Asia-Pacific Regional Economic Cooperation Under Global Value Chain Reshaping
Recent years have witnessed slower international trade growth and decelerating cross-border capital flows as a result of anti-globalization trend and the protectionist policies adopted by some countries. The global value chain (GVC), facing the threat of “decoupling and severing” is becoming localized, shortened and fragmented in some regions. The Asia-Pacific region is a weighty powerhouse for global economic growth and also a region seeing rapid progress in trade and investment liberalization and facilitation, close GVC cooperation and the most vibrant development dynamics. The Regional Comprehensive Economic Partnership (RCEP), representing the largest free trade area in the world, came into effect in January 2022, which suggests that Asia-Pacific economic integration has made landmark progress. More than 50 bilateral and multilateral free trade agreements spearheaded by the RCEP and the Comprehensive and Progressive Agreement for Irans-Pacific Partnership (CPTPP) are now reshaping the value chains in the Asia-Pacific region and certainly will exert considerable impacts on economic cooperation in the Asia-Pacific region and even the adjustment and reshaping of global value chains.
ASIA-PACIFIC REGION IS MOVING UP THE GLOBAL VALUE CHAIN
The 21st century is known as the Asia-Pacific century The region’s economic volume makes up 61% of the world’s total and its trade in goods and services accounts for 47% of the global total. China and ASEAN annually contribute to over 40% of world economic growth on average. Wth its massive production network based on GVC cooperation, East Asia is standing side by side with North America and Europe as the world’s three production network giants. As the COVID-19 pandemic sends shockwaves across the world, the Asia-Pacific region has provided new momentum for the entire world. As the East Asian economic circle with the RCEP as the core mechanism has formed, East Asia will see more remarkable endogenous economic growth and refined value chain cooperation system based on intra-regional trade and investment.
I. GVC System and the Impacts of “Three Pillars” Pattern on Global Development
Boosted by the General Agreement on Tariffs and Trade in the 1970s (which later became the World Trade Organization) and the international capital flows in the 1980s, a “North America-Europe-Asia” three-pillar GVC cooperation pattern has taken shape, with the United States, Germany and China at the center of each region. The international division of labors shifting from the traditional horizontal pattern to the vertical division of labor based on specialization, stimulates economic growth in developing countries.
China and other BRICS members are still at the lower end of the GVC, while the United States, Germany and Japan remain at the top. In the future, propelled by the innovation-driven development model and in accordance with the “two-stage” strategic goals, China will probably nudge up to the middle-and-upper end of the GVC in 2035 and finally to the upper end in 2049.
In the post-COVID-19 era, GVC cooperation is the key approach to hold back the global economy from falling into recession and achieving recovery and growth. In view of the fact that the United States, China and Germany are far ahead of other countries in the proportion of goods and services’ added value in the GVC and take up core positions, China-US-Europe GVC cooperation is critical for the global economy to end stagflation and achieve sustainable development.
II. Asia-Pacific Region is Taking up an Increasingly Important Position in GVC Economic and Trade System
Since the inception of the Asia-Pacific Economic Cooperation (APEC), the Asia-Pacific region has gradually become a region with the most dynamic economy, the fastest growth of free trade and the most concentrated GVC distribution in the world. An Asian Development Bank (ADB) report highlights that the Asia-Pacific region has become the biggest contributor to global gross domestic product (GDP), reaching a 34.9% share in 2019 from 26.3% in 2000. In 2021, the APEC region’s GDP amounted to US$ 59 trillion, accounting for 62% of the global total； and its GDP growth rate reached 5.9%, far exceeding the world’s average and making the region the most powerful engine of global economic growth.
In terms of the value chain participation, the Global Value Chain Development Report 2019 jointly published by the World Irade Organization, the World Bank and the Organization for Economic Co-operation and Development (OECD) in 2019 showed that in 2017, Asia (especially East Asia) embraced an upward trend of GVC participation. For example, the share increased from 38.5% of Asia’s total forward complex GVC activities in 2000 to 43.9% in 2017 and from 39.6% to 46.2% of total backward complex GVC activities during the same period. This shows that Asia, especially East Asia, has seen more precise intra-regional division of labor and closer regional economic integration.
III. Asia-Pacific Region Sets a New Shining Example of Institutional Building for the World
RCER which came into effect and entered the implementation stage on January 1st, 2022, marks Asia-Pacific’s shining example in terms of institutional building. The RCEP member states are home to 2.27 billion people, with GDP accounting for around 33% of the world’s total and export volume making up around 30% of the world’s total. It is a free trade area covering the largest population and with the largest economic and trade scale in the world. The RCEPs Rules of Origin governing trade in goods ^hat is, goods with 40% RCEP regional value addition are eligible to zero tariff treatment within the region) and the creative effect of intra-regional trade and investment will continuously strengthen the RCEP members GVC cooperation, accelerate regional economic integration with the world’s largest integrated market, and inject new impetus into global economic recovery
In 2021, China formally applied for membership of the CPI EP and the Digital Economy Partnership Agreement (DEPA). Both the CPI EP and the RCEP are critical free trade agreements in the Asia-Pacific region, serving to pivot Asia-Pacific regional economic integration towards the Asia-Pacific Free Irade Area. The DEPA will facilitate the digital and intelligent development in the Asia-Pacific region, and enhance the efficiency and quality of value chain cooperation in this region.
