectivity and integration. In 2015, the ASEAN Economic Community (AEC) was created.
ASEAN’s economic links with the rest of the world have not weakened as interregional
linkages have strengthened. Fast-growing developing countries within developing Asia
(China, India and the Republic of Korea) and developed countries in the Asia-Pacific region(Australia, Japan and New Zealand) now form an East Asian community or RCEP (nowwithout India, which decided to leave the pact).
4

ASEAN integration has improved the competitiveness of the regional group, generating trade
and attracting FDI. ASEAN’s share in global FDI inflows dropped to less than 2 percent in
2000, but it rose to 6 percent by 2010. It is still too early to assess the effect of the AEC on
trade and FDI inflows, but ASEAN’s share in global exports of goods and services and FDI
flows reached more than 7 and 9 percent, respectively, in 2019, gradually manifesting theimpact of regional integration (figures 1 and 2).

Figure 1. Evolution of exports of goods and services from ASEAN and
RCEP as a percentage of global exports, 1985–2019(Percent)

30
25

20
15
10
5
0

ASEAN

RCEP

Source: UNCTAD.

Note: Based on the fifth edition of the IMF's balance of payments manual up to2013 and the sixth edition of the IMF's balance of payments manual from 2014.

5

Figure 2. Evolution of FDI inflows to ASEAN and RCEP as a percentage ofglobal FDI inflows, 1995–2019(Percent)
30
25
20
15
10
5

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

0

ASEAN

RCEP

Source: UNCTAD statistics (https://unctadstat.unctad.org/).
Some evidence indicates that trade- and investment-specific efforts in the regional integration

process have encouraged intra-ASEAN trade and FDI flows, e.g., by granting ASEAN traders
and investors national treatment and greater access to industries including the services sector.
In addition, further trade liberalization (which had already been liberalized enough) andinvestment facilitation, liberalization and protection measures (through those including
intellectual property (chapter 11 of RCEP) and competition (chapter 13)) will expand theregional market and enhance both awareness and attractiveness of ASEAN as a sub-region of
the larger market as a trading place and location for international investment. These havepromoted the ASEAN sub-region as a single investment destination, making investors fromcountries not only outside the RCEP region but also non-ASEAN members of RCEP adopt a
regional investment strategy and establish regional operations networks. As a result, the shareof intra-ASEAN trade and FDI in total trade and FDI to ASEAN countries and the share of
ASEAN trade and FDI in total trade and FDI to RCEP are expected to increase.
This expectation, however, contradicts the declining trend or turns over the mute trend
during the past years. The intraregional share in ASEAN FDI inflows declined from 23
percent in 2017 to 17 percent in 2020 with a low 12 percent in 2019 (ASEAN and UNCTAD
2021, p. 25). These shares are not much different from those in the 2000s. Thus, expectation
is high for RCEP to change the tide and set the course of intraregional activities upward.
6

Differences in the shares of ASEAN and RCEP in the world have also been widening, rather
than shrinking over the past years (figures 1 and 2). In 2019, ASEAN and RCEP differed bysome 20 percentage points for exports of goods and services and by 10 percentage points for
FDI inflows. ASEAN’s share in RCEP has been declining, while the share of non-ASEAN
member states in RCEP has been increasing. This implies that ASEAN’s regional efforts havenot been realized in terms of intraregional and global shares. Participation in RCEP may
enable ASEAN to improve its regional efforts and reverse this situation. The next section(Section 2) compares the GVCs of ASEAN and RCEP to identify the differences and provide
foundations for why ASEAN in the RCEP region has not captured enough benefits from
RCEP. Section 3 details these benefits.
Low-income countries in ASEAN, including Cambodia, Lao PDR, Myanmar and Viet Nam(CLMV), have benefitted from growing investment from more economically advanced
ASEAN member states such as Malaysia, Singapore and Thailand, and from non-ASEANRCEP member states like China, Japan and the Republic of Korea. This indicates expanding
and upgrading a “flying geese” pattern of regional industrial structuring—the catching-up
process of industrialization in developing and least developed economies. Intraregional tradeand FDI in RCEP will increase and accelerate the development of international production
networks within ASEAN and beyond. Several low-income countries in industries such as
electronics and textiles and clothing will gain the associated benefits. This trend was alreadyobserved by various initiatives in ASEAN to narrow the development divide (between CLMV
and other six advanced ASEAN countries) and enhance the overall competitiveness of ASEAN
and will be enhanced further in the wider RCEP region.
Clearly RCEP presents many opportunities for GVCs, but at the same time many issues may
block the progress of GVC-related development, unlikely benefitting all equitably. For
example, China and Japan may overwhelmingly gain the benefits compared with ASEAN atleast in terms of GVC development. ASEAN cannot retain the same level of centrality when
the region expands to include five large non-ASEAN members. Australia and New Zealand
do not emerge significantly as beneficiary countries. The Republic of Korea gains, but to alesser extent than China and Japan. Section 4 will deal with all these costs.
Bearing these costs in mind, questions arise regarding the policy recommendations that could
further intensify the mutual relationship between RCEP regional integration and trade and
FDI for sustainable development for all.

7

The first question relates to the role of regional integration as a determinant of trade and FDI
and the difficulty of establishing causality between the two, in particular as the counterfactualis difficult to ascertain. A second question concerns the primary importance of the economic
and policy fundamentals. Forming a larger (and potentially more prosperous) economic
grouping may not necessarily bring benefits, especially in terms of attracting trade and FDI,
although market size is a key determinant, if the appropriate economic conditions and an
enabling policy framework are not in place.
In terms of the economic fundamentals, a major question is to what extent the trade andinvestment liberalization among RCEP member states directly increases FDI flows or whether
they would increase (indirectly) due to the enlarged market opportunities for transnational
corporations (TNCs) to service (and source within) an entire region. At the limit, the question
could also extend to whether, to what extent, and why trade and FDI might have occurred
without any regionalization efforts. In addition, asking to what extent regional integration

efforts could create additional (unintended) hurdles to trade and FDI is appropriate (e.g.,
unnecessary administrative burdens, bureaucratization and overregulation that regional
integration efforts might entail). The RCEP agreement includes trade facilitation measures(chapter 4) to lessen such hurdles for adopting the conformity among its member states: forexample, adoption of single windows and promotion of digitalization for custom clearance.
In terms of the enabling policy framework, a crucial question is whether the regional
integration effort of RCEP is appropriate and viable and, as a corollary, fully encompasses
essential trade and investment liberalization and policy harmonization for sustainable
development. This requires consistency in, and coordination of, trade and investment policies.
Regional integration efforts multiply the challenges in this regard. This is not limited to thefact that domestic policies need to be coherent throughout the regional group in question andother policy domains, such as competition and the environment. It also relates to the policy
dimension of the balance a country wishes to strike between regional policy harmonizationand its own right to regulate in the public interest. This policy dilemma has not yet emerged
as an important policy question for RCEP members.
Given these difficulties, the last section (Section 5) attempts to provide some policy
recommendations.

82. How ASEAN changes its GVC in a wider regional perspective of RCEP
Given the fact that all ASEAN member states are members of RCEP, comparison of GVCs
created and operating within ASEAN with those of RCEP provides important differences incorporate strategies among TNCs that are engaged in international production in bothregions. What these TNCs aim at in these regions is, no matter where they produce, tomaximize benefits emanating from the regional integration.
a. General picture: ASEAN GVCs vs. RCEP GVCs
The larger the regional group is, the larger the market is. The gross domestic product (GDP)of RCEP is eight times that of ASEAN (table 2). Thus, associated international economictransactions such as trade and investment are also larger. However, the multiplier of suchtransactions is lower than that of GDP: RCEP exports are four times larger than ASEAN
exports and FDI inflows for RCEP are two times larger than those for ASEAN. As long as
trade and investment determine the size, direction and interaction of GVCs, GVCs in RCEP
seem to be somewhat less established than in ASEAN (because trade and FDI in terms of
GDP are lower in RCEP than in ASEAN). Considering only Japan, ASEAN’s importancestands clear in terms of GVC: Japanese trade with ASEAN accounts for one-third of that with
RCEP, and Japanese FDI with ASEAN accounts for one-half to two-thirds of that with RCEP
(table 2). ASEAN has established a wider GVC in terms of its economic size than RCEP,
which this section will prove. If this is the case, RCEP has opportunities to create more value
chains, at least to the same extent as in ASEAN, because ASEAN wishes to play a central rolein the RCEP GVC.

9

Table 2. Basic economic indicators for ASEAN and RCEP, 2019
(Billions of dollars and percent)

Variable

ASEAN

Exports
Global share
FDI inflows
Global shareGDP
Global share

Indicators for Japan

Japanese exports (to)Share in total Japanese exports
Japanese imports (from)
Share in total Japanese imports
Japanese FDI outflows (to)Share in total Japanse FDI outflows
Japanese FDI inflows (from)
Share in total Japanese FDI inflows

ASEAN

RCEP

share in

1,425

5,472

7.5

28.8

156

364

12

22

3,161

25,813

3.6

29.4

106

304

15.1

43

109

361

15.1

50

253

495

14.3

28

25

38

11.2

17

RCEP
26.0
42.9
12.2

34.9
30.2
51.1
65.8

Source: UNCTAD, World Bank, Japan's Ministry of Finance and Bank ofJapan.
Note: Exchange rate of 109 Japanese yen per U.S. dollar.
Like the 16-paper GVC series by the ASEAN-Japan Centre (AJC),1 the discussion on GVCs
in this paper is based on the value-added trade data. These data help to clarify the complicatednetworks of production chains through trade links. Forming GVCs means that companies
establish supply chains through which they obtain required inputs, materials and parts andcomponents. These products are exported and become an integral part of the product in thenext stage of adding value created in the imported local market. The value of exports
attributable to foreign countries, or foreign value added (FVA) in the GVC terminology (box1), measures the upstream part of GVCs, while the export value used as an input to the export
from the countries in the next stage measures the downstream part of GVCs (DVX in box 1).
1

See https://www.asean.or.jp/en/centre-wide/centrewide_en/10Box 1. GVC terminology used in the AJC paper series on GVCs
A country’s exports comprise domestically produced value added and imported(foreign) value added that is incorporated into the country’s exported goods andservices. Furthermore, exports can either go to a foreign market for final consumption
or become intermediate inputs to be exported again to third countries (or back to theoriginal country). GVC analysis accounts for both foreign value added in exports (theupstream perspective) and exported value added incorporated in third-country exports(the downstream perspective). The indicators used in this paper are the same as in
AJC’s 16 papers on GVCs and are defined as follows:1.

