About RCEP: its impact on the Philippines and its outsourcing industry
How does RCEP affect the Philippine outsourcing industry?
RCEP boosts the Philippine economy by opening more export markets, yet its direct effect on the outsourcing industry is limited, since most BPO clients sit outside the RCEP bloc.
- RCEP is the world’s largest trading bloc by population and output.
- It can lift Philippine exports, jobs, and investment.
- BPO gains are indirect, as key clients are in the US and UK.
The Philippines has joined the Regional Comprehensive Economic Partnership (RCEP). So how will this shape the Philippine economy, its people, and the all-important outsourcing and BPO industry?
Fifteen countries have joined forces to form RCEP, the world’s largest trading block, which covers nearly a third of the global economy. Talks on this deal date back to 2012. The members finally signed the agreement in a virtual ceremony during the ASEAN summit in Hanoi, Vietnam, on November 15, 2020. It later took effect for the Philippines in June 2023.
RCEP is made up of 10 Southeast Asian countries: Brunei, Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia, Singapore, the Philippines, and Indonesia. On top of these, it includes South Korea, China, Japan, Australia, and New Zealand.
The deal excludes the United States, which withdrew from a rival Asia-Pacific trade pact in 2017. It also excludes India, which pulled out of the talks in 2019.
What is the Regional Comprehensive Economic Partnership (RCEP)?
RCEP is now the world’s largest trading block by population and Gross Domestic Product (GDP). In short, it will lower or even remove tariffs on many goods and services within 20 years. It can also set rules on professional services, e-commerce, and intellectual property, including digital copyright.
This free trade agreement is bigger than both the US-Mexico-Canada Agreement and the European Union. RCEP will connect about 30 per cent of the world’s people and output, which is expected to bring major gains.
In a computer model from the Peterson Institute for International Economics (PIIE), analysts found that RCEP could add $209 billion annually to world incomes. In addition, the deal could add $500 billion to world trade by 2030.
Furthermore, other features of RCEP include:
- Reduction or removal of customs duties
- Duty-free temporary admission of goods
- Non-tariff measures that support “tariff liberalization outcomes”
The Philippines and the RCEP
Economic leaders and company heads see clear upside in RCEP. In a BusinessWorld interview, then Department of Trade and Industry (DTI) Secretary Ramon Lopez said ASEAN’s deals with each major partner already benefit about 80 per cent of products in the country’s tariff and customs code. RCEP would open markets for 92 percent of the country’s products.
In addition, University of Asia and the Pacific (UA&P) economist George N. Manzano said RCEP could “jump-start trade in this corner of the world.” So it can act as a catalyst to open up the Philippine economy further. These gains matter, since outsourcing already helps make the country a top outsourcing destination.
How can RCEP improve the Philippine economy?
Creation of more jobs
Trade officials said the mega deal will have a big impact on the Philippines, as it will create more jobs. They also noted that more small entrepreneurs will join the global value chain. This adds to the strong link between outsourcing and the Philippine economy.
Improved export competitiveness
According to Lead Negotiator and Trade Assistant Secretary Allan Gepty, RCEP can create better market access for trade and investment. As he put it, “the Philippines can improve its export competitiveness in key products, such as garments, automotive parts, and agricultural products like canned food and preserved fruits, while encouraging more investments in the country in vital sectors such as research and development, financial services, game development, and IT-BPO (information technology-business process outsourcing).”
Aid in vaccine and protective equipment distribution
At the time of signing, Manzano added that RCEP could help move vaccines and personal protective equipment (PPE) across borders. As he explained, “Small countries, those who don’t have much bargaining power in the world, the only way you can [get access to COVID vaccines and PPEs] is by signing into an international cooperation because it’s difficult for you to bargain with China or the US.” In short, shared trade rules give smaller nations more leverage during a health crisis.
Criticism of the RCEP
Some groups pushed back on RCEP. One is Trade Justice Pilipinas, a group focused on trade justice for global south countries. In a statement, the group raised concerns over the deal’s downside for the Philippine economy.