EVER DEEPER ASIA-PACIFIC
REGIONAL ECONOMIC COOPERATION WILL ENHANCE GVC COOPERATION
Asia-Pacific regional economic cooperation is an inalienable part of GVC cooperation. As trade in East Asia keeps expanding, East Asia, represented by China, Japan and South Korea, occupies a dominant position in the increasing value chain cooperation in the Asia-Pacific region. This will further enhance the international division of labor in Asia-Pacific
region and boost GVC cooperation.
I. The East Asian Production Network is a Major Platform for Value Chain Cooperation in Asia-Pacific region
Through intra-industry and intraenterprise trade, China, Japan and South Korea have built a regional supply chain to carry out economic cooperation, and gradually formed a near-shore and regionalized East Asian production network that combines onshore and offshore and integrates innovation and manufacturing. Around 2008, the trade volume of East Asia surpassed that of North America, becoming the second largest economic zone in the world immediately after the European Union. The East Asia production network has been serving as the most critical platform value chain cooperation in Asia-Pacific region.
The East Asia production network has formed a production system with China, Japan and South Korea as three nodes, which is also known as “three-pillar production system” with Japan and South Korea as intermediate goods supply centers and China as a production and processing center. Wth China’s ever expanding economic volume and manufacturing sector and its new role as global manufacturing center, the world’s top trading nation and an international shipping and logistics hub, China has become a dominant power in the East Asia production network, while Japan and South Korea stand out with comparative advantages at the upper end of the value chains.
II. RCEP Keeps Deepening GVC Cooperation among the Three East Asian Countries
China, Japan and South Korea enjoy geographical proximity and strong complementarities in industrial advantages and economic and trade cooperation. Despite the COV ID-19, China’s bilateral trade with Japan and South Korea still grew to US$ 371.4 billion and US$ 360 billion respectively, fully demonstrating the resilience of their economic and trade cooperation. The combined GDP of China, Japan and South Korea accounted for 80% of RCEP’s total, 25% of the world’s total, and surpassed that of the EU.
The implementation of the RCEP has reinforced the value chain cooperation among China, Japan and South Korea. In terms of trade in goods, the RCEP further simplifies the import and export procedures, slashes customs duties and lowers costs of cooperation； in terms of trade in services, the RCEP encourages opening-up, facilitates exchange of technical talents and healthy competition, enables the three countries to complement strengths and creates a more harmonious environment for cooperation. In the future, China, Japan and South Korea are well-positioned to complement one another in the downstream of industrial chains within the RCEP framework and continue to tap the potential for economic and trade cooperation. The China-Japan-ROK Free Trade Area under negotiation has the potential to promote a “RCEP+” cooperation model based on the countries’ national conditions and needs, which will further accelerate regional economic integration in Northeast Asia.
III. RCEP will Further Deepen International Division of Labor in Asia-Pacific Region
The regionalization of value chain has promoted further development of trade norms and division of labor in the Asia-Pacific region. As a typical example of large-scale regional trade agreements, the RCEP has made provisions in the fields of e-commerce, government procurement, competition policies, intellectual property, small and medium-sized enterprises, etc., which effectively meets the new needs arising from the division of labor in the GVC. On the one hand, the RCEP will promote all member states to deepen international division of labor and improve the efficiency of resource allocation according to their own comparative advantages； on the other hand, the RCEP will also pressure supply-side reform as overseas markets expand and push through industrial transfers and upgrading among member states.
As the flows of technology and capital accelerate, the pattern of international division of labor in the Asia-Pacific region has undergone tremendous changes： the previous pattern featuring vertical division of labor dominated by such developed countries as the United States and Japan and the horizontal competition among regional economies has been replaced by the emerging pattern featuring horizontal division of labor as well as coordination among the United States, Japan, emerging economies and the ASEAN； and the intrarégional industrial transfer, which was once one-way transfer from developed countries down to developing countries, has evolved into two-way or even interlaced interaction.
IV. Greater Asia-Pacific Regional Economic Integration Strengthened GVC Cooperation
In 2021, the Asia-Pacific regional integration continued a positive development trend. According to the ADB’s statistics, the Asia-Pacific Regional Cooperation and Integration Index increased by 7% from 2006 to 2019. Even during the pandemic, Asian financial markets remained stunningly attractive. In 2020, foreign investment attracted by Asian economies grew by 18.4%, a year-on-year increase of 4%.
The implementation of the RCEP will be conducive to translate into reality the blueprint of APEC interconnectivity, uplift value chain cooperation in the Asia-Pacific region and build the Asia-Pacific Free Trade Area, thus strongly supporting the building of an “open, inclusive, innovative, interconnected and winwin Asia-Pacific community with a shared future”. Asia-Pacific regional integration and GVC cooperation, as becoming mutually-reinforcing, will continue to boost globalization.