Foreign value added: FVA indicates the part of a country’s gross exports thatconsists of inputs produced in other countries. The foreign value-added share is theshare of the country’s exports that does not add to its GDP.
2. Domestic value added: Domestic value added (DVA) is the part of exports createdin country, i.e., the part of exports that contributes to GDP. The sum of FVA and
DVA equals gross exports. Domestic value added can be related to other variables:⚫ As a share of GDP, it measures the extent to which trade contributes to the
GDP of a country.
⚫ As a share of global value-added trade (the “slice of the value-added tradepie”), it can be compared with a country’s share in global gross exports(relative value capture from trade).
3. Value added incorporated into other countries’ exports: DVX indicates theextent to which a country’s exports are used as inputs to exports from othercountries. At the global level, the sum of this value and the sum of foreign value
added are the same.
4.

GVC participation indicates the share of a country’s exports that is part of amultistage trade process and comprises the foreign value added used in a country’s
own exports and the value added supplied to other countries’ exports. Although
the degree to which other countries use exports for further export generation may
appear less relevant for domestic policymakers, as it does not change the domestic
value-added contribution of trade, the GVC participation rate is a useful indicator
for the extent to which a country’s exports are integrated into international
production networks.

11

The GVC participation rate corrects the limitation of the foreign and domestic valueadded indicators in which countries at the beginning of the value chain (e.g., exportersof raw materials) by definition have a low foreign value-added content of exports. It
gives a more complete picture of the involvement of countries in GVCs, both upstream
and downstream.
GVC indicators can also be used to assess the extent to which industries rely oninternationally integrated production networks. Although the literature has devised
several complex methods to measure GVC length, the degree of double-counting inindustries, conceptually, can serve as a rough proxy for the length of GVCs. Data on
value-added trade by industry can provide useful indications of the comparativeadvantages and competitiveness of countries and hence form a basis for development
strategies and policies.
Source: Adapted from United
Development(UNCTAD) 2013.

Nations

Conference

on

Trade

and

FVA in the RCEP GVC is 23 percent of (value-added) exports, 15 percentage points less thanin the ASEAN GVC (38 percent) (figure 3). This shows that the upstream part of GVCs isless important in RCEP than in ASEAN, meaning that foreign products are less integrated as
inputs into the RCEP exports than in ASEAN. This also means that RCEP uses more DVA intheir exports (77 percent) than ASEAN (62 percent). This is because China, Japan andRepublic of Korea, all large exporters and producers in RCEP, add more value domestically intheir economies per dollar of export than ASEAN economies do.
Figure 3. Value-added exports from ASEAN and RCEP, 2019
(Billions of dollars)
ASEAN
1589

RCEP

600

5932

38%

1369

23%

4564

989

77%

62%

Gross exports

Foreign value
Domestic value
added in exports added in exports

Gross exports

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.

12

Foreign value
Domestic value
added in exports added in exports

Both ASEAN and RCEP are export oriented, and ASEAN creates more value in its member
economies than RCEP does in terms of GDP, or the export propensity (exports divided byGDP) is higher for ASEAN (45 percent) than for RCEP (21 percent) (table 1). At the sametime, ASEAN economies derive more value added from exports as a share of GDP than does
RCEP (figure 4) (18 percent for RCEP vs. 31 percent for ASEAN).

Figure 4. Domestic value added in exports as a share of GDP, 2018
(Percent)
Australia

16%

China

14%

Japan

18%

New Zealand

RCEP Average
17.5%

28%

Korea, Rep. of

24%

Brunei Darussalam
Cambodia

55%
10%Indonesia
Lao People's…

ASEAN Average
30.8%

25%
10%

Malaysia
Myanmar61%
9%Philippines

31%

Singapore

33%

Thailand34%

Viet Nam

14%

Source : AJC-UNCTAD-Eora database on ASEAN GVCs.

The share of FVA in the total exports by industry identifies which industries tend to be
involved in GVCs, in particular the upstream part of GVCs (table 3). Comparing ASEAN
GVCs with RCEP GVCs in the upstream stages of production by industry, all industries showthat ASEAN is more involved in GVCs than RCEP.

13

Table 3. Share of foreign value added in ASEAN and RCEP exports, by industry, 2017
(Percent)
Sector/industry

ASEAN

RCEP

38.6

23.3

8.6

9.3

Agriculture, hunting, forestry and fishing

14.3

10.3

Mining, quarrying and petroleum

5.6

8.8

46.7

25.3

Food, beverages and tobacco

26.9

18.0

Textiles, clothing and leather

32.2

16.0

Wood and wood products

23.3

18.3

Petroleum, chemical and nonmetallic mineral products

48.3

28.3

Publishing, printing and reproduction of recorded media

47.5

31.3

Metal and metal products

50.9

22.4

Electrical, electronic equipment and machinery

53.1

30.6

Precision instruments

50.9

24.3

Motor vehicles and other transport equipment

62.7

22.6

Other manufacturing

42.7

21.1

Recycling

39.5

17.0

26.3

21.2

Electricity, gas and water

20.1

15.9

Construction

40.7

22.2

Trade

15.2

8.4

Hotels and restaurants

19.4

12.6

Transport, storage and communications

33.9

21.3

Financial intermediation and business activities

27.7

26.5

Public administration and defence

37.5

28.1

Education, health and other services

13.1

9.9

Community, social and personal service activities

37.4

21.8

52.4

88.8

ALL INDUSTRIESPRIMARY

SECONDARYTERTIARY

Unspecified
Source : AJC-UNCTAD-Eora database on ASEAN GVCs.

Note : Industry classification based on ISIC (International Standard Industrial Classification of All Economic
Activities) . Sectoral data are available for 2017.

With regard to evolution of participating countries in the upstream part of ASEAN and RCEP
GVCs, intraregional trade (ASEAN to ASEAN and RCEP to RCEP) is more clearly observedin ASEAN than in RCEP. This is perhaps because AEC was announced and established muchearlier than RCEP. Once RCEP is in place and starts to function in 2022, intraregional trade14

is expected to increase. Figure 5 shows that, with AEC announced in 2007 and established in2015, the share of ASEAN in the FVA of ASEAN has been rising since the mid-2000s.
Figure 5. Value-added exports from ASEAN and RCEP, by domestic, ASEAN and other top four foreign country value-added creators, 1990–2019(Percent)
ASEAN

RCEP

100

100

Rest of the world

Rest of the world

Top 4(Excluding ASEAN)

Top 4(Excluding ASEAN)

80

80
RCEP

ASEAN
60

60

40

40

Domestic

Domestic

20

0

20

1990

1995

Domestic

2000

ASEAN

Japan

2005

2010

China

United States

2015

Germany

0

2019

Rest of the world

1990

1995

Domestic

RCEP

2000

2005

United States

Germany

2010

India

2015

United Kingdom

2019

Rest of the world

Source : AJC-UNCTAD-Eora database on ASEAN GVCs.

In the case of the RCEP GVC, in its upstream part (FVA), the intraregional share (RCEP to
RCEP) has increased over 30 years, but since the mid-2000s (2005) it has remained almost
the same, with no significant rise in the share of intraregional exports. While eight years
passed before the conclusion of the RCEP negotiation in 2020, there seems to be no sign of arise of the RCEP share of FVA during this period (figure 5). However, this share has been
larger than that (ASEAN to ASEAN share) in ASEAN, which suggests that China, one of themost important non-ASEAN members of RCEP, is behind this scenario as supplier to many
RCEP members.
Comparing RCEP with other regional groups, while the FVA share is smaller in RCEP thanin ASEAN and CPTPP (figure 6), it is higher in RCEP than in CPTPP in terms of
involvement in the whole GVC (FVA plus DVX, or GVC participation) (figure 7; see also box
1 for GVC terminology). This is because RCEP economies are more involved in DVX than in
FVA, in contrast to ASEAN or CPTPP, and this DVX length in RCEP is longer than in
ASEAN and CPTPP. RCEP is rather active in DVX or the downstream part of GVCs.

15

Figure 6. Which regional groups import more foreign value added in their exports in 2019
(Percent)
ASEAN
CPTPP
RCEP
APEC

NAFTA
World average (31%)

MERCOSURCARICOM
SADC
COMESAECOWAS

European Union
0

5

10

15

20

25

30

35

40

45

Source : AJC-UNCTAD-Eora database on ASEAN GVCs.
Note: CPTPP—Comprehensive and Progressive Trans-Pacific Partnership; RCEP—Regional Comprehensive Economic
Partnership; APEC—Asia-Pacific Economic Partnership; NAFTA—North American Free Trade Agreement; MERCOSUR—
Mercado Comum do Sul; CARICOM—Caribbean Community; SADC—Southern African Development Community; COMESA—Common Market for Eastern and Southern Africa; ECOWAS—Economic Community of West African States.

16

Figure 7. Which regional groups are more involved in GVC participation in 2019
(Percent)

ASEAN
CPTPP

RCEP
APEC
NAFTA

World
average (61%)

MERCOSURCARICOM

SADC
COMESAECOWAS
European Union

0

10

FVA (Foreign value added)

20

30

40

50

60

70

80

DVX (Domestic value added incorporated in other countries' exports)

Source : AJC-UNCTAD-Eora database on ASEAN GVCs.
Note: CPTPP—Comprehensive and Progressive Trans-Pacific Partnership; RCEP—Regional Comprehensive Economic
Partnership; APEC—Asia-Pacific Economic Partnership; NAFTA—North American Free Trade Agreement; MERCOSUR—
Mercado Comum do Sul; CARICOM—Caribbean Community; SADC—Southern African Development Community; COMESA—
Common Market for Eastern and Southern Africa; ECOWAS—Economic Community of West African States.