Trade Justice Pilipinas said, “RCEP will further prop up a broken economic model that we need to radically transform in favor of one that is more resilient. A new report finds that most Asean nations will see rising imports and declining exports in the wake of RCEP. For the Philippines, we would see the cost of imports rise by as much as US$908 million, with sharp increases in imports from South Korea, China, and Vietnam. On the other hand, the value of exports to RCEP countries is only expected to increase by around US$4.4 million. Trade balance with RCEP countries will worsen by US$904 million per year. RCEP’s agenda is skewed in favor of corporate interest.”
The Thailand-based women’s rights group Asia Pacific Forum on Women, Law and Development (APWLD) also said it “will continue to resist RCEP.” In a press release, the group said, “Leaked chapters of RCEP indicate that [the agreement] will most likely undermine production of more affordable generic versions of life-saving medicines, negatively impact farmers and indigenous peoples’ rights to seed and food sovereignty, lock-in privatisation of public services, push workers’ wages down and constrain the creation of decent jobs, and restrict the ability of governments to introduce industrial and fiscal policies necessary to protect and regulate in the public interest. In the new post-pandemic reality, these vulnerabilities will be further deepened, marginalising communities even more.”
Years on, the full picture is still taking shape. So the coming years will show how these trade-offs play out.
How RCEP will affect Philippine outsourcing and BPO
The outsourcing industry is the single biggest sector in the Philippines, and a major driver of its GDP. Outsourcing is an export industry by nature. So open trade deals with as many countries as possible help it grow. Today the sector employs around 1.9 million people. In fact, the Business Process Outsourcing (BPO) industry is often credited as a main engine of the country’s economy. You can learn more in our overview of the Philippines BPO industry.
Despite RCEP’s upside for regional trade, the Philippine BPO industry relies mainly on clients from the US, UK, and other developed nations. In other words, these key clients sit outside the RCEP region.
Epictetus E. Patalinghug, an economics and finance professor at the University of the Philippines-Virata School of Business and a former tariff commissioner, said “advantages and risks to Philippine industry will depend” on which sectors end up in the deal. Still, he suggested that adding more service sectors would be an advantage.
Fortunately for BPO, Patalinghug said that “if trade in services will not be restricted, PH[ilippines] will benefit like in labor-intensive BPO, while China will benefit in high-tech industries.” He added that “service workers like seafarers, teachers, ICT (information and communication technology) programmers and engineers can benefit [due to] the demand from labor-scarce Japan, Korea and, soon, China.” The country’s telecom services could also improve if RCEP firms were allowed to compete with local players. This kind of open trade can also make the Philippines more attractive for foreign investment.
India is the country’s main rival in the outsourcing space. So its exit from RCEP is an advantage for the Philippines. For a broader view, see our guide to outsourcing in the Philippines.
Outsourcing is often unpopular in developed nations, since many assume that offshoring staff costs local jobs. Because of this, some governments have floated tax penalties to push companies to keep jobs onshore. On its own, the Philippines would have little sway over such policies. However, as a member of RCEP, it may have more room to push back and support a more open global marketplace.
FAQ on RCEP and the Philippine outsourcing industry
What is RCEP?
RCEP is the Regional Comprehensive Economic Partnership. It is a free trade deal among 15 Asia-Pacific countries. It is now the world’s largest trading bloc by population and output.
When did RCEP take effect for the Philippines?
Members signed RCEP in November 2020. It entered into force for most members in January 2022. For the Philippines, it took effect in June 2023.
How does RCEP help the Philippine economy?
RCEP can open markets for more Philippine products. As a result, it may create jobs, lift exports, and draw more investment over time.
Will RCEP boost the Philippine BPO industry?
The direct boost is small. Most BPO clients are in the US and UK, which are outside RCEP. Still, more open service trade could bring indirect gains.
Why is India’s exit good for Philippine outsourcing?
India is the top rival to the Philippines in outsourcing. Since India stayed out of RCEP, the Philippines gains a relative edge within the bloc.
Key takeaways
- RCEP is the world’s largest trading bloc, covering nearly a third of the global economy.
- It can lift Philippine exports, jobs, and investment over the long term.
- The direct BPO gain is limited, since key clients sit outside RCEP.
- India’s absence gives the Philippines an edge in outsourcing.
- Membership may give the country more voice against anti-offshoring policies.
Independent