FEALE APPROACH TO DEEPENING ECONOMIC COOPERATION IN ASIA-PACIFIC REGION AS GVC UNDERGOES RESHAPING
The Asia-Pacific regional cooperation is faced with multiple new challenges posed by the lingering COVID-19 pandemic, ongoing anti-glo-balization trend, rise of unilateralism and trade protectionism, geopolitical events and changing economic landscape. Standing at the crossroads, ever closer economic cooperation in the Asia-Padfic region will not only stimulate regional economic growth, but also inject a “booster” into the global economic recovery
First, solid support should be of fered to the multilateral trading system and the WTO reform. Currently, the existing global multilateral trade norms can no longer meet the new needs of the GVC reshaping, especially the needs of trade in intermediate goods for trade and investment liberalization and facilitation, the needs for synergizing domestic policies with international standards, and the needs for consistency in international supervision. This brings to attention the urgency of the WTO reform and the necessity of global governance system reform. For the Asia-Pacific region, the regional economies should enhance interdependence in value chains on the basis of ensuring more interdependent and controllable value chains, thus coping with the “decoupling5‘ backlashes through win-win cooperation. Efforts should also be made to firmly uphold the existing multilateral trading regimes, proactively engage in formulating international economic and trade norms, push forward the WTO reform, and promote and improve the GVC reshaping.
Second, the positive roles of the RCEP and the CPTPP in GVC reshaping should be brought into full play The RCEP and the CPTPP represent
two distinct paradigms of trade norms in the Asia-Pacific region： Dominated by the ASEAN, the RCEP more accommodates the interests and appeals of developing countries and exhibits their efforts to integrate regional economy through flexible, gradual and adaptable approaches； while the CPTPP, driven by Japan and other developed countries, pursues more stringent rules and more desirable goals and thus provides suitable conditions for developed countries and some well-performed developing countries to realize deep integration. Generally, the RCEP and the CPTPP are more complementary and mutually reinforcing than simply competing for the rights to write trading rules and norms. Both partnerships ofïer valuable reference for setting new rules and norms for the Asia-Pacific Free Trade Area and even the global multilateral trading regimes.
Third, high-quality development of the Belt and Road Initiative (BRI) should be advanced in a systematic way Jointly advancing the BRI has played a pivotal role in pushing forward the reshaping of the value chains, including that in the Asia-Pacific region. Firstly, BRI creates growing needs for cooperation. Wth the advantages of huge market and complete industrial categories, high-quality BRI development improve countries, capacity to cope with risks and heighten the needs for cooperation, thus enabling economic growth. According to the results of a World Bank research, jointly advancing the BRI will increase the GDP of “devel-oping East Asian and Pacific countries” by 2.6%-3.9% on average. Secondly, BRI expands the scope of cooperation. BRI partner countries make concerted efforts to build the “Health Silk Road” and achieve remarkable outcomes in vaccine cooperation. They have also continuously deepened cooperation in such sectors as digital economy and green development Thirdly, BRI adds new cooperation formats. In times of the COVID-19, digital economy is booming and the real economy and virtual economy complement each othei; which fosters new industries and new business models and increases the added value of products.
Fourth, such institutional cooperation as bilateral free trade agreements and investment protection agreements should be encouraged. In response to the GVC reshaping, countries in the Asia-Padfic region continue to conduct negotiations on bilateral and multilateral free trade agreements, making them new platforms to steer the future upgrading of the RCEP and reinforce the role of the Asia-Pacific region in GVC cooperation. In the meantime, countries in the region should work together for high-quality implementation of the RCEÇ speed up shifting services trade export commitments from positive list to negative list, leverage on the Rules of Origin requiring a RVC of not less than 40 percent of the FOB value and the institutional arrangements for market integration, bring into full play the RCEPs role in creating trade and increasing investment, and concretely build the world’s largest integrated market. While expanding intra-regional market cooperation, all countries, especially developing countries, should steadily upgrade the value chains and change the status quo of remaining at the middle-and-low end or even low end in the GVC.
CONCLUSION
Despite complex international factors and geographical situation, countries in the Asia-Pacific region are resolute and determined to deepen value chain cooperation and constantly advance regional economic cooperation. Digital and green development becomes new trends in the adjustment and reshaping of value chains in the Asia-Pacific region. The 21st-centuiy economic and trade norms spearheaded by the RCER the CPTPP and the DEPA are restructuring the value chains in the Asia-Pacific region and providing a new institutional-building paradigm for global economic governance. Deepening economic cooperation and upgrading integration in the Asia-Pacific region are also the intrinsic demand for strengthening the GVC cooperation. The two mutually complement and reinforce each other. Countries in the Asia-Pacific region should firmly uphold the multilateral trading regimes, proactively promote the WTO reform, and make more contributions to improving the global economic governance system and reshaping the GVC.