Among the 15 member states of RCEP, while the top three countries involved in GVCs (bothupstream and downstream) are all ASEAN members (Singapore, Malaysia and the Philippines,
in that order), the next two countries are non-ASEAN members: the Republic of Korea andChina (figure 8). Japan also has a long GVC, and DVX, or the exported products that are
integrated into other countries’ exports, explain the majority of its GVC, rather than FVA,
which indicates the receipt of foreign inputs into their exports. A similar pattern applies toChina, but more strongly. China is a major supplier to virtually all RCEP countries, reflected
in a longer downstream GVC path.
Like in China, in other non-ASEAN member states of RCEP, the downstream part of their
GVCs is more involved as inputs to other countries’ exports. Higher value-added exports
involved in other country exports (DVX) than FVA is typical for RCEP GVCs. Generally
speaking, in manufacturing, the extent of DVX may suggest the degree of own country’s
competitiveness and that of FVA the opposite. In the case of natural-resources-oriented
countries, as their export value is created essentially within own economies only, DVX is the17main component of GVC participation (e.g., Australia, Brunei Darussalam, Indonesia and
Myanmar). Longer FVA paths suggest that domestic parts and components firms are notcompetitive enough to produce high value-added products. Improving competitiveness iswhat ASEAN member states have to do by, for example, attracting FDI and fostering domestic
parts and components firms.
Figure 8. GVC participation by ASEAN and RCEP member states, 2019
(Percent)
Australia
China
Japan
New ZealandRepublic of Korea
Brunei Darussalam
Cambodia
Indonesia
Lao People's Democratic Republic
Malaysia
MyanmarPhilippines
Singapore
Thailand
Viet Nam
ASEAN
RCEP

RCEP
average
(58%)

ASEAN
average(64%)

0
FVA (Foreign value added)

20

40

60

80

DVX (Domestic value added incorporated in other countries' exports)

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.

The longer downstream part of GVCs characterizes RCEP GVCs, while the upstream partdominates for ASEAN GVCs (with some exceptions, such as Brunei Darussalam, Indonesia
and Myanmar). Another characterization of RCEP GVCs is the higher concentration of GVCs
within the region, rather than outside the region, unlike ASEAN GVCs. Indeed, nearly half of
GVCs in RCEP are formed within the region, as compared with 25 percent of GVCs in
ASEAN (table 4). A smaller share of intraregional trade in ASEAN points to the limited
regional value chains (RVCs). ASEAN’s value chains are extended more outside the ASEAN
region.

18

Table 4. GVC and RVC participation by ASEAN and RCEP, 1990–2019(Percent of total exports)

ASEAN

DVX: Domestic value added incorporated inother countries' exports

FVA: Foreign value added
year

Total
(A) = (B+C)

Created outside Created within
ASEAN
ASEAN
(B)

(C)

Total

Incorporated
outside ASEAN

Incorporated
within ASEAN(D) = (E+F)

(E)

(F)

Value chain participation

RCEP
DVX: Domestic value added incorporated inother countries' exports

FVA: Foreign value added

GVC
participation(A + D)

RVC
participationyear(C + F)

Total(A) = (B+C)

Created outside Created within
RCEP
RCEP
(B)

(C)

Total

Incorporated
outside RCEP

Incorporated
within RCEP(D) = (E+F)

(E)

(F)

Value chain participation

GVC
participation(A + D)

RVC
participation(C + F)

1990

37.6

33.9

3.8

18.6

14.8

3.8

56.2

7.5

1990

81.3

51.0

30.3

100.3

70.0

30.3

181.6

60.5

1995

42.0

36.6

5.4

17.9

12.5

5.4

59.9

10.8

1995

77.9

43.5

34.4

90.0

55.6

34.4

167.9

68.8

2000

41.0

35.0

6.0

20.4

14.3

6.0

61.4

12.1

2000

84.7

47.4

37.3

95.2

57.9

37.3

179.9

74.6

2005

40.5

33.7

6.8

23.4

16.5

6.8

63.9

13.7

2005

98.3

53.1

45.2

105.3

60.1

45.2

203.6

90.4

2010

38.3

30.8

7.5

25.6

18.0

7.5

63.9

15.1

2010

98.2

51.8

46.5

108.2

61.7

46.5

206.4

92.9

2015

36.2

28.6

7.6

24.8

17.1

7.6

61.0

15.3

2015

92.0

47.0

45.0

105.4

60.4

45.0

197.4

90.0

2019

37.7

29.6

8.2

26.4

18.2

8.2

64.1

16.3

2019

86.1

39.7

46.4

129.7

83.3

46.4

215.9

92.9

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.

Intraregionally concentrated production and supply chains are observed more clearly by sector,
in particular automobiles, electronics and textiles and clothing as discussed subsequently.
Because of the inclusion of important producers such as China, Japan and the Republic ofKorea, the importance of RCEP as suppliers (the upstream part of GVCs) and buyers(downstream part) becomes stronger.
If larger economic integration such as RCEP provides its member states with more impetus
to grow further and faster, this agreement is certainly an advantage over ASEAN. BothASEAN and RCEP (which includes all ASEAN member states) demonstrate a positive
relationship between GVC participation growth rates and per capita economic growth rates.
Measuring this relationship shows that ASEAN GVCs cause a higher growth rate than RCEP
GVCs. More precisely, the relationship between the per capita economic growth rate and the
GVC participation growth rate for ASEAN is about two times higher than for RCEP (figure9), reflecting that GVCs are more extensively established in ASEAN than in RCEP and thatthey benefit ASEAN more than RCEP so far. This implies that RCEP member states have an
opportunity to grow faster than they do now because of further increases in trade andinvestment and economic size thanks to RCEP impact. For example, Malaysia, Thailand,
Singapore and any other ASEAN member states could grow further if their value chains wereextended to include RCEP member states. On average, looking at the trend line of theobservation points indicates that over the past two and a half decades a 1 percent increase in
the GVC participation rate may cause a 0.3 percent increase in the per capita economic
growth rate in RCEP, while a 1 percent increase in the GVC participation rate may cause a
0.6 percent increase in per capita economic growth rate in ASEAN (figure 9).

19

Figure 9. Relationship between GVC participation and economic growth rates in ASEAN and RCEP, 1995–2019(Log scale)y = 0.5937x + 0.0028

-0.15

-0.1

0.1

0.05

0.05

0

-0.05

RCEP

0.1

0

0.05

0.1

0.15

-0.05
-0.1
-0.15

Real GDP per capita growth

Real GDP per capita growth

ASEAN

-0.15

-0.1

0

-0.05

y = 0.3217x + 0.0071

0

0.05

0.1

0.15

-0.05
-0.1
-0.15

-0.2

-0.2

GVC participation growth

GVC participation growth

Source : AJC-UNCTAD-Eora database on ASEAN GVCs; GDP data from UNCTAD GlobStat.
Note : 24 observation points.
For GVC participation, yearly differences in the log value of the sum of FVA and DVX, both of which are in millions of dollars, are used, while, for GDP per capita, yearly differences in its log in dollars
are used.

Like ASEAN, RCEP’s integration as manifested by GVCs increases with FDI. The more FDI
is present, the higher is GVC participation. In both ASEAN and RCEP, a 1 percent increasein FDI leads to a 1.1–1.4 percent increase in GVC participation (figure 10). It shows a strong
bond between these two variables.

Figure 10. Relationship between GVC participation and FDI presence in ASEAN and RCEP, 1995–2019(Log scale)

ASEAN

RCEP

8

8

7

7
6
y = 1.416x - 6.4429

5

GVC participation

GVC participation

6

4
3
2

1
0

y = 1.1576x - 4.3827

5

4
3
2

1
8.6

8.7

8.8

8.9

9

9.1

9.2

9.3

9.4

9.5

0

9.6

8.6

8.7

8.8

8.9

Inward FDI stock

9

9.1

9.2

9.3

9.4

9.5

9.6

Inward FDI stock

Source: AJC-UNCTAD-Eora database on ASEAN GVCs and UNCTAD FDI/TNC database (for FDI stock).
Note: 25 observation points.
For GVC participation, the log of the sum of foreign value added (FVA) and domestic value added incorporated in other countries (DVX), both of which are in millions of dollars, is used, while, for inward FDI
stock, its log in millions of dollars is used.

The effects of RCEP on trade and investment that are supposed to be translated into creating
GVCs are clearly observed in different sectors. Even if the spread of ASEAN GVCs is wide incertain industries such as automobiles, electrics and electronics, textiles and clothing,agribusiness and tourism,2 RCEP affects these industries differently depending on how GVCs
are formed in ASEAN and RCEP.
2

See AJC’s paper series on ASEAN GVCs in these industries(https://www.asean.or.jp/en/centre-wide/centrewide_en/).
20

The importance of ASEAN members as suppliers to ASEAN exports and to RCEP exports isalways higher in the former for these five industries. This means that the share of inputs that
ASEAN supplies to RCEP exports is lower than to ASEAN exports by 2–7 percent by industry
in 2017, with automobiles and electrical and electronics equipment showing large differences(table 5). Both industries are strong in ASEAN, but much stronger in RCEP (e.g., China,

Japan and the Republic of Korea). For this reason, RCEP countries have become more
important suppliers to RCEP exports than ASEAN countries.
The three other industries’ (textiles and clothing, agribusiness and tourism) exports show
smaller differences between ASEAN and RCEP in terms of ASEAN’s importance as suppliers,
at most 2–3 percent. ASEAN ships sufficient inputs to both the ASEAN and RCEP regions
relative to their respective exports. While ASEAN textiles and clothing exports are global,
ASEAN exports in agribusiness and tourism are more regionally oriented. The fact that
textiles and clothing are essentially produced in ASEAN and only in China in the non-ASEANRCEP group reduces the loss of ASEAN members’ importance as suppliers when they serve
the RCEP market as compared with the ASEAN market. ASEAN agribusiness and tourism areso competitive that they can penetrate both ASEAN and RCEP markets as important suppliers.

21

Table 5. How much does ASEAN contribute to foreign value added of exports fromASEAN and RCEP, 1990–2017(Percent of gross exports)
Industry/Regional

1990

1995

2000

2005

2010

2015

2017

ASEAN

5.2

6.9

7.8

8.8

9.0

9.0

9.8

RCEP

0.9

1.4

1.5

2.3

2.4

2.7

2.8

Difference

4.3

5.5

6.3

6.5

6.5

6.3

7.0

group

Automobiles

Electrical and electronic equipment a
ASEAN

6.0

8.1

9.0

10.3

11.5

11.9

12.0

RCEP

2.4

3.5

3.9

4.9

5.9

5.8

5.9

Difference

3.6

4.7

5.1

5.4

5.6

6.0

6.1

Textiles, clothing and leather
ASEAN

2.2

3.5

4.3

4.5

4.7

4.5

4.7

RCEP

1.3

1.7

1.9

2.1

2.2

2.0

2.0

Difference

0.9

1.9

2.4

2.4

2.5

2.5

2.7

ASEAN

2.3

3.3

3.4

3.8

4.1

3.9

4.6

RCEP

1.2

1.9

1.9

2.1

2.3

2.2

2.6

Difference

1.1

1.5

1.5

1.7

1.8

1.8

2.0

ASEAN

1.8

2.5

3.0

3.4

3.6

3.5

4.7

RCEP

0.9

1.1

1.5

1.7

1.9

1.8

2.2

Difference

1.0

1.5

1.5

1.7

1.7

1.8

2.5

Agribusiness

Tourismb

Source: AJC-Eora-UNCTAD database on ASEAN GVCs.
a. For Brunei Darussalam, Cambodia, Lao PDR and Myanmar, general machinery is included.
b. Only Singapore, Viet Nam, China, Japan and Australia include travel agency and tour
operator services in addition to hotels and restaurants.

Automobiles
Of the five industries that are subject to study, the automobile industry shows the biggest
difference between ASEAN and RCEP GVCs. The domestic share of value-added exports isless than 40 percent for ASEAN, less than half that of RCEP (figure 11). The high DVA sharefor RCEP exports in the automobile industry is due to the fact that non-ASEAN RCEP
members include some of the world’s largest automobile producers and exporters (Japan,
China and Republic of Korea). The consistently high share of DVA for RCEP means that theregion includes several strong automobile-producing countries.

22

In the ASEAN GVC, the RCEP share of FVA has been rising constantly because of China
even if the Japanese share has declined. In the RCEP GVC, the RCEP share of FVA has
remained almost the same since the beginning of the 2000s when RCEP countries did nottrade much with each other (the RCEP share is small). ASEAN’s contribution as suppliers toautomobiles exports from own region is 3–4 times larger than those from RCEP (table 5).
ASEAN is increasingly contributing as input suppliers to RCEP, five times more than in the
1990s.
Figure 11. Distribution of value-added exports in the automobile industry from ASEAN and RCEP, by value-added creators, 1990–2017(Percent)
ASEAN

RCEP
100

100

NonRCEP

80

60

RCEP

80

60

40

40

20

0

NonRCEP
RCEP

DVA

20

0
1990
DVA
Other RCEP

1995

2000

ASEAN
United States

2005
China
Germany

2010

2015

Japan
France

2017

DVA

1990
DVA
Other RCEPSouth Korea
RoW

1995

2000

ASEAN
United States

2005
China
Germany

2010

2015
Japan
France2017
South Korea
RoW

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.

Electrical and electronics equipment
As in automobiles, but to a lesser extent, large producers in electrical and electronics
equipment in non-ASEAN RCEP members have greatly increased the DVA share in RCEP
GVCs than in ASEAN GVCs. The DVA share in ASEAN is less than 50 percent, while that in
RCEP is around 70 percent (figure 12). The RCEP share in the upstream part of the ASEAN
GVC is rising because of China and ASEAN, while the RCEP share in the RCEP GVC has notchanged much because China and ASEAN did not significantly increase their contribution as
suppliers of foreign inputs to RCEP exports (figure 12). ASEAN’s electrical and electronics
inputs have not spread much into non-ASEAN RCEP members.
The difference in the ASEAN contribution to GVCs as foreign suppliers between ASEAN and
RCEP is less than in the case of automobiles, about two times (table 5), and this difference
has not shrunk over the years. Even though ASEAN has the largest share of FVA among thefive industries (the largest contributor as foreign suppliers) in both ASEAN and RCEP exports,
both ASEAN and non-ASEAN RCEP producers are strong exporters and competitive in thisindustry, playing complementary roles in supplying products between these two groups of
producers.

23

Figure 12. Distribution of value-added exports in electrical and electronic equipment from ASEAN and RCEP, by value-added creators, 1990–2017(Percent)
ASEAN

RCEP
100

100

NonRCEP

80

80

RCEP

60

NonRCEP
RCEP

60

40

40

DVA
DVA

20

0
1990
1995
2000
DVA
ASEAN
South Korea
Other RCEP
Taiwan Province of China RoW

2005

2010
China
United States

2015

20

0
1990
1995
2000
DVA
ASEAN
South Korea
Other RCEP
Taiwan Province of China
RoW

2017
Japan
Germany

2005

2010
China
United States

2015

2017
Japan
Germany

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.
Note: For Brunei Darussalam, Cambodia, Lao PDR and Myanmar, general machinery is included.

Textiles and clothing
In both ASEAN and RCEP GVCs, the role of RCEP (including ASEAN) has been strong,accounting for the bulk (90 percent) of gross exports (FVA+DVA) in this industry (figure13). While the value created by this industry mainly originates in the domestic market (highDVA), ASEAN or RCEP including ASEAN contributes to the foreign part of value-added(FVA) creation of this industry.
Even though ASEAN members are main producers of textiles and clothing together with
China, its smaller share of foreign supply in total exports (2 percent for RCEP and less than 5
percent for ASEAN) (table 5) means that these countries are final product exporters engaged

mainly in apparel production rather than intermediate producers (e.g., textiles), which are
not much integrated into the next stage of production.
Figure 13. Distribution of value-added exports in textiles, clothing and leather from ASEAN and RCEP, by value-added creators, 1990–2017(Percent)
ASEAN

RCEP

100

NonRCEP

80

RCEP

100

NonRCEP
RCEP

80

60

60

DVA

40

40

DVA
20

20

0

0
1990
DVA
Other RCEP

1995

2000

ASEAN
United States

2005
China
Germany

2010
Japan
India

2015

2017

1990
DVA
Other RCEPSouth Korea
RoW

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.

24

1995

2000

ASEAN
United States

2005
China
Germany

2010

2015
Japan
India

2017
South Korea
RoW

Agribusiness
Agribusiness and tourism are typically region- or domestic-market-oriented industries.
Therefore, not only is the FVA share small, but also, if there is FVA, it comes from the region
in question. While ASEAN as FVA contributor is rising, the FVA characteristics do not varymuch otherwise (figure 14).
ASEAN’s contribution to FVA for RCEP and ASEAN is small because the majority of valueadded exports originate in its own economy. Its share is between 3 percent (RCEP exports)
and 5 percent (ASEAN exports) (table 5).
Figure 14. Distribution of value-added exports in agribusiness from ASEAN and RCEP, by value-added creators, 1990–2017(Percent)
ASEAN

RCEP

100

NonRCEP
RCEP

80

80

60

60

40

DVA

DVA

40

20

20

0

NonRCEP
RCEP

100

0
1990
DVA
Other RCEP

1995

2000

ASEAN
United States

2005
China
Germany

2010
Japan
India

2015

2017

1990
DVA
Other RCEPSouth Korea
RoW

1995

2000

ASEAN
United States

2005

2010

China
Germany

2015
Japan
India

2017
South Korea
RoW

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.

Tourism
Although ASEAN’s DVA in tourism is already high, reflecting the domestically oriented
market, the inclusion of China, a large tourism destination country, results in an even higher
level of domestically created value in RCEP (figure 15). Like agribusiness, almost all the value
creation of exports resides in its own region.
Contribution by ASEAN members as foreign suppliers to ASEAN exports and RCEP exports
is small, 2 percent for RCEP and less than 5 percent for ASEAN (table 5).

25

Figure 15. Distribution of value-added exports in tourism from ASEAN and RCEP, by value-added creators, 1990–2017(Percent)
ASEAN

RCEP

100

NonRCEP
RCEP

80

80

60

60

DVA

40

DVA

40

20

20

0

NonRCEP
RCEP

100

0
1990
DVA
Other RCEP

1995

2000

ASEAN
United States

2005
China
Germany

2010
Japan
India

2015

2017

1990
DVA
Other RCEPSouth Korea
RoW

1995

2000

ASEAN
United States

2005
China
Germany

2010

2015
Japan
India

2017
South Korea
RoW

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.
Note: Only Singapore, Viet Nam, China, Japan and Australia include travel agency and tour operator services in addition to hotels and restuarants.

These five industries are mainly concentrated in a few countries in ASEAN: Malaysia andThailand for automobiles; Malaysia, Philippines and Thailand for electricals and electronics;
Cambodia, Myanmar and Viet Nam for textiles and clothing; Indonesia, Malaysia andThailand for agribusiness; and Philippines, Singapore and Thailand for tourism (table 6).
Looking at these countries and industries clearly indicates what country and in what industry
RCEP is likely to affect. Out of these five industries and 14 countries, Thailand in theautomobiles industry is the largest beneficiary from the RCEP agreement, followed by Viet
Nam in textiles and clothing. GVCs of these two countries in the given industry expand 1.9
times and 1.6 times, respectively (table 6). Myanmar in textiles and clothing, Indonesia inagribusiness and Philippines and Thailand in tourism do not show much enlargement of
GVCs even if the region is extended from ASEAN to RCEP as their GVCs are firmly installed
mainly in ASEAN. Their value chain operations are tightly articulated in ASEAN and do not
require the extended chains to non-ASEAN RCEP members.

26

Table 6. Domestic value-added exports created in-country and foreign value-added exports fromASEAN and RCEP, 2017

(Percent of total value-added exports)
Industry/major ASEAN
exporting country

DVA (A)ASEAN only

Increased

Total value-added

FVA (B)

exports created (A+B)

RCEP

ASEAN only (D) RCEP (E)Motor vehicles and other transport equipment

impact due
to RCEP(E/D)

Malaysia

47.1

7.3

31.7

54.3

78.8

1.4

Thailand

31.3

9.7

48.4

41.0

79.7

1.9

Malaysia

59.0

6.9

23.9

65.8

82.9

1.3

Philippines

53.7

7.7

26.7

61.4

80.4

1.3

Thailand

64.7

5.1

20.9

69.7

85.6

1.2

Cambodia

82.7

5.8

12.1

88.5

94.7

1.1

Myanmar

98.6

0.1

0.3

98.7

98.8

1.0

Viet Nam

45.3

9.4

40.6

54.7

86.0

1.6

Indonesia

94.6

0.8

2.9

95.4

97.5

1.0

Malaysia

66.1

6.6

17.9

72.7

84.1

1.2

Thailand

85.0

1.8

6.6

86.8

91.6

1.1

Philippines

89.9

1.5

4.9

91.3

94.8

1.0

Singapore

54.9

13.0

30.7

67.8

85.5

1.3

Thailand

90.1

1.1

4.6

91.2

94.7

1.0

Electrical and electronic equipment

Textiles and clothing

Agribusiness

Tourism

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.
Note:
DVA = domestic value added created in the country concerned.
FVA (ASEAN only) = foreign value added imported from ASEAN and used in exports from thecountry concerned.
FVA (RCEP) = foreign value added imported from RCEP (including ASEAN) and used inexports from the country concerned.
Total value-added exports created = value-added exports from the country concerned createdwithin the country concerned and those of parts and components of ASEAN/RCEP integrated
into the country concerned.

GVCs for automobiles and electrical and electronics industries have room to expand to RCEP
as a whole, beyond ASEAN. This is an opportunity that ASEAN can and should cultivate more
under the RCEP regime.

27

b. Individual ASEAN country GVCs with ASEAN and with RCEP
Not all ASEAN 10 countries show the same pattern of GVCs within ASEAN and within the
RCEP region. Some countries are prepared for an enlarged market, and others are not.
Generally speaking, all ASEAN member states lose importance as suppliers to ASEAN exports
when the export region expands from ASEAN to RCEP (figure 16).

Figure 16. Supplier share of individual ASEAN countries in ASEAN
and RCEP exports, 2019
(Percent)
3.5
3
2.5
2
1.5

1
0.5

0

ASEAN

RCEP

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.
Note: The share of ASEAN individual member states as suppliers to
ASEAN exports. The total shares of ASEAN as suppliers to ASEAN and
RCEP exports are 8.2 and 3.9 percent, respectively.
RCEP exporters use parts and components imported from a wider range of countries than
ASEAN exporters do. ASEAN contributes the largest foreign value added to its own exports.
In other words, ASEAN members are supplying parts and components to each other. However,when the region is extended to RCEP, the importance of ASEAN members as suppliers halves(8.2 percent vs. 3.9 percent)(memorandum in table 7).
c. Japan, China and Republic of Korea with ASEAN GVCs and with RCEP GVCs
With the RCEP agreement, China, Japan and Republic of Korea will enjoy direct benefits fromtheir first agreement of a free trade agreement (FTA) and its associated benefits. Of thesethree countries, China and Japan will clearly gain the most.
28

For suppliers to ASEAN and RCEP exports, the importance of these countries is all loweredin RCEP exports relative to ASEAN exports. Among the three countries, however, Republicof Korea does not show a large decline compared with China and Japan, whose shares as
foreign value-added creators in RCEP exports is almost halved (table 7). This implies that
Chinese and Japanese firms have not established their supplier networks in the extended
RCEP region relative to those established in ASEAN. While the supplier network of Korean
firms is much smaller than Chinese and Japanese ones, they retain almost the same
importance of suppliers in RCEP as in ASEAN.
On the downstream path of ASEAN and RCEP GVCs, these non-ASEAN RCEP member
states provide a smaller share of their exports of parts and components (DVX) for RCEP
exports than for ASEAN exports. But this reduced share is smaller in RCEP exports (from 8.6
percent to 5.6 percent) than in ASEAN exports (from 14.8 percent to 7.1 percent) (table 7).
Altogether the GVC participation (FVA plus DVX) by non-ASEAN RCEP members accounts
for 22 percent of ASEAN exports and 14 percent of RCEP exports. These shares are, however,higher than the share of ASEAN members in ASEAN exports (17 percent) and RCEP exports(9 percent) (table 7).
Table 7. Involvement of non-ASEAN RCEP member states in ASEAN and RCEP GVCs, 2019
(Billions of dollars and percent)FVA (A)

Non-ASEAN
RCEP

member state

Value
ASEAN

DVX (B)
Share in total exports

RCEP

ASEAN

RCEP

Value
ASEAN

GVC participation (A+B)

Share in total exports

RCEP

ASEAN

RCEP

Value
ASEAN

Share in total exports

RCEP

ASEAN

RCEP

China

120.5

229.2

7.6

3.9

37.6

131.6

2.7

2.0

158.2

360.8

10.3

5.8

Japan

73.5

154.7

4.6

2.6

31.1

104.4

2.2

1.6

104.6

259.1

6.8

4.2

Korea, Rep. of

24.3

72.8

1.5

1.2

23.8

105.1

1.7

1.6

48.2

177.9

3.2

2.8

Australia

15.1

44.4

0.9

0.7

6.5

22.8

0.5

0.3

21.5

67.3

1.4

1.1

New Zealand

1.9

6.9

0.1

0.1

0.9

8.7

0.1

0.1

2.8

15.6

0.2

0.2

235.3

508.0

14.8

8.6

100.0

372.6

7.1

5.6

335.3

880.7

21.9

14.2

130

229.7

8.2

3.9

129.7

365.1

9.2

5.5

259.5

594.8

17.4

9.4

Non-ASEAN
RCEP total

Memorandum
ASEAN total

Source: AJC-UNCTAD-Eora database on ASEAN GVCs.
Note: FVA = foreign value added in exports from non-ASEAN RCEP member states; DVX = value-added exports fron non-ASEAN RCEP member states incorporated
in other countries' exports.

d. Australia and New Zealand with ASEAN GVCs and with RCEP GVCs
Australia and New Zealand are reticent in terms of trade and investment compared with theother three non-ASEAN countries. In principle because they are natural-resources-oriented
economies, and thus the regional benefits of RCEP are limited. In both ASEAN and RCEP
exports, firms in these two countries have small supplier networks and do not contribute muchto ASEAN and RCEP exports as suppliers.

29

The importance of these two Pacific countries is clear in terms of the downstream part of
GVCs. As suppliers to ASEAN and RCEP exports and as buyers from ASEAN and RCEP
exports, these two countries retain almost the same shares in their respective exports. In otherwords, Australia and New Zealand contribute the same (but small) amount to upstream anddownstream parts of ASEAN and RCEP GVCs (table 7). This is perhaps because these twocountries mainly engage in natural resources industries and have not establishedmanufacturing production networks in ASEAN or in RCEP.
3. Economic opportunities for ASEAN after the adoption of RCEP
Adopting the RCEP agreement provides more economic opportunities than were available
before because of direct involvement in a larger economic group, increasing trade, increasing
investment and increased market access.
a. Larger economic size
RCEP is eight times larger than ASEAN. The larger the market is, the more business
opportunities are created. However, even if a country does not belong to a regional grouping,it has also opportunities to grow in both trade and investment. The question is whether growthwould be larger in the case of regional integration than otherwise. This counterfactual isdifficult to ascertain as no established methodology exists to measure it. However, studies
show that, using a computable general equilibrium (CGE) model (Petri and Plummer, 2020),
RCEP would increase global gross national income (GNI) in 2030 by $186 billion more thanthe case without RCEP, 94 percent (or $175 billion) of this increase would take place in the
RCEP countries (table 8). This is equivalent to 0.4 percent of RCEP countries’ GNI. China,
Japan and Republic of Korea are the largest beneficiary countries with an additional increaseof $85 billion, $48 billion and $23 billion, respectively. These gains are equivalent to 0.3
percent, 1 percent and 1 percent of their respective GNIs (Petri and Plummer, 2020).
ASEAN’s economic gains are a minimum of $17 billion, or 0.3 percent (table 8).

30

Table 8. Economic and trade impact of RCEP, 2030
(Billions of dollars)
Exports of goods and services

Gross national income (GNI)
RCEP member states

Expected

GNI without

impact of RCEP

GNI with impact

changes dueof RCEP

to RCEP

Exports without
impact of RCEP

Expected

Exports withto RCEP

RCEP

changes due

impact of2020 a

2030

2030

2030

2020 b

2030

2030

2030

ASEAN member states

2 923

5 638

17

5 655

1 713

2 556

62

2 618

Brunei Darussalam

14

31

0

31

7

16

0

16

Indonesia

1 030

2 189

3

2 192

182

433

13

446

Malaysia

330

671

4

675

207

490

1

491

Philippines

389

678

2

680

91

177

7

184

Singapore

298

485

0

485

599

473

-3

470

Thailand

488

808

4

812

258

535

26

561

Viet Nam

257

494

3

497

288

343

14

357

116

282

1

283

38

89

4

93
7 928

CLM (Cambodia, Lao
PDR, Myanmar)
Non-ASEAN member states

22 93137 702158

37 860

4 595

7 481

447

Australia

1 303

2 589

1

2 590

318

586

3

589

China

14 62427 75485

27 839

2 723

4 732

244

4 976

Japan

5 156

4 876

48

4 924

894

1 055

135

1 190

Korea, Rep. of

1 644

2 220

23

2 243

602

1 025

64

1 089

New Zealand

204

263

1

264

57

83

1

84

25 85443 340175

43 5156 307

10 037509

10 546

RCEP total

Source: AJC based on Petri and Plummer (2020) and World Bank's World Development Indicators database (GNI and exports of goods andservices).
a 2019 for Brunei Darussalam.
b 2016 for Lao PDR and 2019 for Japan and New Zealand.

Note: Based on the scenario of "business as before," which does not account for the trade war between China and the United States.

China, Japan and Republic of Korea concluded the first kind of economic partnership andtrade agreement with RCEP. This fact pushes these three countries forward to receive
economic benefits. ASEAN has already concluded an FTA with other five non-ASEAN
member states. Therefore, the impact on ASEAN is more limited. The weaker impact on
ASEAN, compared with the impact on China, Japan and Republic of Korea, partly lies in thefact that ASEAN has already benefitted from existing FTAs.
b. Increasing trade
As much as 91 percent of traded products receive lower or zero tariff rates. Even though thispercentage is lower than the case of CPTPP, these lowered tariff rates provide an impetus for
trade growth. At the same time, sanitary and phytosanitary measures (chapter 5 of the RCEP
agreement) and standards, technical regulations and conformity assessment procedures(chapter 6) clarify major non-tariff measures relating to trade regulations.
Because of the lack of a counterfactual, estimates of the impact on trade vary by methodology.
According to the United Nations Conference on Trade and Development’s (UNCTAD’s)
estimates, the RCEP agreement’s tariff concessions could further boost its exports by nearly31

2 percent, or approximately $42 billion with $2.3 trillion of total RCEP exports in 2019 (table
9).3 The effect on trade is, however, not uniform. The UNCTAD estimates show that Japanalone receives nearly half of such export gains ($20 billion or 5.5 percent of its exports). Allother non-ASEAN member states gain more exports than pre-RCEP (with China, the second
largest gainer, receiving $10 billion or 2 percent more of its exports). However, in terms of
ASEAN, exports from Cambodia, Indonesia, the Philippines and Viet Nam would be reduced
because of trade diversion whereby their exports are diverted to other RCEP members
because of better tariff concessions.

3

UNCTAD, “Asia-Pacific partnership creates new ‘centre of gravity’ for global trade”, 15

December 2021, https://unctad.org/news/asia-pacific-partnership-creates-new-centregravity-global-trade. The increase in exports would result from trade creation of nearly $17
billion and trade diversion valued at nearly $25 billion. Note that the global exports asestimated by UNCTAD differ from that in table 10 ($25 billion).
32

Table 9. Effects of RCEP on exports, 2019
(Billions of dollars)
RCEP member
stateaTrade

Overalleffects

As percentage

Tradediversionb creationcof exports

from RCEP

Japan

20.2

15.7

4.5

5.5

China

11.2

6.9

4.3

1.8

Korea, Rep. of

6.7

4.4

2.3

2

Australia

4.1

2.8

1.3

1.9

New Zealand

1.1

0.8

0.3

4.5

Malaysia

0.2

-0.3

0.6

0.1

Singapore

0.2

-0.3

0.5

0.2

Lao PDR

0.1

0

0.1

2.7

Myanmar

0.1

0

0.1

1.2

Brunei Darussalam

0

0

0

0.6

Thailand

0

-1.1

1.1

0

Philippines

-0.1

-0.2

0.2

-0.1

Cambodia

-0.3

-0.4

0

-3.9

Indonesia

-0.3

-0.8

0.4

-0.3

Viet Nam

-1.5

-2.3

0.8

-1.2

RCEP total
41.8
25.2
16.6
1.8
Source: UNCTAD, “Asia-Pacific partnership creates new ‘centre ofgravity’ for global trade”, 15 December 2021.
a Ranked in descending order of effects.

b Trade creation emerges as lower tariffs would stimulate trade
between members.
c Trade diversion emerges as lower tariffs within the RCEP would
redirect trade.
In the future, according to Petri and Plummer (2020) using a CGE model, RCEP will increase
global exports of goods and services by $509 billion in 2030 over global exports without RCEP
(table 8), equivalent to 5 percent of RCEP exports. China and Japan gain the most ($244
billion and $135 billion, respectively), followed by Republic of Korea and ASEAN (both ataround $60 billion). Among ASEAN member states, the largest gainers are Thailand ($26billion), Viet Nam ($14 billion) and Indonesia ($13 billion). The largest exporter fromASEAN in 2020, Singapore, records a negative impact falling behind Thailand and Malaysia.
33

Another study that uses SMART simulations4 also shows a more advantageous trade position
for non-ASEAN member states (table 10). RCEP even causes exports from ASEAN to
decrease by $750 million at the 2019 level, with six ASEAN member states falling except
Brunei Darussalam, Indonesia, Lao PDR and Thailand. Among non-ASEAN member states,
all five countries are expected to increase exports, with Japan gaining most from theseincreases. Japanese gained exports from RCEP would go to China (receiving 68 percent of a

$14 billion rise of Japanese exports) (Banga et al., 2021). Altogether for RCEP countries
exports would increase by 1.2 percent.
On the import side, all RCEP countries, including both ASEAN and non-ASEAN member
states, would experience increases in imports. Among them, China experiences the highest
rise of imports (41 percent of total changes due to RCEP; table 10), followed by Republic ofKorea, Malaysia, Cambodia and Japan. China accounted for one-third of RCEP merchandise
imports prior to RCEP (table 10). Cambodia’s imports are mainly from China. China’s
dramatic increase in imports partly owes to the increased number of commodities that fallunder the preferential treatment of RCEP beyond World Trade Organization (WTO)–
governed most favoured nation from 883 to 954 starting from 1 January 2022.5
Increases in exports in one country imply increases in imports in another. Therefore, thinking
about the impact of RCEP on the trade balance or net exports (exports less imports) would
be ideal. As long as net exports are positive, or exports are larger than imports, the country
experiences a trade surplus and increases GDP by this amount or less (accounting for FVA).
ASEAN deepens the trade deficit while non-ASEAN members further improve the tradebalance. After China, Viet Nam continues to have the second largest trade deficit both before
and after RCEP. However, Australia remains the largest surplus country, followed by Republicof Korea.
These figures from different methodologies can be put into the context of the individual
country’s economic size or trade volume in RCEP. China, Japan and ASEAN account for 57
percent, 20 percent and 11 percent of RCEP GNI in 2020, respectively (table 8). The
4

Part of the World Integrated Trade Solutions developed by the World Bank and UNCTAD.

Unlike the general assumptions of perfect competition used in CGE modelling, the SMART
programme accounts for the tariff reduction differences by product. It is a disaggregatedmodel rather than a general or aggregated model.
5“China—From 2022, tariff reductions for 954 items will start, and tariff reductions will startdue to the entry into force of the RCEP agreement”, Economic Daily, 16 December 2021.
34

dominance of China in the impact of RCEP as measured by monetary value partly reflects its
largest share not only in economic size but also in trade and FDI inflows.

Table 10. Impact of RCEP on balance of trade, 2019
(Millions of dollars)
Changes

RCEP member states

Changes

Pre-RCEP in exports Post-RCEP Pre-RCEP in imports
exports

ASEAN member states

631 318

Brunei Darussalam
Cambodia

due toexports

RCEP

imports

RCEP

imports

RCEP

7 821

779 051

Balance of trade(Exports lessimports)

Pre RCEP Post RCEP

- 752

630 566

5 875

4

5 879

2 221

0

2 221

3 654

3 658

3 846

-9

3 837

17 2062 309

19 515-13 360-15 678

Indonesia

90 965162

91 128100 594315

100 908-9 628-9 781

Lao PDR

3 832

35

3 867

4 438

51

4 490

- 607

- 623

Malaysia

134 140- 336

133 805

122 9223 760

126 682

11 218

7 122

Myanmar

10 091

- 307

9 784

11 819172

11 991-1 728-2 206

Philippines

47 019- 116

46 90470 379148

70 527-23 359-23 623

Singapore90 502- 80

90 422

141 4880

141 488-50 987-51 067

Thailand126 521206

126 726

129 503877

130 380-2 983-3 654

Viet Nam

118 527- 313

118 215170 660

189

170 850-52 133-52 635

Non-ASEAN member states

771 230

due toPost--139 912-148 485

1426 013

25 5791451 592

1419 284

20 0991439 383

6 729

12 209Australia

195 179a989

196 168

101 726

13

101 739

93 45394 429China

587 7816 550

594 331727 465

11 402738 867-139 684-144 536Japan

348 431

14 282362 713336 2692 287

338 556

12 16224 157

Korea, Rep. of

268 9623 487

272 449

232 889

6 391

239 280

36 07333 169New Zealand

25 661270

25 93120 935

7

20 942

4 726

4 989

2057 332

24 8272082 158

2190 514

27 9202218 435-133 183-136 276

RCEP Total

Source: Banga et al. (2021).
a These figures include the increase in Australia’s exports of beef to China post tariff liberalization and do not account for China's
ban of beef imports from Australia in 2020.

RCEP is likely to affect more trade businesses than general economic activities as the higher
gains in exports than in GNI show. RCEP is a trade-oriented regional integration. There is aclear division of labour in trade with China, Japan and Republic of Korea on one hand andleading ASEAN member states on the other hand, and within ASEAN, ASEAN6 and CLMV
countries play a complementary role.
There is also some variation by industry. Four industries that tend to form GVCs (agribusiness,
automobiles, textiles and clothing and electronics) experience different impacts from tradeliberalization. These industries have winners and losers.
⚫

Agribusiness. Imports of certain agricultural products would increase the most for
Thailand ($679 million, or 77 percent of total changes in imports) due to RCEP (Banga

et al., 2021). While China’s dominance in ASEAN strengthens, ASEAN can find ways

to expand in the non-ASEAN RCEP countries (in particular Japan).
35

⚫

Automobiles. Vehicle imports would increase the most due to RCEP in Malaysia ($717
million, or 21 percent of total changes in imports), Myanmar ($59 million, or 34 percent
of total changes in imports) and Viet Nam ($46 million, or 24 percent of total changes

in imports) (Banga et al., 2021). China provides more competitive power. ASEAN may
lose competitiveness unless not only major automobile producers such as Thailand
increase productivity but also peripheral countries such as Malaysia, Indonesia and VietNam gear up their production.
⚫

Textiles and clothing. ASEAN countries can benefit from RCEP, expanding theirimports mainly from China. The greatest increase in imports will occur for Brunei
Darussalam ($34 million, or 18 percent of total changes in imports), Cambodia ($1.2
billion, or 61 percent of total changes in imports) and Indonesia ($129 million, or 41
percent of total changes in imports) in terms of the share of changes in total respective

imports (Banga et al., 2021). On the export side, China is the largest gainer. Cambodia
is the largest export destination for Chinese textiles.
⚫

Electrical and electronics equipment. Electrical machinery and mechanical appliances
are among the products with the largest increase in imports for Cambodia ($158 million,or 8 percent of total changes in imports), Lao PDR ($3 million, or 5 percent of totalchanges in imports), Philippines ($16 million, or 11 percent of total changes in imports),
Malaysia ($752 million, or 23 percent of total changes in imports) and Viet Nam ($77
million, or 41 percent of total changes in imports) (Banga et al., 2021).

c. Increasing investment
Opening up of more sectors and further services liberalization increase investment. Services(chapter 8 of the Agreement) in which the most favoured nation treatment principle prevails
are highlighted. At the same time, however, the RCEP agreement allows the positive list
approach for eight countries (Cambodia, China, Lao PDR, Myanmar, New Zealand,
Philippines, Thailand and Viet Nam) for the next three years, after which they also movetowards the negative list approach.
Free trade agreements, by creating bigger markets, have a potentially positive effect on FDI.
The WTO was notified of some 350 regional trade agreements by mid-October 2021. 6
However, while RCEP will become one of these 350 agreements, the question remains as towhether this agreement is indeed intended to promote investment (and trade), or will de facto
6

https://www.wto.org/english/tratop_e/region_e/region_e.htm
36

be an inactive agreement like many of the FTAs that are reported to the WTO.
The formation of a regional integration scheme like RCEP is a policy shock that affects thedecision-making of transnational corporations. Its effects depend, of course, on its impact on
the principal factors determining the location of FDI, in particular, the extent to which(UNCTAD, 2008)⚫

Market size is increased, or market access is improved in a credible way, creating
possibilities for specialization in the context of corporate networks and contributing tohigher economic growth.

⚫

Resources (labour, technology, etc.) become more available.

⚫

A new predictable and transparent regulatory framework for FDI emerges.

Assessing the impact of FTAs on FDI flows is not easy unless each of these factors is examined.
However, one study (Fujita, 2011) finds in a rough analysis of 115 out of more than 280
regional trade agreements currently in force that only in 17 cases did the share of FDI flows
in countries party to such agreements rise by more than 1 percentage point after entry into
the agreement, while in most cases shares in world FDI flows remained almost the same.7 It
is too early to determine which course RCEP will take, but at least many of ASEAN’s (or its
member states) and its partners’ (ASEAN plus one) agreements are included in the lattergroup of this early estimate: almost no change occurred in their shares in world FDI flows
around the time of establishment. This may imply that FTAs may not affect the volume of
FDI flows unless they explicitly include FDI provisions, and even if they do, unless thedeterminant factors mentioned previously are realized. Even if FDI provisions are included,
as in many recent FTAs including RCEP, the agreement itself does not have a great impact
on the volume of FDI. Companies may simply seek protection from unpredictable anduncommercial changes in investment environment. Although the RCEP agreement has achapter on investment (chapter 10), it is safe say that FDI flows would increase to the extent
that the economic size is affected (table 8 for the expected change due to RCEP GNI).
Whether any investment occurs beyond “business as usual” investment, or whether RCEP
causes any foreseeable investment, is perhaps between ASEAN and non-ASEAN member
states, in particular China. China is already one of the largest host countries for FDI in the7

Calculated as the share of countries party to a regional agreement in world FDI inflows in

the immediate past five years before the entry year compared with the share in the following
five years of the entry year. This, however, does not say anything about the distribution of
FDI within the region.
37

world but does not host much investment from ASEAN.
As a positive relationship exists between the size of an economy and FDI inflows, the rise of
GDP or GNI because of RCEP will increase FDI inflows. Although it is a crude measure, giventhat the ratio of FDI inflows to GNI is 0.01 or one dollar of GNI causes 1 cent of FDI inflow
over 2015–2019 (table 11), a 0.4 percent increase in GNI due to RCEP (table 8 and column
D in table 11) means a $914 million increase in FDI inflows to RCEP (column F in table 11),some 40 percent of which would go to ASEAN member states. While both ASEAN and China
attract almost the same size of FDI inflows from the world (at $137 billion) (column B in table11), the largest gainer from the RCEP agreement is China, whose expected rise of inflows($420 million) is almost twice that of ASEAN as a whole ($236 million). Even though Japanand Republic of Korea represent the largest impact of RCEP on their economies (1 percent
rise in GNI) among RCEP member states, as they are not large host economies to FDI, theirincreases in FDI flows are small at less than $120 million (column F in table 11), about halfof the entire ASEAN region.

Table 11. Impact of RCEP on FDI flows, based on 2015–2019 levels

RCEP member states

GNI (2015–

FDI (2015–

average, $average, $2019billions)(A)ASEAN member states2019

billions)(B)

2739.1

FDI per$1 GNI

Expected GNI Expected FDI with
due to RCEP(2015–2019(C=B/A) average, $billions) (D)

136.6

0.05

2747.3

impact of RCEP

FDI increases
due to RCEP(2015–2019(2015–2019average, $ billions)(E=C*D)

136.8

average, $millions)(F=E-B)

236.1

Brunei Darussalam

13.2

0.2

0.02

13.2

0.2

0.0

Indonesia

962.8

17.0

0.02

964.1

17.1

23.3

Malaysia

319.7

9.2

0.03

321.6

9.3

54.9

Philippines

371.7

6.3

0.02

372.8

6.4

18.7

Singapore

313.0

76.8

0.25

313.0

76.8

0.0

Thailand

443.3

5.7

0.01

445.5

5.8

28.4

Viet Nam

212.9

14.0

0.07

214.2

14.1

85.2

102.4

7.2

0.07

102.8

7.2

25.6

20630.4

207.9

0.01

20735.9

208.6

678.1

CLM
Non-ASEAN member states
Australia

1307.445.5

0.03

1307.9

45.5

17.6

China

12515.0

137.0

0.01

12553.3

137.4

419.7

Japan

5014.911.5

0.00

5064.3

11.7

113.6

Korea, Rep. of1599.911.4

0.01

1616.4

11.5

117.8

193.3

2.5

0.01

194.0

2.5

9.4

23369.5

344.4

0.01

23483.2

345.4

914.1

New Zealand
RCEP

Source: AJC, Column (A) from the World Bank's World Development Indicators; Column (B) from UNCTAD; Column (D)from Petri and Plummer (2020) for the rise of GNI.

Note: The ratio of FDI flows to GNI is assumed to be the same before and after RCEP. Expected rise of GNI is applied to
FDI for its increase.

38

RCEP countries account for 41 percent of total FDI inflows to ASEAN in 2015–2020 (ASEAN
and UNCTAD, 2021, p. 33), of which 17 percent is from ASEAN to ASEAN and 24 percent
is from non-ASEAN member states to ASEAN. ASEAN member states are the largest
investors in ASEAN, or intraregional FDI is more than any other countries/regions, followed
closely by Japan. Chinese investment in ASEAN is about half of what ASEAN or Japan
invested in 2018–2020 (ASEAN and UNCTAD, 2021, p. 34). However, the growth of Chinese
FDI in ASEAN is dramatic, accounting for 7.9 percent of total ASEAN FDI inflows in 2016–2020 compared with 6.2 percent in 2011–2015. For outward FDI from China, ASEAN is a
rapidly rising host economy for China with 9.4 percent of total Chinese FDI outflows in 2019,up from only half that a decade ago (5 percent in 2009). This implies that the rise of FDI
inflows into ASEAN because of RCEP largely benefits China due to both push (from China)
and pull (into ASEAN) factors.
With an additional $48 billion rise in GNI because of RCEP (from $5,015 billion to $5,064
billion in table 11), Japan is also able to invest abroad. With the Japanese government
initiative of the strengthening overseas supply chains programme, which provided financial
support to 81 projects in 2020 and 11 in 2021 in ASEAN, together with the RCEP incentives,
Japanese companies have increased FDI in ASEAN. As their investment is mainly in the areaof manufacturing, unlike China whose investment focuses on real estate, it is more tuned to
GVCs. Indeed, the main manufacturing industries in ASEAN such as electronics andautomobiles are at the heart of ASEAN manufacturing, attracting a large amount of FDI andwidening and strengthening GVCs. Therefore, increasing investment in ASEAN
manufacturing, particularly in those GVC-sensitive industries, can enhance the ASEAN GVC.
4. Costs for ASEAN associated with expanding regionalization
Among the possible costs to be experienced by ASEAN in the extended regionalization
beyond ASEAN, this section considers two areas: centrality and distribution of benefits.
a. Centrality
The ASEAN Charter stipulates centrality for ASEAN as one of the purposes of ASEAN: “(T)omaintain the centrality and proactive role of ASEAN as the primary driving force in its
relations and cooperation with its external partners in a regional architecture that is open,transparent and inclusive”8 (Article 1. 15). RCEP is no exception.

8

The ASEAN Charter, 2007, https://asean.org/asean/asean-charter/charter-of-the-association-of-southeast-asian-nations/.
39

The question to address is whether ASEAN can maintain its centrality in RCEP. In thispaper’s context, if centrality is defined as the extent to which ASEAN can play a role in GVCs
created by RCEP, ASEAN loses its centrality (Fujita, 2021). ASEAN struggles to keep thesame economic position in RCEP GVCs as in own ASEAN GVCs in both the upstream anddownstream parts of GVCs.
To sum up the analysis of the positioning of ASEAN in RCEP GVCs and its comparison with
own ASEAN GVCs, several findings emerge:⚫
⚫

The share of DVA in value-added exports is larger in RCEP than in ASEAN.

The share of ASEAN in FVA (i.e., ASEAN parts and components imported and used in

RCEP/ASEAN exports) is smaller in RCEP than in ASEAN.
⚫

The share of China in FVA (i.e., Chinese parts and components imported and used in
RCEP/ASEAN exports) is higher in RCEP than in ASEAN.

⚫

The share of Japan in FVA (i.e., Japanese parts and components imported and used in
RCEP/ASEAN exports) is higher in RCEP than in ASEAN.

⚫

The share of Republic of Korea in FVA (i.e., Korea’s parts and components imported andused in RCEP/ASEAN exports) is higher in RCEP than in ASEAN.

⚫

China, Japan and Republic of Korea become more important suppliers to RCEP than to
ASEAN.

⚫

ASEAN members become less important suppliers to RCEP than to ASEAN.

⚫

The DVX path of ASEAN GVCs is shorter than the DVX path of RCEP GVCs (figure 7).

These finding mean that ASEAN’s role in RCEP GVCs, particularly in non-ASEAN RCEP
GVCs, becomes smaller. While ASEAN can produce many products, they do not necessarily
become inputs to other countries’ exports, particularly not to non-ASEAN RCEP members’
exports, except extractive products.
b. Distribution of benefits
Benefits are not fairly or equitably distributed among countries and among industries. This
paper considers the impact of RCEP on national income, trade (exports, imports and balanceof trade) and FDI flows. As no counterfactual is established, coming up with decent estimatesof the real changes in these economic variables is difficult. No matter which estimate is usedand examined, a common finding emerges: ASEAN members do not necessarily share benefits
commensurate with their size and share in the global economy, trade and FDI flows. Indeed,
non-ASEAN member states benefit more from the RCEP impact. Among them, China andJapan benefit the most. At the outset of this paper, table 2 made clear that ASEAN represents
12 percent, 26 percent and 43 percent of RCEP GDP, exports and FDI inflows, respectively,40

in 2019. This is a rough indication of the distribution of benefits between ASEAN and RCEP.
Within these regions, each individual member state can claim its own equitable share of
distribution.
⚫

In GNI, ASEAN as a whole accounts for only one-tenth of the total increases in income(table 8). While ASEAN and RCEP receive almost the same share in the increases in GNI,
China got more than half and Japan more than one-quarter of the total. ASEAN’s
increases are even smaller than those of the Republic of Korea.

⚫

In exports, increases due to RCEP for ASEAN are almost on par with those of Republicof Korea, which is only one-quarter of what China gets. Another indicator even shows
declines in exports due to trade diversion effects for some ASEAN countries, including
Philippines, Cambodia, Indonesia and Viet Nam (table 9).

⚫

Increases in imports are relatively high for ASEAN, which makes the trade deficit worse.
However, non-ASEAN RCEP member states indicate an improvement in trade balance,increasing trade surplus more (table 10).

⚫

FDI inflows show better results for ASEAN than trade does, but this is only one-third of
China’s impact (table 11).

5. Policy implications
Regardless of RCEP, mutual interest in economic cooperation is already rising in Asia and thePacific. The RCEP agreement would strengthen this mutual interest. To maximize benefits
from RCEP and at the same time minimize negative effects from the RCEP agreement for
ASEAN, some policy suggestions are in order.
ASEAN’s role in RCEP, particularly among non-ASEAN RCEP member states, should
become more important. On the upstream part of GVCs, smaller contributions by ASEAN to
RCEP GVCs mean that ASEAN is losing opportunities to grow because a positive relationshipbetween GVC participation and economic growth is not maximized (Section 2). ASEAN
members also fail to materialize the benefits from the downstream path if their products
cannot be used much in downstream GVCs. ASEAN firms need to improve thecompetitiveness of exportable products.
Including non-ASEAN RCEP member states in RCEP reduces the significance of trade andinvestment in terms of size of economy (GDP). ASEAN is a more trade-oriented and FDIreceiving region than RCEP (figures 17 and 18).

41

Figure 17. Exports as a percentage of GDP, 1995–2019

Figure 18. FDI inflows per $1,000 GDP, 1995–2019
60.0

90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

50.0
40.0
30.0
20.0

ASEAN

Source: UNCTAD.

0.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

10.0

RCEP

ASEAN

RCEP

Source: UNCTAD.

In the situation where RCEP is less integrated than ASEAN, then the question is how to retain
ASEAN centrality in a wider region than ASEAN. Section 4 summarizes where ASEAN loses
its central position in RCEP GVCs. It would be ideal if more products would benefit from
RCEP trade measures to expand the international production networks. In this respect, while
RCEP defines the rules of origin (chapter 3 of the agreement), production on non-originating
goods is not included in the calculation of the local contents rule. This production is expected
to be considered sooner within the rules of origin like in the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership, although the agreement says that this point will be
reviewed five years after the agreement is implemented (article 3.4.2).
With this premise, this paper identifies five specific policy measures.
Creation of regionwide production schemes: RCEP should consider expanding its production
networks by creating regionwide schemes to promote and facilitate trade and investment. As
production networks established in ASEAN go beyond ASEAN to form a wider value chain, asystematic mechanism to facilitate trade and investment is required (e.g., creating something
like ASEAN’s old Brand to Brand Complementation scheme in RCEP). As RCEP still lacks aregional structure, institutionalizing regional integration schemes and measures throughprivate sector initiatives is needed. Being an ASEAN-centric FTA, RCEP requires initiatives
and intellectuals to create a pan-RCEP production network.
Utilization of existing production programmes and initiatives of member states: ASEAN
should better utilize the initiatives and programmes announced or implemented by the RCEP
partner countries. For example, as noted in Section 3, the Japanese government (Ministry of
Economy, Trade and Industry) introduced a programme to diversify and multiplicate supply
chains in ASEAN to deal with various risks such as COVID-19 that disrupted the supply
chains. ASEAN should not miss out on such opportunities.
42

Increases in FDI: GVC is the nexus of trade and investment. FDI was generally smaller in
RCEP than in ASEAN, only one-third of what ASEAN gets in terms of the size of economy(figure 18). Countries in RCEP should continue to promote FDI. The share of RCEP in world
FDI inflows is lower than that of world GDP (table 2). There is room to increase inward FDI.
In promoting FDI, countries should pay more attention to FDI that creates value chains. A
positive relationship exists between GVC participation and FDI presence (figure 10), andregional integration and GVCs reinforce each other. ASEAN FDI should increase in RCEP,
in particular non-ASEAN RCEP member states. This is a way to increase the ASEAN share
in FVA of RCEP GVCs.
ASEAN’s higher GVC participation in its own region works less in RCEP becauseinternational production networks extended to non-ASEAN members of RCEP are lacking.
Increases in FDI from ASEAN in this region is essential. At the same time as ASEAN is the
production hub of various manufacturing products whose elasticity of demand is relatively
high, the centrality question for ASEAN is whether non-ASEAN member countries of RCEP
demonstrate potential supplier relationships and whether their products are in higher demand(higher demand elasticity) (Fujita, 2021). It is paramount for ASEAN to have their products
more demand-elastic in RCEP if doing so moves towards further integration of the regional
economy beyond ASEAN.
Strengthening the relationship with Japan: Particular attention should be paid to therelationship between Japan and ASEAN within the context of RCEP. As seen, Japan, together
with China, benefits most from the RCEP agreement. ASEAN can exploit the relationshipwith Japan that benefits much more from RCEP than ASEAN. ASEAN and Japan should lookat one another more from an investment partner’s point of view given that the RCEP impact
on FDI is high for ASEAN. Within RCEP, Japan pays proportionately more attention to
ASEAN than the world average as seen by its ASEAN share in RCEP in terms of trade (onethird for Japan vs. one-quarter for the world) and FDI (three-fifths for Japan vs. two-fifths forthe world) (table 2). With a potentially new production network of Japan with China andRepublic of Korea encouraged by RCEP, ASEAN could forge a dynamic and strategic
relationship with Japan.
While this paper does not examine the perspective on FDI outflow, ASEAN is emerging as asignificant investor and Japan is making efforts to be a large host country for FDI. No
substantial ASEAN FDI exists in Japan, except one from Singapore that primarily invests inreal estate and logistics. The sheer size and accumulated technological assets of Japan shouldmake it very attractive to ASEAN firms seeking markets and access to locational assets. In this43context, it is not certain whether both regions may miss out on opportunities—opportunities
for investment for further growth and development emanating from this agreement—or
whether they immediately start to pay attention to one another and increase investment. It all
depends on various factors and, particularly, on the evolution of the agreement that affects
FDI flows between the two regions.
More emphasis on the downstream part of GVCs: ASEAN governments should pay more
attention to their exported products to ensure they become parts and components of othercountries’ exports. Providing after-sales services for exported products can be considered apossible solution to enhancing the competitiveness of ASEAN products, which need to
become essential products in export markets. By doing this, ASEAN’s exportable products
become part of required products, which cannot be replaced easily with other countries’
exported products. Competition in exportable products is high. Once they form a part of value
chains, these products are locked into the production lines of various GVCs as long as they
maintain competitiveness, which may guarantee the ASEAN export market.
***
The role of ASEAN in RCEP GVCs is smaller than that in ASEAN GVCs. Therefore, ASEAN
connectivity through production also becomes smaller. However, while this is partly because
RCEP is less integrated than ASEAN, there are some ways for RCEP and its ASEAN member
states to rectify the situation, as mentioned previously, and then ASEAN can play a central
role in the region. With the increasing strength of ASEAN economies and companies,
opportunities are emerging for a bigger role for ASEAN to play in the RCEP region and theregional GVCs (Fujita, 2021). Inequitable distribution of benefits from the RCEP agreement
is deeply rooted in the characteristics of ASEAN GVCs in RCEP. The centrality anddistribution problems are linked and could be solved simultaneously with potentially the same
solution.
AJC is expected to play a role in not only increasing awareness of Japanese and ASEAN(especially CLM) firms, particularly small and medium-sized enterprises, regarding theusefulness of RCEP to their businesses, but also advising them on how to utilize thisagreement.

44

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ISBN 978-4-910293-43-1